Banking on solar pumps in the domestic market:
Shakti Pumps (India) Ltd (SPIL), engaged in the manufacture of submersible pumps
and electric control panels, has successfully sold more than 15,000 solar pumps
in the states of Rajasthan, Chattisgarh, Gujarat and Haryana. The company is also
optimistic of receiving orders from Jain Irrigation, which would be executed in
the current and next financial year. SPIL is also actively involved in executing
orders from Energy Efficiency Services Ltd (EESL) (A Joint Venture Company of PSUs
of Ministry of Power, Govt. of India), which will add to the company’s top line
and bottom line, going forward. The company has reported that a pilot project of
1,500 solar pumps has converted into an actual order of 10,000 pumps. The company’s
order book currently stands at more than Rs 150 crores.
The company’s solar business offers higher margins than those achieved from its
regular product; while solar business margins are in the range of 16-17%, regular
products offer about 12-13% and export margins stand at around 18-19%. The growth
in demand for solar pumps will be a key growth driver for SPIL. The company’s turnover
for Q1FY18 was Rs.51 crores, which is double the turnover achieved in Q1FY17.
The solar pumps business can be divided into two segments - 1. solar integrated
business and 2. solar OEM (Original Equipment Manufacturer) business. The company
has greater focus on the solar OEM business, which is more profitable and where
the company has fewer competitors. The company estimates the solar pumps market
size to be around Rs.50 bn of which the company expects majority of business to
come from OEMs.
An international solar alliance plans to come out with a global tender to purchase
5 lakh solar pumps before December 2018. Indian pump manufacturers are expected
to actively participate in this tender to obtain orders. SPIL expects the tender
size to be about Rs.250 bn and expects to receive 20% of this order.
Export sales to be in Focus:
SPIL is making efforts to revive its exports business which had turned sluggish
due to drop in demand from the gulf countries and higher receivables in the exports
market. In Q1FY18, the company achieved export sales of Rs.23 crores which constitutes
about 25% of total sales. The company is expanding into different geographies like
Latin America and Australia which would lead to higher growth in revenues.
Government’s focus on improving the agricultural sector:
The government is making sustained efforts to achieve growth in the agricultural
sector through irrigation, better infrastructure and introducing modern equipment.
The total irrigated agricultural land in India stands at 7.73 million hectares and
has the potential to increase to 69.5 million hectares; the government proposes
to achieve this target by 2025. This implies demand for submersible pumps growing
by 10x, where the company is an important player.
Operating efficiency to kick in with higher capacity utilization:
As of 2017, the company was operating at a capacity utilization of 45%. A rise in
solar pump demand and higher exports expected would lead to higher capacity utilization,
which, in turn, would kick in operational efficiencies. With higher capacity utilization,
EBITDA would grow by 150-250 bps which would directly add to the company’s bottom