KSB - Capex Theme/ MNC/ Mgt Change/Exports

Hi Friends

Sharing some notes we collated on KSB. Plz share any industry feedback or insights

• Valuations - ~20x trailing and 16-17x 1 yr fwd. Paharpur group – indian promoters – bought from open mkt 1 lakh shares in the last week of March 21 around 800 Rs

• About KSB
  - KSB India is a subsidiary of the German group KSB Aktiengesellschaft, which is a supplier of pumps, valves and related services, with headquarters in Frankenthal (Pfalz), Germany. The parent has more than 16,000 employees, with annual consolidated sales EUR2.4bn
  - KSB is engaged in the manufacture of customised pumps, with applications in thermal/nuclear power plants, refineries and offshore oil rigs, sugar and paper industries, irrigation, water supply, waste water management, etc.
  - The business is structured into two broad segments, namely Projects (Thermal power plants, Nuclear power plants, O&G) and Standard Products (Agriculture, Waste Water, Construction & Domestic) contributing ~50% each to the top line

• Management Change - First time since inception in India. an Indian Rajeev Jain was given charge of KSB India in 2015-16. Rajeev Jain was President, South Asia KSB (Indonesia & Singapore). KSB is now customising solutions for Indian market more aggressively and see the gain in market share below under Rajeev Jain’s stewardship

• Opportunity
  - Market leadership (#3) in India. KSB sees good growth opportunities in the Indian market (~Rs120bn) and targets to attain the #1 position in Pumps over the mid-to-long term (vs #3 position currently and #6 in CY17)
  - With capacity built up ahead of competition and pre-qualification in place, we expect opportunities in
  - FGD (flue gas de-sulphurisation) and the Atma Nirbhar vision are perceived as the largest opportunity. Atmanirbhar Bharat - KSB is one such key operator in pumps as 95% of its pumps are manufactured locally, with only 5% (special parts) sourced from out
  - nuclear - NPCIL announced 12 reactors (each 700MW), a Rs3bn opportunity each by 2031
  - O&G (Oil & Gas) - Stabilising crude oil prices would lead to capex by oil producers.
  - Agriculture, “smart” cities and wastewater management also throw up healthy prospects
  - Exports - parent is using KSB India for sourcing of products too. exports have doubled in the last few years

• Sales
  - Domestic Sales -83%, rest exports. After-market and services (19% of its revenue
  - top-7 customers, which bring 20-25% to the business, are NPCIL, HME Mittal Energy, ISGEC, L&T Hydrocarbons, IOC, Thermax and BHEL

• Margins - Earlier suppressed owing to Chinese competition. After preference to Indian manufacturers, however, margins are now comfortable.

• Initiatives
  - Valves
  - KSB has traditionally focussed on pumps, but has now grown itsValve portfolio (much larger market than pumps), led by development of a Valve facility at Coimbatore and acquisition of MIL
  Controls from United Breweries in the past.
  - additional factory shed in Sinnar
  - storage facility at Tarapur (contractual obligation for
  storage and testing for NPCIL),
  - shaft grinding machine & Mech seal testing set up for execution of NPCIL orders, FGD lining room
  extension (due to uptick in FGD ordering),
  - Group solar (JV with service provider company),
  - 3D printing machine (to facilitate design, development & rectification of product),
  - mechanical seal localisation
  - IVC ball valve project.

• Risks
  - Impact of commodity headwinds on margins to be curtailed by selective price
  actions, cost initiatives and localisation
  - Deferred Capex

Ashish Kila
Perfect Research

Disclaimer

1. We are not SEBI registered advisors
2. The above note is not an investment advice but an educational post to discuss a business model
3. Plz consult your financial advisor before taking any decision

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