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KSB Pumps Company Limited – BR ResearchMEERI News

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KSB Pumps Company Limited (PSX: KSBP) is a KSB Group company established in Pakistan in 1959. The main activity of the company is the production and sale of industrial pumps, castings, valves and related products for industrial, construction and business services, energy, water and waste water application. The company has a manufacturing facility at Hassanabdal, Punjab along with a full fledged foundry. In addition to meeting the needs of the local market, KSBP has a significant export market in USA, UK, Canada, Australia, France and Germany. KSBP is a subsidiary of KSB SE & Co. KGaA.

Model of shareholding

As of December 31, 2021, KSBP has a total of 13.2 million shares owned by 946 shareholders. Related companies, enterprises and related persons have the largest share of 58.89 percent in the company, followed by the local public with 23.65 percent shares. NITs and ICPs hold 8.24 per cent stake in KSBP, while banks, DFIs, NBFIs and joint stock companies collectively own 5.11 per cent shares. Insurance companies have a share of 2.06 percent in KSBP. Other categories of shareholders own the remaining shares.

Financial performance (2018-22)

The top and bottom line of KSBP which were falling in 2018, 2019 and 2020 started to rise after that.

2018 was a slow year for the company due to weak public sector activity given the fact that it was a general election year and there was a cap on the development fund from April 2018. While the industrial sector remained strong and proved to be the largest contributor to KSBP’s revenue during the year, it could not offset the weak demand in the public sector, resulting in a 3.2 per cent YoY decline in 2018. increased production costs resulting in GP’s margin reaching 13.4 percent in 2018 from 22.4 percent in 2017. Finance costs have increased due to investments in a new fully automated foundry. However, “residual income” played a game-changing role in 2018 and resulted in the NP margin being higher than the OP margin. In 2018, other revenues increased to Rs. 226.66 million mainly on account of miscellaneous income by which KSBP changed the provision of group service maintained since 2014 on instructions of KSB SE & Co. KGaA. NP margin for 2018 came in at 3.96 percent versus 7.74 percent in the previous year.

In 2019, the top line declined by 24 percent due to low spending in the public sector as there was a drastic reduction in development expenditure. There was significant business from oil marketing companies as a result of infrastructure development. Export sales also increased during the year. However, tame public sector activity has resulted in low production and sales of KSBP. Manufacturing costs also fell resulting in a GP margin of 19.5 percent in 2019. Operating expenses were under control, down 8 percent year-over-year, resulting in a 142 percent year-over-year jump in operating profit. This culminated in an OP margin of 5.1 percent in 2019 versus 1.6 percent in the previous year. While GP margin and OP margin turned out to be higher than the previous year, finance charges did not prove to be kind enough to support the bottom line and rose 213 percent year-on-year in 2019 due to a high discount rate coupled with high short-term borrowings during the year. Other income also declined 58 percent year-over-year, mainly due to the effect of a high base on account of miscellaneous income in the prior year. This put a dent in the bottom line which was down 55 percent year-on-year, with NP’s margin at 2.3 percent in 2019.

2019 was followed by another slow year due to COVID-19, which not only affected KSBP’s local business but also dented growth prospects in its export business due to worldwide lockdowns and supply chain disruptions. The top line slipped by 4 percent year-on-year. This could have been worse if the water and general industry market area did not provide reasonable order growth. Cost of sales and operating expenses were well under control during the year, however, GP margin and OP margin fell to 16.5 percent and 2 percent respectively. The rest of the income did not make ends meet as KSBP did not make any exchange profit during the year. Finance costs provided some breathing space due to the reduction in the discount rate during the year along with the decline in short term finance provided during the year. The bottom line fell 81 percent year-over-year, with NP’s margin shrinking to 0.5 percent in 2020.

In 2021, the company’s business adjusted with a top-line growth of 20 percent year-on-year. Although economic activity remained weak in 1HCY21, the recovery in the second half of the year spoke for itself. The main areas driving KSBP’s growth in 2021 were general industry, petrochemicals, construction services, foundry business and inter-company exports. During the year there were significant price pressures and supply disruptions. The company was able to partially pass on the price increase to customers, however, GP’s margin came in at 13.7 percent in 2021. Operating expenses rose in line with inflationary pressures, however, operating profit fell 49 percent year-on-year with OP margin hovering around 1 percent in 2021. Other revenues and financial expenses provided the necessary support to the bottom line, which grew by 66 percent year-on-year. NP margin increased marginally to 0.6 percent in 2021.

2022 also turned out to be a great year for KSBP despite all the economic headwinds. Sales revenue grew by 15 percent year-on-year. OP margin and OP margin that had been declining since 2020 started to recover in 2022. GP margin was 15.6 percent while OP margin was 3.2 percent. Other revenues did a tremendous job during the year with a 65 percent increase over last year. Although detailed financial statements for 2022 are not available, we can assume that exchange gains can work their magic. However, the growth in other income was overshadowed by finance costs, which multiplied by 131 percent in 2022.

Future perspective

During the first week of 2023, KSBP had to shut down its plants due to lack of demand in the local market due to sluggish economic activity on the back of inflationary uproar, devaluation of Pak Rupee and low purchasing power of consumers. This holds back not only the industrial sector but also public sector spending. This along with import restrictions deprived the company of essential raw materials to fulfill export orders. While the company has continued its operations, KSBP’s sales are not expected to see any noticeable growth in the current quarter as its major customers have either shut down or reduced their production. In addition, high production costs and finance costs will keep margins tight.


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