KSB Ltd – Benefiting from Capital cycle

KSB Ltd is a leading player in the domestic pumps and valves industry, with a market share of ~10%.

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(A) About

KSB Ltd - logo

KSB Ltd., a 40.5% subsidiary of the €2.4bn German company, KSB SE & Co. KGaA, is one of the top players in the Indian industrial pumps and valves sector.

The company manufactures a range of standard industrial end-suction and high-pressure multistage pumps, submersible motor pumps, Monoblock pumps, and other value-added parts for the agricultural, waste-water treatment, energy (nuclear and conventional power), and oil and gas sectors, as well as other industries.

(B) Journey

(C) About the Executive Management

(i) Mr Rajeev Jain – Managing Director

Rajeev Jain is the Managing Director of the company. Moreover, he is skilled in strategy development and implementation, business planning, operations management, sales, marketing, and employee engagement.

He has completed his Bachelor of Engineering in Mechanical Engineering from MNIT and his Master in Management Science from Symbiosis Institute of Management Studies.

In FY21, Mr Rajeev Jain Received a remuneration of Rs 4.15 Crore which is 0.27% of sales and 2.78% of the profit.

(ii) Mr Gaurav Swarup – Chairman

Mr Gaurav Swarup is the Chairman of KSB Pumps Ltd. He is a past President of the Indian Chamber of Commerce of Kolkata, the Plastic Export Promotion Council, and the Agri-Horticultural Society of India, past Chairman of the FICCI West Bengal State Council, he also has been a member of the Board of Governors of IIM Calcutta.

Gaurav Swarup has an MBA (Class of 1980) from Harvard Business School, USA, and also done a Bachelor’s degree in Mechanical Engineering (1972) from Jadavpur University, Kolkata. He is an alumnus of St. Xavier’s School, Kolkata.

In FY21, Mr Gaurav Swarup Received a remuneration of Rs 0.32 Crore which is 0.02% of sales and 0.21% of the profit.

(iii) Dr Stephan Bross – Non-Executive Director

Dr Stephan Bross is the Non-Executive Director of KSB Ltd.

Moreover, after completing his doctorate in mechanical engineering, Stephan Bross joined KSB in 1993, where he held positions in research, design, engineering, development, and product management. For several years, he was also the managing director of KSB Service and head of the corporate unit service.

In FY21, Dr Stephan Bross Received a remuneration of Rs 0.16 Crore which is 0.01% of sales and 0.10% of the profit.

(iv) Dr. Matthias Schmitz – Non-Executive Director

Dr. Mattias Schmitz is the Non-Executive Director of the company.

Despite the Directorship of KSB Ltd (India), He is the Managing Director of KSB Management SE, responsible for Finance, Accounting, Controlling, Taxes, Information Technology, and Procurement.

In FY21, Dr Matthias Schmitz Received a remuneration of Rs 0.17 Crore which is 0.01% of sales and 0.11% of the profit.

(D) Shareholding Pattern of KSB Ltd

KSB Ltd - Shareholding pattern
KSB Ltd - Promoters shareholdings
KSB Ltd -  other shareholdings

(E) Business Portfolio

The company has mainly 2 reportable segments which

(i) Pumps

The pumps segment includes manufacturing/trading of all types of pumps like industrial pumps, submersible pumps, effluent treatment pumps, etc. and spares and services in respect thereof.

(ii) Valves –

The valves segment consists basically of manufacturing and trading of industrial valves and spares and services in respect thereof.

Product Segment

(1) Standard Pumps

Standard pump business caters to general engineering (sugar, chemicals, textiles, pharmaceuticals, and food processing industries), water and wastewater treatment, building construction, and also the domestic household sectors. The company also supplies submersible pumps to the agricultural sector.

(2) Engineered Pumps

Its engineered pumps find application in the power (conventional and nuclear power), oil and gas, and fertilizer industries, while its standard pump business caters to general engineering (sugar, chemicals, textiles, pharmaceuticals, and food processing industries), water and wastewater treatment, building construction and the domestic household sectors.

(3) Supreme Serv

KSB Supreme Serv provides pump service, repairs, spare parts, and engineering on all brands & types.

Further, KSB’s service partner network ensures complete coverage for the provision of service for pumps, valves, and automation products in building services, industrial systems, and in water and wastewater plants.

  • Consultancy and analysis- Company identify the efficiency of your pumps and systems with smart tools and services from KSB. In some cases, the evaluation is available within seconds.
  • Commissioning- KSB service staff carry out installation and supervision as well as handle the commissioning of pumps, valves and entire systems.
  • Operations- Service and spare parts solutions from KSB make for the smooth operation of pumps and valves to ensure unparalleled availability.
  • Repair- KSB offers tailor-made service and state-of-the-art spare parts solutions for the repair of pumps, valves, motors and other rotating equipment of all makes.

(4) Valves

The company also manufactures globe valves, gate valves, swing check valves, butterfly valves, lift check values, diaphragm values, ball values, and strainer valves.

