CMP = Rs 518
Price target: Rs 650
Strong performance - Result highlights
- KSB Pumps delivered good results for Q4CY2006. Its net sales grew by 24.9% to Rs108.3 crore during the quarter. There was a delay in the dispatch of certain orders in the previous quarter; the delayed sales got reflected in the fourth quarter, boosting the Q4CY2006 performance.
- On segmental basis, the revenues of the pump business went up by 16.2% to Rs78.9 crore while that of the valve business grew by a strong 57.7% to Rs28.7 crore. However, the margin in the pump business declined to 13.4% from 15.3% last year, while the profit before interest and tax (PBIT) margin in the valve business grew by 120 basis points to 25.4%.
- Overall, the operating profit grew by 24.2% to Rs20 crore, while the operating profit margin (OPM) was stable at 18.5%. This despite a steep hike in the raw material cost, which rose from 41% in the same quarter last year to 46.4%. However, substantial savings were made in the staff cost and other expenses.
- The profit after tax (PAT) for Q4CY2006 rose by 42.4% to Rs12.1 crore. For CY2006, the OPM grew to 20.4% from 18.1%, while the full years' PAT grew by 38.3% to Rs51.6 crore.
- Sales are traditionally better in the first and second quarters for pump makers because of seasonal factors. Hence, we should expect even better results from the company in the coming quarters, both in terms of revenues and margins.
- The pumps industry is set to benefit from the huge investments being planned in the user industries, particularly power and petrochemicals. KSB Pumps, enjoying a 12% market share, would be one of the key beneficiaries of the same and hence we expect the growth momentum to sustain going forward.
- CY2008 earnings per share (EPS) estimate at Rs46 for KSB Pumps. At the current market price of Rs518, the stock quotes at CY2007E price/earnings ratio (PER) of 11.3x and at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.2x.
- I maintain Buy recommendation on the stock with a price target of Rs650.
