>KSB Pumps Ltd. (KR Choksey)

Strong growth in sales: In Q4CY08, the company’s sales have increased by 33% on a y -o-y basis to Rs174.7 crore from Rs131.8 crore. In CY08, the company’s sales have increased by 28% on a y - o-y basis to Rs596.9 crore from Rs crore. The increase in the sales of the pump segment by 47% y-o-y and 31% q-o-q has lead to a robust growth in sales of the company. Inspite of slowdown in its user industries, KSB Pumps has shown a robust growth in its top-line and we expect the company to out-perform in long-run

Margins declined quarterly: The operating profit in Q4CY08 grew by 3% y-o-y and declined by 8% q-o-q to Rs27.7 crore accounting for a fall in the operating profit margin by 469 bps y-o-y. Steep fall in margin was due to the rise in staff cost as well as other expenses. The staff cost as proportions to sales rose sharply by 346 bps y-o-y and other expenses was higher by 271 bps. Rise in cost of staff and other expenses were likely on account the commissioning of new additional plant at Sinnar near Nashik. EBITDA for the year has increased by 50% to Rs108.4 crore compared to Rs72.4 crore, whereas the margins have increased by 260 bps to 18.0%.

Valuations: The growth of the pump industry would be driven by the heavy investments being made in the user industries, such as power and petrochemicals. However delay in the expansion plans of user industries and volatility in raw material prices going forward can affect the company’s earnings. At the CMP of Rs206.1, the stock is trading at 5.5x CY08 EPS of Rs37.2 and 4.7x CY09E EPS of Rs43.4. We recommend a BUY with a target price of Rs242, implying an upside potential of 17%. At the target price, the stock would be valued at 5.5x CY09E EPS of Rs 43.4.

To see full report: KSB Pumps