Shakti Pumps (India) Ltd - Research Report

Private Client Research

Rating

Buy

Sector

Compressors / Pumps

Company

Shakti Pumps (India) Ltd

Compressors / Pumps


September 07, 2017

Sensex: 31662.74


CNX Nifty: 9929.90

NSE: SHAKTIPUMP


BSE: 531431

Reco Price
Rs. 510.50
Price Target (1.5 - 2 Years)
Rs. 1010.00
Upside
97.85%

Date

September 07, 2017

Sensex

31662.74

CNX Nifty

9929.90

Exchange

Code

NSE

SHAKTIPUMP

BSE

531431

Stock Data

CMP (Rs)
504.80
Face value (Rs)
10
52 Week Range (Rs)
557.00 - 104.10
Market cap (Rs Crores)
930.31
Price To Book Value (x)
4.12
P/E Ratio (x)
40.44
EV/EBIDTA (x)
16.34

One Year indexed Stock Performance

Shakti Pumps (India) Ltd Sensex
Shakti Pumps (India) Ltd
Return (%)
1m
3m
12m
36m
Absolute
1.86
18.12
267.17
87.36
Sensex
-1.89
1.25
9.46
15.90

Shareholders

(in %)
30-Jun
Promoter
47.59
Public
52.41
Others
0.00
Total
100

+91 22 6639 3000

research@stockaxis.com

Demand recovery with high export volume to drive growth for the company.

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 line.

 

Industry

The pump market in India was valued at about Rs 10,000 crores in 2015-16, and is expected to grow @ 15 to 18% annually. India wants to replace 26 million groundwater pumps for irrigation with more efficient pumps that run on solar power in an effort to relieve farmers from poor quality limited availability grid electricity and high costs of diesel. Diesel generators are commonly used when grid power is unavailable. Besides, the power used for pumping water for irrigation is also one of the largest strains on the Indian Power Grid. Pumping water is critical for Indian agriculture, which otherwise relies on seasonal rain. 

Profile

Shakti Pumps (India) Ltd (SPIL) is engaged in the manufacture and export of energy efficient pumps and motors such as submersible pumps, SRN-booster pumps or submersible motors, submersible pumps and electric control panels. The company has expanded its portfolio by manufacturing stainless steel submersible pumps and motors. SPIL markets its products under the brand name ‘Shakti’. SPIL operates through its marketing offices in Kenya, Australia and Turkey.  Domestically, the company's products are marketed through 150 distributors and dealers in 12 states. SPIL exports its products to countries such as Turkey, Spain, US, the Netherlands, Germany, France, Italy, Australia, etc.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

DESCRIPTION Mar-15 Mar-16 Mar-17 Mar-18 E Mar-19 E
Net Sales 296.62 264.23 424.58 509.50 585.92
Growth (%) - -0.11 0.61 0.20 0.15
Total Expenditure 249.46 244.10 370.56 440.71 503.89
EBITDA 47.16 20.13 54.02 68.78 82.03
% Margin 0.16 0.08 0.13 0.14 0.14
Other Income 11.48 8.77 7.04 7.50 7.50
Operating Profit 58.64 28.90 61.06 76.28 89.53
Interest 13.23 14.32 16.43 18.50 20.00
PBDT 45.41 14.58 44.63 57.78 69.53
Depreciation 9.82 12.06 12.80 14.00 16.00
Profit Before Taxation & Exceptional Items 35.59 2.52 31.83 43.78 53.53
Exceptional Income / Expenses 0.00 0.00 0.00 0.00 0.00
Tax 9.30 1.45 11.29 14.45 17.66
Profit After Tax 26.29 1.07 20.54 29.33 35.86
Share of Associates 0.00 0.00 0.00 0.00 0.00
Consolidated Net Profit 26.29 1.07 20.54 29.33 35.86
Adjusted EPS 15.19 0.64 11.28 17.34 21.20
Source: Stockaxis Research, Company Data

Valuation

At CMP of Rs 510.50, stock is trading at valuation of 24x its FY19 expected earnings. Valuation was derived with conservative approach as company have average EBITDA of 15% across its products range. Company is trying to bring down its debtor days this would turn the Cash flow from operation higher. We recommend to buy and hold this stock.