- KSB Pumps reported flat profits for the quarter despite a 5.7% rise in sales, due to weaker margins from an unfavorable product mix and losses in the valve segment. - While the pump segment grew sales by 5.7%, the valve segment returned to growth after four declining quarters but reported losses. - Margins declined due to high prior year margins providing a tough comparison and costs rising faster than revenues. - The analyst maintains a 'Buy' rating, expecting the company to benefit from an industrial recovery and its diverse portfolio.

1. KSB Pumps
Weak margin performance
October 27, 2014
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Q3CY14 Result Update
Kunal Sheth
kunalsheth@plindia.com
+91‐22‐66322257
Samir Bendre
samirbendre@plindia.com
+91‐22‐66322256
Rating BUY
Price Rs512
Target Price Rs563
Implied Upside 10.0%
Sensex 26,851
Nifty 8,015
(Prices as on October 23, 2014)
Trading data
Market Cap. (Rs bn) 17.8
Shares o/s (m) 34.8
3M Avg. Daily value (Rs m) 19.4
Major shareholders
Promoters 66.41%
Foreign 2.58%
Domestic Inst. 14.18%
Public & Other 16.83%
Stock Performance
(%) 1M 6M 12M
Absolute (5.7) 51.8 132.8
Relative (6.1) 34.4 103.2
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2014 21.6 20.2 7.0
2015 25.6 24.3 5.2
Price Performance (RIC: KSBP.BO, BB: KSB IN)
Source: Bloomberg
Feb‐14
Apr‐14
Jun‐14
Aug‐14
(Rs)
KSB Pumps reported PAT at Rs179m, flat YoY, lower than our estimate, while sales
were in line with our estimate (up 5.7% YoY). Weaker‐than‐expected margins were
due to unfavourable mix and losses in the valve segment. KSB’s products have an
application across a wide spectrum of industries which makes it the key beneficiary
in the event of a turn in cycle. We expect the stock to deliver earnings CAGR of 22%
over CY13‐15E. Maintain ‘BUY’.
 Sales in line ‐ Margins take a hit: KSB reported sales at Rs1.98bn, up 5.7% YoY
(PLe: Rs2bn). While sales in the Pump segment was up 5.7% YoY to Rs1.64bn,
sales in the Valve segment showed growth (up 2.4% YoY) at Rs327m after four
quarters of de‐growth. EBITDA margins dipped 240bps YoY to 13.6% (PLe:
14.9%) mainly on account of high base last year and unfavourable mix. Gross
margin dipped 70bps YoY to 55%, employee cost was up 13% YoY to Rs315m
and other expense increased 10% YoY to Rs508m. EBIT margin for the Pump
segment dipped by 74bps YoY to 14.7%, while Valve segment reported EBIT loss
of Rs13m. Other income was up 129% YoY to Rs80m. Strong growth in other
income helped post a flat PAT at Rs179m (PLe: Rs195m).
 Outlook and Valuation: The stock is trading at 20x CY15E earnings. KSB has a
strong product portfolio and is a dominant market player. The company is likely
to benefit from an expected pick‐up in Power and Oil & Gas capex and increased
focus on Water and Irrigation capex by the new government. The market
movement towards energy‐efficient pumps should help organized players and
benefit KSB. Strong balance sheet and cash flow provides additional comfort.
We maintain ‘BUY’ rating on stock.
Key f inancials (Y/e December) 2012 2013 2014E 2015E
Revenues (Rs m) 7,224 7,313 7,621 8,383
Growth (%) (3.6) 1.2 4.2 10.0
EBITDA (Rs m) 911 1,006 1,101 1,292
PAT (Rs m) 580 598 753 890
EPS (Rs) 16.7 17.2 21.6 25.6
Growth (%) 35.0 3.0 26.1 18.1
Net DPS (Rs) 5.5 6.0 7.0 7.0
Profitability & Valuation 2012 2013 2014E 2015E
EBITDA margin (%) 12.6 13.8 14.4 15.4
RoE (%) 14.2 13.3 15.2 16.4
RoCE (%) 13.7 13.2 15.0 16.2
EV / sales (x) 2.4 2.3 2.2 1.9
EV / EBITDA (x) 18.6 16.7 14.9 12.2
PE (x) 30.7 29.8 23.6 20.0
P / BV (x) 4.2 3.8 3.4 3.1
Net dividend yield (%) 1.1 1.2 1.4 1.4
Source: Company Data; PL Research

