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Friday, August 7, 2009

KSB Pumps Ltd:-Results,future growth prospects and outlook

Scripscan:KSB Pumps Ltd
cmp:395
Traded in:Nse-bse

KSB Pumps, a leading pump and valve manufacturing company, has reported an 8% YoY decline in topline during 2QCY09. The dismal topline growth is a result of the 46% YoY fall in revenues of the valves segment. Pumps and valves account for over 90% of the total revenues, while the rest is contributed by other segment that includes after sales services and assistance in maintenance. The Pump division has reported muted growth of merely 2.6% YoY, the growth in other segment has come in lower by 28.5% YoY during the period under consideration.60% of the company's revenues come from project based spends. The growth of the company is dependent upon end-user industries like energy and power. Lower economic growth has led to the deferment of expansion plans of end-user industries. The same can be said to have impacted topline growth.However, going forward, the growth is expected to rise on account of the government's increased focus and investments in the agricultural sector and infrastructural activities.Softening of steel prices has benefited the company as its cost of consumption of raw materials has declined by 15% YoY. However, the advantage of the lower raw materials costs is not reflected at the operating profits level as employee costs have increased during the quarter. Consequently, operating margins have shrunk by 70 basis points.Profit before tax declined by 7% YoY during 2QCY09. Despite higher depreciation and interest costs, PBT has declined at a slower pace as compared to operating profits. This is on account of more than five-fold growth in other income. Net profits have grown by 1.1% YoY, led mainly by the lower tax outgo.At the current price of Rs 395, the stock is trading at price to earnings multiple of 7.4 times our estimated CY11 earnings. The half yearly performance of the company has come in lower than our expectations. However, we believe that the impact of the government's increased investments in industrial sector and announcement of stimulus packages will be reflected over a period of time. Nevertheless, at the current juncture, the stock looks fairly valued. Considering the valuation, which is at the fag end of our valuation band, we advise investors' to practice caution.

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