Shakti Pumps India Limited is a manufacturer of submersible pumps for domestic, industrial, horticultural and agricultural use^. Shakti pumps exports to more than 100 countries,with branches in the USA, Australia and UAE.The company is listed in the Bombay Stock Exchange and the National Stock Exchange of India.The company has two manufacturing facilities with a capacity of 500,000 pumps per year.Shakti Pumps is also one of the largest manufacturers and exporters of solar pumps in India.

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, 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, company was acknowledged with one-star export house status. In the same year, the company established a branch office in Australia and Turkey.

The company manufactures submersible pumps and submersible motors and associated control panels under the name Shakti.

The company is second largest stainless steel submersible pump sets manufacturer in the world.

Industry Overview

According to a recently published Industry report, global water pumps market is projected to surpass USD 54 billion by 2020.It is expected to grow at a CAGR of 5.9% during 2016-2022. Asia-Pacific accounted for the largest share (42.9%) in the global water pump market, and it is also anticipated to witness the highest growth (CAGR 6.6%) during 2016-2022. The water pumps market has been majorly driven by growth in the residential infrastructures and agricultural activities especially in growing economies such as China, India and Brazil, among others. China is the largest market for water pumps in the region. However, India is expected to witness highest growth in the near future.

The water pumps industry has been witnessing a significant 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 and energy and agricultural sector has also supported the demand for water pumps considerably.

Another recent industry report says that the water pump market in India is projected to surpass $ 3.8 billion by 2022. The Indian Pump industry is growing at an annual CAGR of 10%, which is higher than the international CAGR average of 6% due to the surge in infrastructure development, growth in agriculture and other water intensive industries. The Indian Pump industry offers among the highest net value additions in the engineering industry of over 20%. Moreover, the domestic market for Indian Pumps is growing at a healthy rate of 16-18% per annum. The Indian Pump industry offers excellent growth opportunities for international collaborations as Indian Pumps are exported to more than 100 countries.

India will also turn out to be the most lucrative market for solar pump manufacturers over the forecast period. Despite being the third largest regional market for solar pumps after MEA and China, India is anticipated to witness fostered adoption compared to others. As a result, India is expected to be the fastest growing region with an estimated CAGR of over 15% during 2017-2027. SEAP is identified to be emerging as a highly lucrative market for solar pumps with a projected CAGR of more than 12%. The Government of India envisages the solar water pumps for irrigation and drinking water purposes across the country, working with various state Govts by providing monetary and technical assistance to promote the Solar Pumps.

Financial Analysis

Years	2018	2017	2016	2015	2014
Net Profit Margin	7.81%	5.05%	0.75%	8.62%	8.94%
EBITDA Margin	18.54%	14.58%	11.18%	19.43%	18.56%
ROCE	23.74%	20.49%	7.93%	20.75%	28.64%
ROE	13.45%	9.69%	0.96%	12.28%	19.52%
Current Ratio	1.86	1.60	1.40	1.65	1.29
Interest Coverage	4.78	3.01	1.24	3.66	3.84
Debt to Equity	0.42	0.37	0.43	0.42	0.71

1. The company has had good sales as well as total revenue growth rate of 10.15% p.a. and 9.32% p.a. over the past five years.
2. The operating profit growth is slightly lower at around 8.3% p.a. However, the EBITDA growth in absolute terms is almost 11% p.a.
3. However, the EBITDA margin has not increased over the past five years and the ROCE and ROE have both actually fallen.
4. The company has sustained its interest coverage ratio at a healthy level, and the debt to equity ratio is also pretty low.
5. The company’s cash from operation, however, has not remained above the PAT, which points towards the quality of earnings.

(Rs. in Crores)

Years	2018	2017	2016	2015	2014
Cash from Operations	19.58	52.82	34.04	-4.31	17.91
Net Profit	34.11	21.65	1.98	25.72	26.51

6. The company’s cash flow over the past five years does not seem promising. The operating Cash flow to sales value is extremely low.
7. (Rs. in Crores)

Years	2018	2017	2016	2015	2014
Cash from Operating Activity	19.58	52.82	34.04	-4.31	17.91
Cash from Investing Activity	-19.38	-17.28	-17.89	-25.56	-28.92
Fixed Assets Purchased	-11.17	-15.65	-19.81	-29.48	-17.73
Fixed Assets Sold	0.12	0.12	0.03	0.19	0.20
Cash from Financing Activity	-19.38	-17.28	-16.09	28.45	12.33
Operating Cash Flow to Sales	0.04	0.12	0.13	-0.01	0.06

8. The promoters hold 47.70% shareholding.
9. The remuneration given to KMP in FY18 is approximately 2.5 crore, which is 7.5% of Net Profit.

Future Prospects

Positive

1. The introduction of Goods and Services Tax (GST) would remove interstate tax variations and more importantly, it is likely to result in higher costs for unorganized manufacturers, making branded players like SPIL more competitive.
2. The government of India has launched many schemes in the recent past such as Swachh Bharat Abhiyan’. The government targets to build twelve crore new toilets with which every rural household is expected to have a toilet by 2019. Cleaning the Ganga and its tributaries will require industrial capacity water transmission equipment and a total estimated investment of Rs. 80,000 cr.
3. Shakti Pumps commissioned its new plant under the Electronics and Control Division at Pithampur, this is a first of its kind fully automated plant, that uses cutting-edge Japanese techniques and manufacturing methods and will manufacture Electric Motor Drive (VFD), Electronic Motor Starters and Hybrid Inverters. This will surely help Shakti to aid its growth.
4. Despite this huge capex, the current capex to depreciation ratio is pretty low at just 1.01, which shows that now might be the period just before growth.

Negative

1. One of the only negative about this company seems to be that the operating cash flow values have not been good. This is mostly because of working capital changes. This, however, can be worrying because inventories have increased at almost 17% as against sales growth of 10% over the past five years, indicating inventory pile up.
2. The one other negative is that the margins have remained stagnant.

Conclusion

Overall, it seems that with the recent new plant set up, the company may have huge growth in the recent future, as long as working capital is carefully managed.

CA.BinoyJ.Kattadiyil