Basic Analysis of Shakti Pump

Key sectors of the economy such as agriculture, infrastructure and building services continue to require pumps, which drives the growing importance of the pump sector in the country. As the pumping environment evolved, the company took strategic steps that set it apart. In this article, we begin a fundamental analysis of Shakti Pumps, a company that has grown into a 9x multi-bagger since the COVID-19 crisis. Join us as we learn more about Shakti Pumps and examine its financial health.

Basic Analysis of Shakti Pump

Company Overview

Established in 1982, Mr. Shakti Pumps (India) Limited (SPIL), led by Dinesh Patidar, started its operations as a core pumping solutions company and established itself as the first manufacturing unit for stainless steel pumps and energy-efficient motors and has now established a strong presence in the pump industry. .

Shakti Pumps is the only company that produces all its products in-house, including variable frequency drives, structures, motors, inventors, etc. for solar pump installations. It has received a 5-star rating from the Bureau of Energy Efficiency (BEE).

Our manufacturing facility located at Pithampur (MP) has a production capacity of 5,00,000 pumps and is well supported by advanced in-house R&D and strong back-end support. It has a wide range of products for a variety of applications, including agriculture, building services, power, oil and gas, metals and mining, and offers more than 1,200 product variants. It has a network of over 500 dealers, 400 service centers and 18 state-based marketing branches in India.

Shakti Pumps dominates the domestic solar pump market under the PM KUSUM scheme with a market share of over ~30%. We have a diverse customer base, including government, solar OEM companies, and industry, so customer concentration is low. Exported to over 100 countries.

Shakti is also part of the International Solar Alliance (ISA), which consists of over 2,70,000 solar pumps across 22 countries, over 1 GW of solar rooftops across 11 countries, and a total demand of over 10 GW of solar minis. -Under this program, grids are operated across 9 countries.

segment analysis

SPIL is mainly engaged in the business of manufacturing various types of pumps and motors. Considering the nature of SPIL’s business, the company is organized into four segments:

• Solar EPC: Solar EPC stands for “Solar Engineering, Procurement, and Construction.” This means a comprehensive approach to solar energy project creation across the entire project life cycle, from initial design and engineering to component procurement and solar facility construction.

• Solar OEM: “Solar OEM” means “Solar Original Equipment Manufacturer.” Simply put, it refers to a company that uniquely designs, constructs, and provides solar energy-related equipment and components such as solar panels, inverters, mounting frames, and other essential components used in solar power systems.
• Based on geographical segment, operating revenue can be divided into India revenue and International revenue. Revenues from India operations accounted for 88% and 12% from overseas operations in FY23.

Industry Overview

The global solar industry is expected to grow 26% to $50 billion in 2019, reaching $200 billion, while the global pump market is expected to grow to $96 billion in 2022 and $119.39 billion in 2028. , will grow at a compound annual growth rate (CAGR) of 6.3% until 2026.

With an expected growth rate of 5.4% CAGR from 2023 to 2028, the Indian pump industry has a direct impact on the development of various sectors of the economy. The continued demand for pumps in key sectors of the economy has highlighted the growing importance of the pump sector in the country. The agricultural sector is the largest consumer of pumps, followed by the building services industry. The remaining infrastructure sectors (highly technology-intensive sectors such as oil and gas, water and waste management processing, metals and mining) also have high demand for pumps.

Despite the global economic situation, the industry is gradually developing, and the search for pumps with high added value and high energy efficiency is required. India’s small share of pump exports in the global market presents numerous opportunities for Indian companies.

Fundamental Analysis of Shakti Pump: Financials

Sales and Net Profit

Shakti Pumps reported revenue of Rs 968 crore in FY23, an 18% decline compared to Rs. In fiscal year 22, it is $117.8 billion. Net profit in FY23 declined by 63% from Rs 65 crore to Rs 24 crore compared to FY22. The decline in sales and profits was primarily due to unfavorable business conditions, including increased raw material costs and the suspension of some orders for PM KUSUM – II due to low margins, which impacted both revenue and bottom line.

Considering a five-year period, sales increased at a CAGR of 15.39%, while net income decreased at a CAGR of 14.56%. A closer look at the data shows that the company’s revenue and profits declined in FY20 due to delays in the KUSUM scheme, which prompted the state government to suspend the tender.

The table below shows Shakti Pumps’ sales and profits over the past five years.

profit

The financial institution reported an operating margin of 7% and net profit margin of 2.5% in FY23, compared to 9.9% and 5.5% in FY22. From a 5-year perspective, the operating profit margin is 10.96% and the net profit margin is 4.12%.

Over the past few years, margins have been unstable due to KUSUM scheme delays and raw material price fluctuations. In FY23, due to a surge in raw material prices, we refrained from taking and executing new orders and only executed pending orders, resulting in lower sales and lower profitability.

The table below shows Shakti Pumps’ profit margins over the past five years.

rate of return

In terms of rate of return, Shakti Pump’s business generates low returns on capital employed and equity capital. RoCE and RoE in FY23 stood at 9.84% and 5.77%, respectively.

RoCE and RoE ratios were unstable due to unstable profitability ratios. On a five-year average, these ratios are 15.1% and 10.93%, respectively.

The table below shows Shakti Pumps’ ROE and RoCE over the past five years.

leverage ratio

If you look at the company’s leverage, you can see that it maintains relatively low debt and is continuously decreasing. The highest debt ratio over the past five years was 0.73 in 2020.

This indicates less financial strain on the company as it relies less on borrowed capital to finance its operations and expansion. This also means the company can keep more of its profits because it has less commitments to repay debt and interest.

On the interest front, the company’s interest coverage ratio declined in FY23, reported at 3.06, due to accounting impact of Ind AS 116. This means the company generated enough gross profits to cover its interest expenses by more than three times. Excluding FY20 when there were losses, this ratio has been strong.

The table below shows Shakti Pumps’ D/E and interest coverage ratios over the past five years.

key indicators

Basic Analysis of Shakti Pump: Future Plans

• The company plans to continue providing innovative solutions through advanced R&D support.
• Implementation of the Uganda project has begun in line with Africa’s green energy plan.
• The initial plan to replace 20,000 pumps out of a total of 100,000 diesel pumps has been achieved by approximately 15% and is continuing.
• Maintain dominance in both domestic and international markets and expand export sectors.
• The company also expects to receive new orders under PM-KUUSM Plan III.

conclusion

In the article “Fundamental Analysis of Shakti Pumps” we looked at their business, operating industry, five-year financials and future plans. The company has a good opportunity as the government is focusing more on energy, but its margins are shrinking too much and it seems to be more dependent on government schemes.

We recommend further analysis before investing to understand the risk and return characteristics of this company. What do you think about Shakti Pumps as an investment opportunity? Let us know in the comments section below.

Written by Ashish Agarwal

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