Shakti Pumps (India) Ltd. share price target

A dominant player in solar water pumps

Shakti Pumps came out with good set of results in Q4FY19, ahead of our estimates. Consolidated revenue for the quarter grew 22.1% YoY and 4.9% QoQ to Rs 1596 mn against our estimate of Rs 1580 mn. EBITDA for Q4FY19 came at Rs 279 mn (estimate Rs 340 mn) a growth of 17.1% YoY and 2.7% QoQ. However EBITDA margin fell 74bps YoY to 17.5% for the quarter against 18.2% in corresponding quarter last year. The fall in margin was due to higher raw material (+29% YoY) and staff costs (+28.4% YoY). PAT for the quarter stood at Rs 165 mn which was ahead of our estimate of Rs...

Shakti Pumps specialises in manufacturing a broad range of energy efficient stainless steel pumps (with special focus on solar pumps) catering to a variety of sectors including agricultural, industrial, domestic and horticultural. Given government's thrust on solar pumps, Shakti having more than 50% market share in solar pumps, will be a key beneficiary of the increased demand for solar pumps. We expect Shakti to report 22.3% CAGR in its revenues over FY18-20E, while PAT will witness a CAGR of 32.5% over the same period. EBITDA margin is expected to stabilise around 17-18% level. We remain positive on Shakti's future...

Realizations and Deferred Orders Lag the Performance: Shakti's revenue de-grew by 24.7% YoY due to deferment of solar integrated orders from Madhya Pradesh which they got in this quarter. Shakti is still looking for amajor traction in solar pumps business as there is a huge opportunity in the solar pump segment. The absolute EBITDA and margins have declined by 29.5% and 91 bps respectively.

Solar Pumps to be the Growth Driver; Shakti's revenue grew by 47.4% YoY, majorly supported by a very strong performance from solar pump integrated business and solar OEM business. The margins also improved by 448 bps YoY, due to higher operating leverage and economies of scale.

Solar Pumps Sales Boost Q1FY18 Revenue:Shaktis Q1FY18 revenue has grown by 18.6% YoY. The massive growth was supported by solar pumps sales of Rs.510mn which were just Rs.250mn last year.Shakti claims a market share of around 70%-80% in the solar pumps industry.

BUY Shakti Pumps Ltd at Rs. 196 CMP and Add on dips to Rs. 174 - 178 for the Sequential Targets of Rs. 231.5 & Rs. 259.5

Banking on Solar Pumps in Indian Market: Shakti reported sales of Rs. 754 mn / Rs.1463mn for Q2FY17/ H1FY17 showing a growth of 6.4%/14.4% respectively. Operating expenses have surged by 2.0%QoQ and 17.5% YoY impacting EBITDA margins to reach 13.8% from 16.1%representing a 226 bps decline. EBIT margins stood at 9.5% during H1FY17 when compared to 11.4% during H1FY16. PAT has shown a growth of 156.2% QoQ and5.9% YoY. Half year PAT reported at Rs.50 Mn, which is 15.8% lower than H1FY16.

Karvy initiates coverage on Shakti Pumps (India) Ltd with a Buy rating. Shakti's revenue are expected to grow at a CAGR of 11.3% during FY15-17E driven by volume growth of 7.0% and realization growth of 4.3% during FY15- 7E. Change in product mix specifically higher volumes from industrial boosters, solar pumps etc. and increased share of exports to LATAM and South East Asian markets are key drivers of growth. EBITDA and PAT margins are expected to improve to 17.7% and 9.6% by FY17E respectively and return ratios, RoE and RoCE, to reach to 15.4% and 10.9% by FY17E respectively. We value Shakti on 1yr forward mean P/E (during FY05-15) of 8.2x FY17E EPS of Rs.21.2 for a target of Rs.174 with an upside potential of 16%.