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REGISTER NOW OR LOGINGlobal Water Pumps Industry:
The Global water pumps market is expected to reach USD 54 Bn by 2020 growing at a CAGR of 5.9% during 2016-22 and the market has been majorly driven by growth in residential infrastructures and agricultural activities in growing economies like such as China, India, Brazil among others. Asia Pacific accounted for the largest share of 42.9% in the global water pump market and is expected to witness the highest growth at a CAGR of 6.6% during 2016-22. China is the largest market for water pumps in the region. The industry has been witnessing growth in recent years on account of factors including the rise in residential and commercial infrastructure in developing nations. In addition, growth in the industrial sector, power energy, and agricultural sector has also supported the demand for water pumps considerably. Various factors such as the need for more healthy and safe drinking water, water and energy conservation and growing industries have boosted the demand for new and improved water pumps. Availability of a wide variety of water pumps catering to numerous applications and evolution of products for enhanced efficiency and optimum use of power, have proven to be the key promoting factors in the water pump market.
The overall water pump market is primarily driven by the consistent rise in residential and commercial projects in developing nations. Asia and Africa are expected to increase their spending on irrigation and drinking water schemes. This, in turn, is expected to drive the demand for water pumps in the regions. The impact of the rising urban population on the water pump market is anticipated to remain high over the next few years. Shakti Pumps (India) Ltd is primarily engaged in the manufacturing of pumps and motors of various kinds. It also offers advanced water pumping solutions to a wide range of applications such as irrigation, horticulture, domestic water supply, commercial and industrial applications. Its brand "Shakti" is well received in the domestic and international markets.
History of the company:
Shakti Pumps was incorporated in 1982 by the Patidar family of Rau (Indore) to manufacture submersible pumps and electric control panels. In 1995, the company went public with an issue of Rs 500 lakh. Later in 1996, the company expanded its portfolio by manufacturing stainless steel submersible pumps and motors. In the same year, Shakti Pumps started its export operation. In the year 2006, the company was acknowledged with one-star export house status. In the same year, the company established a branch office in Australia and Turkey
Product Offerings
Pumps- Submersible pumps, Solar pumps, Vertical multistage centrifugal pumps, Mono end suction pumps, Pressure booster pumps, wastewater pumps, open good pumps, Helical pumps, etc.
Motors - Submersible motors, Enhanced efficiency system, Surface motors, Shakti slip start the synchronous motor.
Controllers - universal solar pump controller, Shakti solar drive, Shakti elite soft starter, etc.
Others - Mechanical seal, Hydro pneumatic PLC parameter setting manual & booster system.
Product Applications:
A) Agriculture: Shakti pumps easily meet varied agricultural needs, be it drip irrigation, agricultural sprinkler systems or in the watering of fields.
B) Domestic: Shakti Domestic pumps are Ideal for homes to maintain water pressure in taps and for general applications like watering for gardens and fountains.
C) Sewage and Drainage: From draining flooded water from various areas like basements, car parks, empty cesspools to managing sewage in a water treatment plant, Shakti Pumps are widely used in the domestic, industrial as well as other sectors.
D) Solar: A channel partner for the Ministry of New & Renewable Energy (MNRE), Shakti Pumps has a range of Solar pumps between 1HP to 100 HP that is simple and easy to operate, offering 40% more discharge than other ordinary pumps.
E) Industrial: Shakti Pumps are used in industries for a variety of purposes that include Cutting & Grinding, fire-fighting, managing sewage, heating & cooling of systems, etc.
F) Commercial Building sector: Shakti pumps is a major force in places like hotels, corporates, malls etc. where heavy pressure and boosting are required. It supplies pumps with the latest digital technology for Cooling, Heating, Wastewater management etc.
Distribution Network
It caters to the domestic market through a widespread distribution network consisting of 550+ dealers, 15,000+ retailers and multiple marketing branches with a presence in 20 states.
International Presence
The company has a presence in 118+ countries spread across the Middle East, USA, Africa, Asia, and Europe. It also has dedicated subsidiaries in UAE, USA, Australia, and Bangladesh and also has a subsidiary in China for enabling imports from the country. In FY20, domestic sales accounted for ~82% of revenues and overseas sales accounted for the rest ~18% of revenues.
Manufacturing Capacity
The company owns and operates 2 manufacturing units at Pithampur, Madhya Pradesh and has a manufacturing capacity of 5 lac pumps Per Annum.
Clientele List:
R&D Infrastructure:
The company spent ~1% on R&D expenditure, consistent over the years including expenditure on in-house research and development in respect of eligible facilities at Pithampur.
Favorable growth prospects with government’s impetus on renewable energy:
India is one of the largest regional markets for solar pumps after Middle East Asia (MEA) and China and is expected to be one of the fastest-growing markets over the next few years. The government is also emphasizing the use of solar pumps by providing capital subsidy for installation of solar pumps as well as solarization of existing pumps to reduce the consumption of grid power (which is heavily subsidized by the state government or is provided entirely free of cost).
For this, the government has launched various schemes including KUSUM which aims at the installation of around 30 lakh solar pumps in the country in the near to medium term, with a total outlay of over 1 lakh crore including subsidies from both state and central governments. Issuance of work orders under the KUSUM scheme commenced from FY21 onwards, after a delay of around a year from previously envisaged timelines. This has resulted in recovery in order inflows for industry players such as SPIL. However, the industry is characterised by high competition, both from organized and unorganised players, which restricts the margins of the industry players to a certain extent.
Weakness:
Large working capital requirement resulting in high dependence on working capital debt: SPIL’s operations are working capital intensive in nature, with significant investment required in both receivables as well as inventories, resulting in a long gross operating cycle of over 200 days in FY20. SPIL’s revenue model is both tender based as well as order based, with around 50-60% of its revenue contributed by sales under the tenders floated by state government agencies. As the volume, value and time of such sales are difficult to predict, SPIL maintains enough inventory. This inventory is also utilized to meet its distribution channel requirements, thus resulting in a high inventory holding period of 149 days in FY20 (110 days in FY19). Further, the collection period of the company also remains elongated (145 days in FY20, 108 days in FY19) with a significant time lag in receipts of payments from govt. entities for sales under their subsidized schemes. This apart, an inverted duty structure for solar pumps also contributes to the working capital intensity of SPIL’s business (as it is required to obtain a refund of excess GST input credit from the government).
Financial performance of the company:
The sales of the company have been grown at a CAGR of 29% in the past three years and the company has been doing well recently and the company reported its highest sales ever in FY22 Q2 and as India is coming out of the Covid destruction and all the Industries are focussing on expansion, the company has reported strong numbers and growth can be sustained as the company has a diverse presence across the globe and across a wide range of Industries has given the company has a better edge compared to its peers.
Ratio Analysis:
As of December, the company had a market cap of 1120 Crs with a price of 600 Rs per share. The company is trading at price multiples of 13x and has a strong capital efficiency and has a ROCE of 28% and its Debt to Equity stood at 0.82% and the company has more than Industry average sales growth. The Operating profit Margin stood at 12.6% and the company is doing well on the operational front and the valuation also looks attractive which makes the company a good pick with a longer-term horizon.
Conclusion:
‘’It’s always good to buy a great company at a fair price than buying an Average company at a great price’’
Charlie Munger.
Shakthi pumps belong to the first kind of Charlie Munger's thesis and the company has also corrected close 30% from its high levels and as the Industry dynamics is also in favour of the company, it has got the potential to generate phenomenal returns on a year horizon.
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