Kirloskar Brothers: Buy

print   ·  

Srividhya Sivakumar

Investments with a long-term perspective can be considered in the stock of Kirloskar Brothers (KBL), which manufactures and exports pumps and takes up turnkey water management and irrigation projects.

At current market price, the stock trades at about 18 times its FY08 per share earnings. Given that KBL is a leading player in the EPC (engineering, procurement and contractor) pump segment, it is likely to be a direct beneficiary of the upsurge in corporate and government infrastructure spending. Increased outlays in State budgets for irrigation and water projects also bode well for the company.

KBL's joint venture with Japan-based Ebara has not only widened its product offerings, but also helped it cater to the entire needs of user industries in the power segment. Besides meeting the requirements of refineries, petrochemical and fertiliser industries, it also indigenously manufactures pumps that are used by nuclear power plants. Further, since KBL and KSB Pumps are the only pump manufacturers who can cater to the requirements of nuclear power stations, the Indo-US nuclear deal, when it takes-off could expand demand and propel revenue.

The Government's initiatives toward water treatment and supply schemes would also augur well for KBL, which derives nearly 50 per cent of its revenues from lift irrigation projects. The company's domestic pump business, especially submersible pumps used in bore wells, has bright prospects in light of the real estate boom and receding ground water levels. Agricultural pumps, however, might face pricing pressure owing to the presence of many unorganised players.

For acquisitions in areas that include pumps for paper and pulp industry, KBL has set aside about Rs 250 crore. Further, its recent acquisition of Aban Constructions is likely to supplement its established presence in the EPC segment. On the exports front, KBL's focus on African and South- East Asian markets is likely to pay off, given the market potential and the absence of established players.

Access to the UK markets through SPP Pumps (its subsidiary) and a recent foray into the US could also help widen market access. Any slowdown in the capex plans of the user industries and the entry of MNC players into this segment, remain primary risks.

(This article was published in the Business Line print edition dated December 31, 2006)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.



Recent Article in PORTFOLIO

Comments to: Copyright © 2015, The Hindu Business Line.