KSB Pumps Company Limited (PSX: KSBP) is a KSB group company incorporated in Pakistan in 1959. The company’s core business is the manufacturing and selling of industrial pumps, castings, valves and related products for industrial, construction and business services, energy, water and waste water applications. Besides catering to the needs of 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.
Pattern of Shareholding
As of December 31, 2023, KSBP has a total of 13.2 million shares outstanding which are held by 1064shareholders. Associated companies, undertakings and related parties have the majority stake of 58.89 percent in the company followed by local general public holding 23.54 percent shares. NIT and ICP account for 8.24 percent of KSBP’s shares while Banks, DFIs, NBFIs and Joint stock companies have a collective ownership of 5.44 percent shares. Insurance companies hold 2.06 percent in KSBP. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-23)
The topline and bottomline of KSBP followed a downward trajectory until 2020. The next two years mark an upward trend, conversely, in 2023, while KSBP’s topline reasonably grew, its bottomline drastically fell. The company’s margins portray an asymmetrical pattern over the years. In 2019, gross and operating margins considerably recovered while net margin fell. This was followed by the contraction of all the margins in 2020. In 2021, gross and operating margins continued to shrink while net margin slightly recovered. In 2022, all the margins posted an uptick. Gross and operating margins continued to expand in 2023 witnessing their highest levels, while net margin fell to its lowest level in 2023. The detailed performance review of the period under consideration is given below.
In 2019, KSBP’s topline dipped by 24.18 percent on the back of low public sector spending as there was a drastic cut in development budget. This couldn’t be offset by significant business from oil marketing companies and uptick in export sales during the year. Cost of sales took 29.5 percent nosedive resulting in 10.33 percent higher gross profit recorded by the company in 2019. GP margin grew from 13.39 percent in 2018 to 19.5 percent in 2019. Operating expenses dipped by 7.55 percent year-on-year on the back of lower payroll expense, travelling & conveyance charges, forwarding expense, loss allowance as well as royalty & trademark charges. KSBP also did lesser provisioning for WWF and WPPF in 2019. This resulted in 142 percent year-on-year jump in the operating profit with OP margin of 5.11 percent in 2019 versus 1.6 percent in the previous year. While the GP margin and OP margin turned out to be greater than the previous year, finance cost didn’t prove to be kind enough to buttress the bottomline and escalated by 213 percent year-on-year in 2019 due to high discount rate coupled with high short-term borrowings during the year. Gearing ratio ticked up from 39 percent in 2018 to 41 percent in 2019. Other income also dipped by 57.87 percent year-on-year principally because of high-base effect on account of high sundry income and reversals of provisions no longer considered necessary recorded in the previous year.Furthermore, KSBP received lesser commission income in 2019. This put a dent on the bottomline which shrank by 55.17 percent year-on-year to clock in at Rs. 87.88 million in 2019 with NP margin of 2.34 percent versus 3.96 percent in the previous year. EPS also marched down from Rs.14.85 in 2018 to Rs.6.66 in 2019.
2019 was followed by another slow year due to COVID-19 which not only affected KSBP’s local business but also turned down the growth prospects in its export business due to worldwide lockdowns and supply chain disruptions. The topline slid by 3.96 percent year-on-year in 2020. This could’ve been worse had the water and general industry market area not provided reasonable growth in orders. Cost of sales plunged by 0.38 percent in 2020 as lockdown and idle plant capacity didn’t allow for efficient absorption of fixed cost. Gross profit declined by 18.76 percent in 2020 with GP margin moving down to 16.5 percent. Operating expense dropped by 3.56 percent in 2020 on account of lower commission expense as well as travelling & commission charges. KSBP recorded 61.54 percent lower operating profit in 2020 with OP margin falling down to 2.05 percent. Other income didn’t buttress the bottomline either as KSBP didn’t make any exchange gain during the year along with significantly lower commission and sundry income in 2020. Finance cost provided a breather as it slid by 20.86 percent in 2020 due to discount rate cut during the year coupled with a drop in short-term finances secured during the year. This squeezed KSBP’s gearing ratio to 37 percent in 2020. The bottomline plunged by 81.26 percent year-on-year to clock in at Rs.16.47 million with EPS of Rs. 1.24 and NP margin of 0.46 percent.