(F) Revenue from Operations

(i) Revenue Segment

(ii) Geographical Revenue

During the period of (June ’21-June ’22), the share of exports has seen a marked drop due to the headwinds in the international market.

(G) Cost Structure

KSB Ltd - Cost structure

From the beginning of the year 2022, the company has identified an average 10-15% price increase in raw material cost. However, a 10% Increased in price has been escalated to the customer in order to maintain cost competitiveness.

KSB Ltd - Raw material expenses
KSB Ltd - Selling & Admin Expenses

(H) Financials

(i) Financial Trend

KSB Ltd - Financial Trend

Company’s revenue has increased at a CAGR of 7.69% while its profit after tax increase at a CAGR of 10.45% in the past 10 years. Moreover its ROE & ROCE has also improved from FY20 to FY21.

Company has also reduced its debt to equity in the past 10 years.

(ii) Du pont Analysis

KSB Ltd - Du Pont Analysis

Company is consistently improving its PAT margins in the last 10 years. Moreover its Assets to equity improved due to reduction of debt to equity.

(I) Management Discussion & Concalls

Outlook

  • With an annual turnover of Rs 20,000 Cr and annual production of 4.5m pumps. India’s pump and valve industry is the fastest growing in the Asia Pacific region.
  • Indian pumps market is on the cusp of recovery and growth is likely to be led by rapid urbanization, pick up in industrial Capex in O&G, power, pharma, sugar and paper industries as well.
  • In the Organised pump market, 4-5 key players command 40-45% of the market share.
  • It is emerging as a leading MNC player in the Industrial pumps and valves industry by deploying multiple growth strategies.
  • Products such as gamma pumps, solar pumps and pumps for FGD plants should help the company strengthen its position as a leading player in the space of the specialized and customized pump.

Growth Opportunities

  • With capacity built up ahead of competition & pre-qualification in place, there is a good opportunity in FGD & NPCIL. AsNPCIL has also announced 12 reactors (each of 700 MW) which is a Rs 500 Cr opportunity each by 2031.
  • The company eyeing increased service (25-30% revenue target) and export business in the coming years.
  • The government’s objective of blending 20% ethanol with petrol, and investments in distilleries have increased. This led to an increase in the sales of distillery pumps. The company sees a strong opportunity for a distillery in the domestic market.

Concall

  • The company has received an order from NPCIL for 8Nos primary coolant pumps along with electric motors and spares for a value of approx. Rs 500Cr.
  • Meanwhile, order intake from petrochemicals is good (~200 Cr).
  • Moreover, the company has recently started a Mechanical Seal business and seeing early success.
  • The company has set up a mechanical seal facility with an investment of more than Rs 10cr.
  • Further, its after-market business has a better profit margin which they intend to increase its business share.
  • The company is also targeting a 20% revenue share from the export business. However, they are growing at a CAGR of 18% in their domestic business.
  • KSB Ltd.’s market share is less than 5% in the domestic segment for this company has launched the AQUA series.

(J) Strengths & Weaknesses

Strengths

(i) Established presence in the industry with product diversification

KSB Ltd is a leading player in the domestic pumps and valves industry, with an approximate market share of ~10.0% and also having a large network of over 1,000 dealers. Moreover, it offers a wide array of products in the standard and engineering segments. Its engineered pumps find application in the power (conventional and nuclear power), oil and gas, and fertilizer industries, while its standard pump business caters to general engineering (sugar, chemicals, textiles, pharmaceuticals, and food processing industries), water and wastewater treatment, building construction, and the domestic household sectors.

(ii) Technological support from the parent, KSB SE & Co. KGaA, Germany

KSB SE & Co. KGaA, Germany is a leading global company in the pump manufacturing sector also with an operating income of over €2.3 billion in CY2021. The parent is focused on research and development (R&D) and has developed technologically advanced designs for both standard and engineered pumps. KSB also get benefits from this technology transfer, which has aided its foray into the domestic manufacturing of pumps for supercritical power plants and FGD units for power plants, and more recently, primary coolant pumps and electric motors for nuclear power plants. It also enables it to command a slight price premium, in return for royalty to the parent.

Weaknesses

(i) Margins vulnerable to movement in raw material prices and high competition

The company faces high competition from domestic players in the standard business segment and also from MNC players in the engineered business segment. The standard pump business is characterized by its fragmented nature, meanwhile KSB faces high competition from domestic and unorganized players. Moreover, steel plates, aluminum, and brass are the major raw materials for the company, the prices of which are volatile.

(ii) Moderately high working capital intensity of operations

The company’s working capital intensity remains moderately high at 21.1% in H1 CY2022, though it improved from 26.7% in CY2018. The working capital has reduced because of the moderation in the receivable period with a dedicated task force to manage the receivables. However, the inventory levels continue to be elevated because of the large lead time involved in the manufacturing of engineered pumps, apart from the normal inventory requirements.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry Publications.

Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered a recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated

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