KSB Pumps Company Limited

KSB Pumps Company Limited (PSX: KSBP) was established in 1959 under the Companies Act, 1913 (now, Companies Act 2017).

The company manufactures and sells industrial pumps, valves, castings, and related parts. It also provides after-market services.

Shareholding pattern

As at December 31, 2019, the largest number of shares in KSB Pumps is held by its associated companies- nearly 59 percent. This category includes one shareholder. Some 21 percent shares are with the local general public while directors, CEO, their spouses, and minor children do not hold shares in the company. About 9 percent and 6 percent are held in Trustee National Investment (Unit) Trust and public sector companies, respectively. The remaining 5 percent shares are with the rest of the shareholder categories.

Historical operational performance

Topline was increasing from CY14 to CY17 after which it registered negative growth, whereas profit margins remained stable after dipping in CY11; but after CY18 gross margin increased while net margin followed a downward trend.

During CY16, KSB Pumps saw its sales revenue growing by close to 24 percent. This is a result of positive performance in all the segments, with the Water and Industry being the top performing segment. In the Industry and Energy sectors, the company received “high-tech business of water treatment through reverse osmosis (RO) plants”. During CY16 the company also executed the first phase of “Saaf Pani”- a project of Engineering, Procurement and Construction (EPC) for installation of solar based UF & RO filtration plants. Cost of production was slightly higher than last year, at nearly 79 percent, that reduced gross margin to 21 percent. However, net margin actually increased to 7.6 percent, due to reduction in administrative and distribution expenses as their shares in revenue.

Sales revenue growth was subdued at a single digit growth of 3.3 percent, as compared to the double-digit growth seen for the last three consecutive years. While all the segments performed well, with Water/Waste Water and Industry being the top performers, significant contribution to revenue was made by JICA-Lahore project in the public sector. With cost of production returning to around 77 percent of revenue during the year, gross margin also improved to 22 percent. The effect of this also trickled down to the net margin that increased marginally to 7.7 percent, given the minute changes in other elements of the financial statements, as their shares in revenue.

After four consecutive years of growing topline, revenue fell by 3 percent in CY18. “restriction on development fund since April 2018, by the interim government and cap on release of fund in the quarter 3 & 4 has resulted in virtually no activity in the public sector”. Although the Industry segment performed well, it could only offset the decline in other sectors to a certain extent. The company managed to receive business from oil marketing companies due to infrastructure development in the form of oil depots. However, given the currency devaluation and inflationary trends seen in CY18, cost of production rose to claim nearly 87 percent of revenue- the highest seen in a decade. This caused gross margin to fall to an all-time low of 13 percent. Although net margin received some support from other income, it still fell to nearly 4 percent. The unusually high income was generated through exchange gain and “sundry income”.

The reduction in sales revenue was much more pronounced during CY19 as it fell by 24 percent- the largest contraction seen in a decade. This was due to a significant cut in development expenditure in public sector. This adversely affected the business of KSB Pumps. Business from oil marketing companies picked up momentum; this helped to compensate for the declining trend seen in the local market. Cost of production, on the other hand, fell to 80.5 percent of revenue; most of this decline was seen in raw material expense, salaries, and outside services. This helped to improve gross margin to 19.5 percent, but net margin still fell further to 2 percent. This was due to the absence of other income that was present the previous year, and an escalation in finance cost.

Quarterly results and future outlook

During the first quarter of CY20, revenue was lower year on year with cost of production being the highest seen in the three quarters of CY20. Distribution, administrative and finance expense were also the highest in the three quarters, in value terms. Thus, the company incurred a loss of Rs 24 million as compared to a profit of Rs 14 million in 1QCY19.

With the lockdown in place and human lives at risk, there was an expectation during the first quarter of CY20 that government funds would be directed more towards the health sector. This, in addition to near halting of activities both, in the public and private sector, was reflected in the topline of 2QCY20. It was lowest among the three quarters and also lower than that in 2QCY19. With cost of production hovering around 82 percent, the loss worsened to Rs 32 million.

Normalcy returned to a certain extent as activity in large scale manufacturing and construction sectors picked up during 3QCY20. This is also reflected in the higher topline year on year; at Rs 941 million it was also the highest topline among the three quarters. Cost of production was also lower at 78 percent that helped the company to post a profit for the quarter. Bottomline was also supported by a gradual reduction in finance cost that was due to lower interest rates.

Comparing 9MCY20 with 9MCY20, the company posted a loss of Rs 20 million as compared to a profit of Rs 54 million in 9MCY19. There was also an almost 10 percent reduction in topline that kept profitability low. If CY20 ends with a loss for the company, it will be after a period of eight years.

The company although foresees relatively better order intakes in the last quarter, however, it is dependent on rate of recovery and the potential second wave of Covid-19.