In 2021, the company’s business activity geared up with a topline growth of 20.18 percent year-on-year. Although economic activity remained weak in the 1HCY21, sound recovery in the second half of the year spoke for itself. The main areas which propelled KSBP’s growth in 2021 were general industry, petrochemicals, building services, foundry business and intercompany export business. There were significant price pressures and supply disruptions during the year. The company was able to partially pass on the price increase to the customers, however, gross profit slipped by 0.04 percent in 2021 with GP margin falling down to 13.7 percent. Operating expenses grew in line with inflationary pressure, however, operating profit slid by 49.15 percent year-on-year with OP margin hovering around 0.87 percent in 2021. Other income provided the much needed support to the bottomline as it grew by 21.25 percent in 2021 on account of exchange gain, commission income, sale of scrap, and recognition of deferred government grant as well as reversal of doubtful debts. Finance cost slumped by 19.46 percent in 2021 due to lower discount rate. Short-term finance significantly grew in 2021 driving the gearing ratio up to 48 percent. Net profit grew by 65.67 percent year-on-year in 2021 to clock in at Rs. 27.29 million with EPS of Rs.2.07 and NP margin of 0.63 percent.
2022 also proved to be a great year for KSBP despite all the economic headwinds. Sales revenue grew by 15 percent year-on-year. This was on the back of superior export sales strategy whereby the company sold its products to its mother company in Germany and sister companies in Saudi Arabia, South Africa and Turkey. Focusing on marine industry in Karachi also bore positive results for the company in 2022. Supply of reverse engineering products locally as well as in the Middle East, African and Russian markets by inaugurating a new furnace also proved to be a good omen for KSBP. The main contributors were general industry, petrochemicals and building services. High inflation, Pak Rupee depreciation and escalating energy tariffs resulted in 12 percent hike in cost. However, with revised price strategy, market and product diversification, KSBP was able to achieve 30.35 percent higher gross profit in 2022 with GP margin moving up to 15.6 percent. Operating expense mounted by 10.79 percent in 2022 mainly on account of higher forwarding expense, travelling & conveyance charges as well as repairs & maintenance. KSBP registered 350.52 percent higher operating profit in 2022 with OP margin climbing up to 3.18 percent. Other income improved by 64.91 percent in 2022 due to superior exchange gain, scrap sales and interest on long-term deposits. However, this was offset by 134 percent higher finance cost incurred by the company in 2022. Elevated finance cost was the result of monetary tightening. Gearing ratio slipped to 45 percent in 2022. KSBP posted net profit of Rs.43.34 million in 2022, up 58.82 percent year-on-year with EPS of Rs.3.28 and NP margin of 0.87 percent.
In 2023, KSBP’s net sales grew by 15.91 percent. This was on account of a robust inter-company export business. Besides, water, general industry, petrochemicals and building services also proved to be the major revenue drivers in 2023. Sharp price hikes due to inflation and Pak Rupee depreciation and supply chain disruptions on account of import restrictions increased the cost; however, KSBP was able to pass on the impact of cost hike to its consumers. This resulted in 51.5 percent higher gross profit in 2023 with GP margin of 20.39 percent. Operating expense multiplied by 42.7 percent in 2023. This was on account of elevated payroll expense, forwarding charges, royalty & trademark charges, travelling &conveyance; IT related charges as well as higher advertising budget. KSBP streamlined its workforce from 306 employees in 2022 to 285 employees in 2023. The company also booked higher net impairment loss on financial assets in 2023 which also drove up its operating expense. Despite taller operating expense, KSBP recorded 85.8 percent higher operating profit in 2023 with OP margin of 5.1 percent. Other income drastically fell by 46.25 percent in 2023 as the company didn’t record any exchange gain and interest on long-term deposits in 2023. Finance cost surged by 46.36 percent in 2023 on account of unprecedented level of discount rate and increased borrowings which drove up its gearing ratio to 47 percent. Consequently, net profit slumped by 98 percent to clock in at Rs.0.84 million with EPS of Rs.0.06 and NP margin of 0.01 percent – the lowest level ever witnessed by the company.
Future Outlook
With the political dust settled, public sector development activities are expected to gain pace particularly in the water market area. This may increase the demand of KSBP products. The company is also making efforts to grab bigger ADB funded development projects. Gradual developments in steel, sugar, fertilizer and auto sectors will also strengthen the business outlook of KSBP in the ongoing year.
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