I had come across this news a couple of months back but I did not follow up on this.
But what caught my attention again was L&T CFO’s interview in financial express last week. Where he mentioned
“Among the areas that are expected to see the biggest amounts of capex are water, followed by power transmission and renewable energy. The fourth would be urban congestion.”
Now if water is biggest infra opportunities pump will a key beneficiary. Kirloskar with market leader can benefit disproportionately. They have around 15% of India’s market share and 3% of global market share. A company which has paid dividend 95 years out of last 100 years.
We are already seeing government’s focus on water conservation, drinking water and effluent treatment with projects across country. This story is true for most of the developing world including mid-east and Africa.
Also, housing, agri (solar pumps) will drive growth in a reasonable way with government’s continued focus.
Private capex and normal infra (airports, metros etc) can also see improved demand.
What can be other triggers?
KBL is trying to focus on product and not get into EPC business. They had got into EPC business big time in 2003-08 and that dragged down their profitability till 2016. This can improve return ratios dramatically.
A bit about valuations. They have revenues of 3000+ Crores With 60/40 Domestic and Global split.
They trade 1000 cr valuation at 0.3 P/S and 11 PE. Div yield is around 2%. Return ratios are low. D/E is around 0.3 very comfortable.
Now comparing with a similar engineering company which is market leader in its segment and similar global foot print. Elgi equipment trades at 5000 cr mcap, 2.5 times P/S and 100+ PE.
Even a small player Shakti pumps trades at 2 P/S and much higher PE.
There is a nice old report which gives good details for those who want to do deep dive into business, subsidiaries etc.
They continue to remain focused on adopting new technologies
If visible triggers play out this can get rerated very quickly.
Disc: Invested around current price.
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