2. KSB Pumps
Exhibit 1: Q3CY14 Result Overview (Rs m)
Y/e March Q3CY14 Q3CY13 YoY gr. (%) Q2CY13 9MFY14 9MFY13 YoY gr. (%)
Net Sales 1,989 1,882 5.7 1,994 5,716 5,492 4.1
RM cost 896 860 4.2 926 2,599 2,556 1.7
% of Net Sales 45.0 45.7 46.4 45.5 46.5
Employee Costs 315 278 13.5 323 949 844 12.4
% of Net Sales 15.8 14.8 16.2 16.6 15.4
Other Costs 508 463 9.7 452 1,353 1,304 3.8
% of Net Sales 25.5 24.6 22.7 23.7 23.7
Cost of Goods Sold 1,719 1,600 7.4 1,700 4,901 4,704 4.2
% of Net Sales 86.4 85.0 85.3 85.7 85.6
EBITDA 270 302 (10.5) 293 815 788 3.4
% of Sales 13.6 16.1 14.7 14.3 14.4
Depreciation 69 68 2.2 68 204 195 4.6
Other Income 80 35 129.1 94 220 138 59.4
EBIT 282 270 4.5 319 831 731 13.6
Interest 13 6 115.5 3 18 23 (23.6)
PBT 269 264 2.0 316 813 708 14.8
Total Tax 90 85 6.7 92 259 219 18.4
ETR % 33.6 32.1 29.0 31.8 30.9
Reported PAT 179 179 (0.2) 225 555 490 13.2
Adj PAT 179 179 (0.2) 225 555 490 13.2
Source: Company Data, PL Research
October 27, 2014 2

3. KSB Pumps
Income Statement (Rs m)
Y/e December 2012 2013 2014E 2015E
Net Revenue 7,224 7,313 7,621 8,383
Raw Material Expenses 3,582 3,326 3,353 3,688
Gross Profit 3,642 3,988 4,268 4,694
Employee Cost 1,036 1,101 1,156 1,271
Other Expenses 1,695 1,881 2,011 2,131
EBITDA 911 1,006 1,101 1,292
Depr. & Amortization 235 265 290 315
Net Interest 52 26 25 25
Other Income 184 162 291 320
Profit before Tax 807 876 1,076 1,271
Total Tax 226 279 323 381
Profit after Tax 580 598 753 890
Ex‐Od items / Min. Int. — — 1 —
Adj. PAT 580 598 753 890
Avg. Shares O/S (m) 34.8 34.8 34.8 34.8
EPS (Rs.) 16.7 17.2 21.6 25.6
Cash Flow Abstract (Rs m)
Y/e December 2012 2013 2014E 2015E
C/F from Operations 1,246 729 955 1,036
C/F from Investing (390) (300) (300) (300)
C/F from Financing (677) (209) (244) (244)
Inc. / Dec. in Cash 180 220 412 493
Opening Cash 817 1,002 1,222 1,634
Closing Cash 997 1,222 1,634 2,127
FCFF 1,082 355 655 736
FCFE 618 355 655 736
Key Financial Metrics
Y/e December 2012 2013 2014E 2015E
Growth
Revenue (%) (3.6) 1.2 4.2 10.0
EBITDA (%) 27.9 10.4 9.4 17.4
PAT (%) 35.0 3.0 26.1 18.1
EPS (%) 35.0 3.0 26.1 18.1
Profitability
EBITDA Margin (%) 12.6 13.8 14.4 15.4
PAT Margin (%) 8.0 8.2 9.9 10.6
RoCE (%) 13.7 13.2 15.0 16.2
RoE (%) 14.2 13.3 15.2 16.4
Balance Sheet
Net Debt : Equity (0.2) (0.2) (0.3) (0.4)
Net Wrkng Cap. (days) — — — —
Valuation
PER (x) 30.7 29.8 23.6 20.0
P / B (x) 4.2 3.8 3.4 3.1
EV / EBITDA (x) 18.6 16.7 14.9 12.2
EV / Sales (x) 2.4 2.3 2.2 1.9
Earnings Quality
Eff. Tax Rate 28.1 31.8 30.0 30.0
Other Inc / PBT 22.8 18.4 27.0 25.2
Eff. Depr. Rate (%) 6.5 6.8 6.9 7.0
FCFE / PAT 106.6 59.5 87.0 82.7
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e December 2012 2013 2014E 2015E
Shareholder's Funds 4,259 4,730 5,181 5,664
Total Debt 169 169 169 169
Other Liabilities — — — —
Total Liabilities 4,427 4,898 5,350 5,832
Net Fixed Assets 1,852 1,887 1,896 1,604
Goodwill — — — —
Investments 64 64 64 64
Net Current Assets 2,438 2,873 3,315 4,090
Cash & Equivalents 1,002 1,230 1,584 2,190
Other Current Assets 4,130 4,148 4,320 4,748
Current Liabilities 2,695 2,505 2,589 2,848
Other Assets 75 75 75 75
Total Assets 4,428 4,898 5,350 5,832
Quarterly Financials (Rs m)
Y/e December Q4CY14 Q1CY14 Q2CY14 Q3CY14
Net Revenue 1,795 1,734 1,994 1,989
EBITDA 217 251 293 270
% of revenue 11.9 14.5 14.7 13.6
Depr. & Amortization 70 67 68 69
Net Interest 3 2 3 13
Other Income 24 46 94 80
Profit before Tax 168 228 316 269
Total Tax 60 77 92 90
Profit after Tax 108 151 225 179
Adj. PAT 108 151 225 179
Source: Company Data, PL Research.
October 27, 2014 3

4. KSB Pumps
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Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage
31.7%
51.9%
16.3%
0.0%
60%
50%
40%
30%
20%
10%
0%
BUY Accumulate Reduce Sell
% of Total Coverage
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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October 27, 2014 4