Buy KSB Pumps; target of Rs 810: ICICIdirect

ICICIdirect.com's report on KSB Pumps

"KSB Pumps (KSB), a subsidiary of KSB AG, Germany (global leader in pump manufacturing), is a pumps & valves manufacturer domestically based out of Pune. KSB’s sales (consolidated) have grown at a CAGR of 6.7% in CY09-13 to Rs 733 crore in CY13. In CY13, pumps comprised 82% (Rs 603 crore) while valves comprised 17% (Rs 122 crore) of total sales (Rs 733 crore). The company clocked an EBITDA of Rs 101 crore (EBITDA margins 14%) in CY13 with corresponding PAT at Rs 67 crore. By virtue of KSB focusing only on non-project businesses (unlike its peers) it generates robust free cash flows and maintains working capital discipline with CY13 free cash flow (FCF) yield at 4.2%. Going forward, with increasing focus on energy efficiency pumps and up-tick expected from the revival of domestic capex cycle, we expect sales and PAT to grow at a CAGR of 10.8% and 22.5%, respectively, in CY13-16E. We initiate coverage on KSB with a BUY rating and assign it 23x P/E (1x PEG) on CY16E EPS of Rs 35.2 to arrive at a target price of Rs 810."

"KSB has a strong parentage with KBS AG, providing all R&D support and technical assistance. In India, it commands a market share of ~7% (pump sales of Rs 603 crore in CY13) out of the total industry size, which is pegged at ~Rs 8500 crore as of FY14. KSB supplies ~35% of its pumps in the standard pumps segment (used for irrigation & building services). It supplies remaining 65% of its pumps (~Rs 400 crore sales vis-à-vis market size of ~Rs 4500 crore, market share ~9%) to the industrial segment, which is technology intensive. Going forward, we expect KSB’s pump sales to grow at a CAGR of 13.1% in CY13-16E to Rs 876 crore in CY16E."

"Valves constitute ~17% (Rs 122 crore in CY13) of consolidated sales. The performance of valves has been a laggard in the past few quarters on account of fierce competition and subdued demand (a majority of which is accounted by oil & gas sector). Going forward, KSB expects to consolidate its position in the valves market with focus on increasing profitability rather than chasing sales growth. Going forward, post a blip in CY14E, we expect valves sales to largely remain flat with CY16E sales at Rs 122 crore. KSB also owns 49% in MIL Controls Ltd (51% ownership with KSB AG) with an initial investment of Rs 6.3 crore, on which it is reaping rich benefits (share of profit at Rs 9.6 crore in CY13; RoI ~150%)."

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