Stocks to gain from capex and infrastructure spend cycle
Mumbai, Aug. 18
A growth in the output of pumps and valves appears to be driving interest in those industry stocks like KSB Pumps, WPIL Ltd, Kirloskar Brothers, Mather and Platt Pumps Ltd. The share price of these companies (excluding that of WPIL), have all seen a gain of 30-45 per cent month-on-month on the BSE.
"India is undergoing a capex and infrastructure spend cycle. Pumps are an integral component in the capital goods business. As such, given the demand and robust environment, the prospects for these companies look good for the next 3-4 years," said the head of equity of a leading domestic brokerage.
Analysts maintain that significant demand potential from new thermal and nuclear power generation capacity where 2-4 per cent of the capital cost could be on pumps, capacity expansion in refineries where 1.5-2 per cent of the capital expenditure is on pumps, lift irrigation schemes (budgetary allocation of Rs 7,200 crore up 57 per cent y-o-y) where 10-15 per cent of the total cost components is on pump packages, all account for some of the immediate triggers in the offing for the industry.
Valves complement pumps at a functional level and typically in any process plant account for 5-10 per cent of the capital cost, not to mention a significant replacement market. Other potential triggers are from alternative fuel users such as ethanol plants, LNG storage and re-gasification terminals all of which are intensive end-users of pumps and valves.
According to B&K Securities, most of these markets are growing in Asia and Latin America regions, as there is discernible trend in shifting of heavy manufacturing in these regions. Bulk of the new power generation capacity is being implemented in China and India. Rising energy costs have shifted industries, which are big consumers from the US to Asia. Therefore, the market for pumps used in pulp in paper, chemicals, metal working and refining has shifted making Asia the largest purchaser.
Another potential area of growth for the pumps and valves industry is via the replacement market. "Replacement market is inherently higher in slurry pumps (mining and sewage) and pumps for petrochemicals and oil and gas applications as the highly abrasive nature of slurries and corrosive environments in the petrochem applications lead to severe wearing of parts. In some circumstances, replacement parts over a five year period can be 4-5 times the original cost of the pump," say B&K Securities.
Amongst the aforementioned companies, KSB Pumps is reportedly best positioned to capitalise on the power and refinery opportunity. Kirloskar Brothers on its part is implementing a capex of Rs 80 crore in order to meet increased demand from the industrial pumps market.
Analysts add that post restructuring Mather and Platt Pumps Ltd has evolved as a global supplier of pumps with a wider product portfolio. As such its sales and realisations are likely to improve significantly.
The stock of KSB Pumps ended at Rs 547.20 up 1.37 on the BSE. The counter has gained by more than 45 per cent month-on-month. Kirloskar Brother ended marginally weak at Rs 402.90 but has gained almost 34 per cent month-on-month on the BSE. Mather and Platt Pumps Ltd ended higher at Rs 183.75, having gained almost 31 per cent month-on-month .