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KSB Pumps Company Limited (PSX: KSBP) is a KSB group company incorporated in Pakistan in 1959. The company’s core business is the manufacture and sale of industrial pumps, castings, valves and related products for industrial, construction and business services, energy, water and wastewater applications. The company has its production facility at Hassanabdal, Punjab along with a full foundry. In addition to catering to the needs of the local market, KSBP has a significant export market in the USA, the UK, Canada, Australia, France and Germany. KSBP is a subsidiary of KSB SE & Co. KGaA.
As of December 31, 2021, KSBP has a total of 13.2 million outstanding shares held by 946 shareholders. Associated companies, undertakings and related parties have the highest share of 58.89 percent in the company followed by the general public holding 23.65 percent of shares. NIT and ICP account for 8.24 per cent of KSBP shares while Banks, DFIs, NBFIs and joint stock companies have a joint ownership of 5.11 per cent of shares. Insurance companies have a 2.06 percent stake in KSBP. The remaining shares are held by other categories of shareholders.
Financial Performance (2018-22)
The top line and bottom line of KSBP which had been falling in 2018, 2019 and 2020 started rising thereafter.
2018 was a slow year for the company due to sluggish activity in the public sector given the fact that it was a year of general elections and there was a restriction on the development fund since April 2018. Although the industrial sector remained strong and proved to be the largest contributor to KSBP’s revenue during the year but could not compensate for lackluster demand in the public sector, resulting in a peak decline of 3.2 per cent year-on-year in 2018. Cost of sales continued to growing on the back of currency depreciation which weakened the cost of production resulting in GP profits clocking in at 13.4 per cent in 2018 from 22.4 per cent in 2017. The cost of finance grew due to investment in a new fully automated foundry. However, “other income” played the game changer role in 2018 and resulted in the PC margin being higher than the OP margin. In 2018, other income increased to Rs. 226.66 million mainly due to variable income where KSBP had reversed the group service provision carried out since 2014 on the instructions of KSB SE & Co. KGaA. NP margin for 2018 clocked in at 3.96 percent compared to 7.74 percent in the previous year.
In 2019, the top line fell by 24 per cent due to low spending in the public sector as there was a drastic cut in development spending. Significant business came from the oil marketing companies as a result of infrastructure development. Export sales also rose during the year. However, tame activity in the public sector resulted in low production and sales of KSBP. The cost of production also took a turn leading to a GP margin of 19.5 per cent in 2019. Operating costs were under control which fell by 8 per cent year-on-year, resulting in a 142 per cent year-on-year jump in profits active. This ended with an OP margin of 5.1 per cent in 2019 against 1.6 per cent in the previous year. Although GP profits and OP profits were higher than the previous year, the cost of finance was not kind enough to support the bottom line and was raised by 213 per cent year on year in 2019 due to a high discount rate combined with high short term loans during the year. Other income also fell by 58 percent year-on-year mainly due to a high base effect on a variable income account in the previous year. This put a dent in the bottom line which shrank by 55 per cent year on year with the PC margin at 2.3 per cent in 2019.
2019 was followed by another slow year due to COVID-19 which not only affected KSBP’s local business but also negated the growth prospects in its export business due to global lockdown and supply chain disruption. The top line fell by 4 percent year-on-year. This could have been worse if the water market area and general industry had not provided reasonable growth in orders. Cost of sales and operating expenses were kept under control during the year, however, GP profit and OP margin fell to 16.5 per cent and 2 per cent respectively. Other income also did not boost the bottom line as KSBP did not make any exchange gains during the year. The funding cost provided a bit of a headwind due to a cut in the discount rate during the year together with a reduction in short term funding secured during the year. The bottom line plunged 81 percent year-on-year with the NP margin moving down to 0.5 percent in 2020.
In 2021, the company’s business activity was accompanied by a peak year-on-year growth of 20 percent. Although economic activity remained weak in 1HCY21, the recovery in the second half of the year spoke for itself. The main areas that drove KSBP’s growth in 2021 were general industry, petrochemicals, construction services, foundry business and inter-company export business. There has been significant pressure on prices and supply disruptions during the year. The company was able to partially pass on the price increase to customers, however, GP profit was 13.7 per cent in 2021. Operating costs grew in line with inflationary pressures, however, operating profit slipped 49 per cent year-over-year with OP margin hovering around 1 percent in 2021. Income and other finance costs provided much-needed support to the bottom line which grew 66 percent year-over-year. The NP margin rose slightly to 0.6 per cent in 2021.
2022 was also a great year for KSBP despite all the economic headwinds. Sales revenue grew 15 percent year on year. GP margin and OP margin which had been falling since 2020 started to improve in 2022. GP margin stood at 15.6 per cent while OP margin was 3.2 per cent. Other income did tremendous work during the year increasing by 65 per cent over last year. Although detailed financial statements for 2022 are not available, we can assume that exchange gains may have worked their magic. However, the growth in other income was overshadowed by finance costs multiplying by 131 per cent in 2022. This resulted in a bottom line growth of 59 per cent year-on-year with an NP margin of 0.9 per cent in 2022.
In the first week of 2023, KSBP had to shut down its plant operations due to lack of demand in the local market due to relaxed economic activity due to upheaval in inflation, depreciation of Pak Rupee and low purchasing power of consumers. This put brakes not only on the industrial sector but also on public sector spending. This together with import restrictions deprived the company of essential raw materials to fulfill export orders. While the company has resumed operations, KSBP’s sales are not expected to show any impressive growth in the ongoing quarter as its major clients have either shut down or reduced their production. Moreover, high cost of production and financing will keep the margins limited.