Shakti Pumps Q2 Analyst Call- 5 takeaways

Fresh off a record Q2 performance, the management of Shakti Pumps tackled analyst questions post the results announcement, offering some interesting insights into the firm and the progress of the segment as well. For the record, in the September quarter, the firm recorded a turnover of Rs 635 crores, with operating profit coming in at Rs 149 crores. Profit after tax at Rs 101 crores is 16x over the same quarter last year, even as topline grew 3x in the same period. The Indore-based firm, which is the largest player by share in the PMKUSUM scheme, also has a thriving exports business in pumps, besides an upcoming EV motors business.

1. How Sustainable is the Growth? 

The numbers for the past three quarters, despite coming on a low base, have been outstanding no doubt, but clearly, the big question on everyone’s mind is how long they can be sustained.

Guiding for a ‘minimum turnover’ of Rs 500 crore for Q3, the Shakti Pumps management led by Chairman Dinesh Patidar made it clear that they would rather stay with a base figure and over deliver, than the other way round. Reminding analysts that they had a similar guidance for Q2 before exceeding it comfortably, the management stressed that the existing order book of Rs 1800 crores and time left for delivery (12 months) made an obvious case for clear visibility on future numbers.

On the margin expansion it has experienced, now at 16%, Patidar stressed that the company was comfortable at these levels, and was more focused on sustaining these than seeking further expansions. He highlighted the patents that had been granted to the firm with a 15th patent granted recently, that gave it a real competitive advantage in the market and margin protection.

A special mention was made for an innovation from the firm where grid connected solar pumps can power on even when the grid is down, something that existing solar pumps, or grid connected solar systems for that matter, cannot do.

Peak capacity was also brought up, on the assumption that present capacity is running at full tilt to deliver Around Rs 600 crores in a quarter, or Rs 2500 crores annually. The management stressed that while true, debottlenecking and other efficiency improvements should allow them to stretch it to as much as Rs 3200 crores annually if required. Capacity expansion that is already under way should be in place by 2026, allowing them to target over Rs 5000 crores in revenues post that period. SBI MF and LIC MF were cited as key backers for the expansion.

The numbers make it clear that the firm remains confident of meeting its guidance for a 30% CAGR growth rate over the next two years.

2. Solar Business Picks Up

Even as the firm sold 18460 pumps during the quarter for a revenues of Rs 487 crores, most of the remaining business came from the solar component. The firm is also executing a key project in Ajmer in Rajasthan worth Rs 150 crores approximately under component C of PMKUSUM. While still early days, the firm is hopeful that a successful completion of the project would serve as a strong benchmark for more, similar business in the future. Readers will be aware that an overwhelming majority of the PMKUSUM work has been seen in off grid pumps, or component B so far. Component A (Ground mounted solar projects) and Component C (grid connected solar projects) have seen limited traction until now, a situation that seems set to change finally. Patidar expressed his view that the success of Component C could play a pivotal role in improving farmer incomes and reducing discom losses, which would create the opportunity for the firm as its first pilot ended.

The solar market growth under components A and C came in for special mention by Patidar. “Total India market, 4.5 crores pump connection is with grid, means the grid connected pump requirement is 4.5 crores is there and the off-grid is also close to this. It is a very big market and the size of the market is sky the limit”, he stressed. He also indicated that panel prices had stabilised for now, so a key cost component for the firm was in control and much more predictable.

3. Receivables Management and Risks

With a high share of government work, especially state governments, the firm has always operated in the shadow or perception of strong payment risk, something it has done a lot to dispel in the past few quarters. While probably a reflection of changed ground realities in government and its own experience of dealing with departments, the Shakti Pumps management stressed that they were comfortable with the situation, even as overall collection period was a little on the higher side at over 130 days. “If you see, our receivables have always been around a quarter and a half of revenues, and that has not changed”. The rise if any is due to the rise in revenues, stressed Patidar.

Stressing that they track projects closely for risks, Patidar pointed to the time the firm paused an order in Maharashtra when they saw it had not been budgeted for in state planning. Only when the money was allocated did the firm speed up execution.  Highlighting the shift of UP, Haryana and Rajasthan to new systems after some delays due a shift, he was clear that the money is safe, and the firms existing bank limits for working capital were adequate to power growth in the future as well.

4. International markets

With a significant international presence through exports, the firm highlighted that a key Uganda project is 40% completed with the remaining work allotted as well. On a large project it has in Bangladesh , it has paused the project considering the political situation in the country. The firm has an existing order book of Rs 221 crores between Uganda and other domestic export projects. Exports remain the 2nd largest revenue segment for the firm with a 21% share, CAGR 22.3% during FY2020-24.

5. EV Business

The Shakti EV business, being run through a 100% subsidiary carrying high hopes for future growth. The firm is making EV motors with tests on motor cycles and in EV Scooters already on. Citing Eicher, Tata and Ashok Leyland where they are in the process for automobile approval and designing, the firm has moved further with JBM where it has sold about 3000 motors. The first phase of the EV motors plant is set to start in December and post that, the firm hopes to be a key player for motors in India.