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  • 10 May 2023
  • ICICIdirect Research

KSB REVENUE GROWTH REMAINS STRONG BUT CONTRACTION IN MARGINS IMPACTS PROFITABILITY

KSB - 777 Change: -3.10 (-0.40 %)

News: Revenue increased 17.2% YoY to Rs 489.6 crore, led by strong growth in the pump segment (~85% of revenues), which grew 18.1% YoY to Rs 412.9 crore. Valves segment revenue (~16% of revenue) also increased 12.8% YoY to Rs 77.3 crore. Sequentially, revenue declined 6.7% as the pump and valves segment witnessed a decline of 6.1% and 10% QoQ, respectively. Gross margin was at 44.6% (contracted by 118 bps YoY & 244 bps QoQ). EBIDTA margin declined to 11.7% (-143 bps YoY, -296 bps QoQ), which led to EBIDTA growth of only 4.4% YoY (-25.5% QoQ) to Rs 57.2 crore as strong revenue growth was partially negated by lower margins. EBIT margin for the pump segment contracted by 233 bps YoY (-349 bps QoQ) to 10% while valves segment EBIT margin improved to 12.3% (+368 bps YoY, +111 bps QoQ). PAT came in at Rs 40.9 crore (+1.1% YoY, -26.8% QoQ).

Views: Demand remains healthy for pumps & valves from sectors like industrials, petrochemical, water, nuclear, etc, which led to strong revenue growth during the quarter. However, lower gross margin was the key negative surprise. Over the longer term, the company’s strategy is to focus on improvement in margins led by increasing share in services & spares (from 10% of sales at present to 20%). This would be the key factor to watch in coming quarters. We believe that healthy demand for pumps, building competitiveness by expanding its product offerings to newer market segments like railways, firefighting, solar, etc with strong clientele base offers strong growth prospects in the long term.

Impact: Negative