Buy rating put on KSB shares based on sturdy margins

Hyderabad The analysts are bullish on the KSB shares and put a buy rating suggesting a target price of Rs 1,411 against the earlier price of Rs 1,177, that is, 28 times the CY22 estimated earnings. Sturdy margin expansion and attractive valuations keep them upbeat, according to a report by the Anand Rathi group.

Led by both pumps and valves, Q2 CY21 revenue was up 38 per cent y-o-y. Cost savings and efficiencies, pricing and a favourable product-mix continue to benefit it, leading to a healthy 14.8 per cent EBITDA margin in H1 CY21 against 13.9 per cent for the same period in CY20.

Opportunities exist for KSB in the next 2-5 years in FGD, nuclear power (NPCIL), O&G and exports. Such prospects would boost after-market and services (19 per cent of its sales).

The revenue of the company grew 38 per cent y-o-y to Rs 3bn in Q2 CY21, driven by standard and engineered pumps' performance. The EBITDA margin was a healthy 13 per cent, better than in the past, due to cost-savings, price hikes and a favourable sales-mix (toward the distribution business). Other income was up 22 per cent y-o-y; while interest/depreciation rose by 11 per cent, that is 9 per cent y-o-y. The profit after tax zoomed 3.3 times to Rs 272 million. Management guided double-digit revenue growth in CY21, but not regarding margins due to RM price uncertainty. Accordingly, we tweak our revenue/margin estimates.

NPCIL has announced 12 reactors (700MW each), a Rs 3 billion opportunity each, by 2031. FGD and the Atmanirbhar vision are perceived as the largest opportunity. Stabilising crude-oil prices would lead to capex by oil producers. Agriculture, smart cities and waste-water management also present healthy prospects.

The order booking is looking up and the strong backing company's ability to fullfill the orders augurs well. The only risk factor the analysts perceive is more-than-expected delay in order awards.