Accumulate KBL stock for solid, long-term gains

Kirloskar Brothers Ltd / KBL Ltd has a presence in the country for more than 130 years and is in the business of pumps, valves and hydel engines. The business application is towards large and medium pumping solutions for complex fluid management systems, valves for industrial usage in large scale applications while small pumps for usage by farmers and individuals. These products are used in the oil and gas industry and sectors such as irrigation, defence, building and construction, etc. The company has six domestic and five international facilities with an employee strength of over 6000 people catering to six continents and over 100 countries. The diverse manufacturing locations ensures cost efficiency, reduced turnaround time and adherence to local sourcing norms. KBL is a pioneer in giving the first centrifugal pump in 1926, an electric motor in 1940 and a diesel engine in 1927 to the country. The historic legacy of KBL over the last 130 years can be divided into 5 phases with the initial period of 1890-1920 being the establishment phase, the 1940-1960 being the restructuring phase, 1990-2010 period being the acquisition phase, 2010-2020 period being the technological expansion phase while the current period from 2021 being the phase of monetisation of data and technology leverage to gain market share. The company is staying ahead of the curve through digital initiatives by investing in virtual reality , augmented reality , artificial intelligence and 3D printing providing technological advantage and creating additional revenue stream in the services business . KBL has the largest 3D printer in the world at its Kirloskarvadi plant for faster turnaround of moulds in foundries around the world . The company has strategically reduced the EPC business exposure over the last decade and increased contribution from services and other value added products. By reducing exposure towards the low margin EPC orders, the company has improved its cash flow, profitability and a consistent revenue stream. There is an increased focus on higher margin profitable contracts in the water, power and irrigation sector without taking EPC exposure. KBL posted impressive consolidated financial results for Q3FY23 with the top line growing by 32% y-o-y to Rs 957 crore. EBITDA grew by 160% y-o-y to Rs 153 crore while the EBITDA margin expanded by 787 bps at around 16%. PAT grew considerably by 308% y-o-y to Rs 89 crore. The demand environment for pumps has been robust during the past couple of years on the back of government focus in agriculture, water and oil & gas sectors. Moreover, capital expenditure from the private sector in data centres, healthcare, energy and industrial sectors is also contributing to the growth of the pump industry. For any large irrigation or construction project, the pump’s content is roughly estimated to be 1% and since pumps are late cycle products, the order inflow momentum is likely to continue. Kirloskar Bros Ltd has a robust overseas order coming from sectors such as oil and gas (15-20%), water (30%) and firefighting (35%). Since customers are increasingly outsourcing their requirements for maintenance and monitoring of pumps, the company expects substantial growth in its overseas services business. Plus, through its IOT-enabled platform and subscription-based services will help the company not only diversify the revenue base but also enhance its overall margin profile. The KBL stock currently quoting at Rs 430 on the bourses can be accumulated by portfolio investors for long term solid investment gains.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.