Buy KSB Pumps; target of Rs 764: Prabhudas Lilladher

Prabhudas Lilladher's report on KSB Pumps 

“We met the management of KSB Pumps and came back positive on companiesability to benefits from revival in capex cycle (specially Power and Oil& Gas) given the strong product profile and technology support from parent. KSB also is likely to benefit from structural trends like tighter regulation for water treatment and market moving towards energy efficient pumps. The company aspires to grow at least 15% CAGR over next few years and working on improving margins. We expect the stock to deliver earnings CAGR of 25% over CY14‐16E.”

“KSB management highlighted that it is seeing some traction in water segment currently, while Power and Oil& Gas remained sub duded due to lack of pickup in activity at ground level in terms of capex revival. However it sounded confident to benefit from revival in Power and Oil & Gas markets as and when it happens given the strong product portfolio and technology support from the parent. It also sounded positive on long term potential of effluent treatment market on account of tighter regulation for water treatment. KSB believes trend of market moving towards energy efficient to pumps will also benefit organised players like KSB. The company aspires to grow at least a CAGR of 15‐16% over next few years ( 5‐6% inflation and 10% of real growth) and it is also working on improving its margins through various internal cost cutting initiatives. The company is also focusing to improve its standard product business to boost sales ( ~35% of sales). It has expanded its dealer network to 800 from 650 over last two years.”

“The stock is trading at 27.9x CY15E earnings. The company has a strong product portfolio and is a dominant market player. KSB should benefit from expected pick‐up in Power and Oil & Gas capex and increased focus on Water and Irrigation capex by the new government. The market movement towards energy efficient pumps should help organized players and benefit KSB. Strong balance sheet and cash flow provides additional comfort. We maintain ‘BUY’ rating on stock”, says Prabhudas Lilladher’s research report.

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