KSB Pumps - Latin Manharlal Securities

Established in 1960, KSB Pumps Ltd (KSBPL) - Indian subsidiary of Klein Schanzlin & Becker (KSB AG), Germany - is one of the largest manufacturer and seller of pumps and valves in India. The company is engaged in manufacture of power driven pumps and industrial valves, Cast Articles of Iron or Steel. While the foreign promoter holds 40.5% stake in the company, the Indian promoters hold 26.3% taking the total promoter holding to 66.8%.

Strong Parentage: ~140 years existence in the fieldThe KSB Group (KSB AG) is one of the leading producers of pumps, valves and related systems with annual revenue of ~2000 mn euro. The group has 29 manufacturing sites in 19 countries. In its ~140 years existence, KSB AG has developed the cutting edge of almost every major centrifugal pump. With its strong R&D back up, KSB AG has been growing continuously since it was founded in 1871.

Catering to Diversified set of Industries

KSBPL' pumps and valves are used in applications where liquids need to be transported or reliably shut off. The company manufactures pumps and valves to support functions of agricultural sector and water & sewage management systems apart from industrial applications such as power, petrochemicals, etc. The company also takes up project execution on turnkey basis and caters to niche industrial as well as highly competitive low margin agricultural and domestic (residential/commercial buildings) segments.

Doubling Capacity in Pumps division: Valves division to see additional capacity

KSBPL's manufacturing facilities are one of the largest outside Germany (where its parent company is based) and serve as an important sourcing location for the KSB Group worldwide. Over the years, KSBPL has grown geographically and currently it has 5 plants in India. The company has earmarked a capex of ~Rs.90 Crs (to be spent over 2-3 years), which will double its capacity in pumps and also add capacity in the valves division.

MIL Controls Ltd: Critical control/Robotic valves + A Niche segment + consistently reporting profits

MIL - the associate company which was acquired in the year 1997 - in which KSBPL has 49% stake, is into business of manufacturing critical Control Valves (robotic control valves). With over two decades of immense experience MIL has become the name to reckon with for the supply of critical control valves in the Process Industries in India & abroad with heavy emphasis on Thermal/ Nuclear Power, Oil & Gas, Petrochemical & Fertilizer sectors.

Strong Operating metrics + Debt free + Cash rich

- Strong Dividend and Bonus history: Since last 20 years KSBPL has been consistently paying dividend and never missed a year without Dividend. Dividend Yield currently at 2.7%.

- The Book Value Per Share stood at Rs.122.4 at the end of CY2011.

- Virtually Debt Free Company (except Working Capital Advances of Rs.63 Crs) at the end of CY2011). The company has taken Rs.50 Crs as loan against FD, for its working capital requirements in CY2011.

- Cash & Cash Equivalent on the books stood at Rs.123 Crs at the end of CY2011.

- Full taxpaying company, Average tax rate at 33.2% since last 5 years.

At the CMP of Rs.201, the stock is trading at 11.8x its CY13E EPS of Rs.17.09. We recommend BUY on the stock with a 12-18 months target price of Rs.256, providing an upside of 27.4% from the current levels.

Source : Equity Bulls

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