Shakti Pumps - solar shakti (power)!

Hi Abhishek,

Was the payment made to Mr. Bachchan a one time payment made for his services going into the future? Is it a three year contract, the entire payment for which has been made in the first year itself n no further payments are to be made in the balance period of the contract? If any further payments are to be made to Mr. Bachchan in the current year, will those be added again to deferred expenditure? Advertising is a recurring expense, so isn’t it somewhat risky to capitalize it ? Just a thought.

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Dear Rajeev, payments to Mr. Bachchan are made from Oct-Oct period and I think they are capitalized from distribution across 4 quarters. I have come across previously, cases where advertising expenses are capitalized so I didnt see anything wrong here. The reason is that payments to Mr. Bachchan are made at the start of the year itself i.e. October but the benefits accrue over a period of time and hence this method of accounting. If they booked it in the same quarter, Oct-Dec results would be badly skewed.

Dear Balkrishna, you do have a point and I think someone has looked at it - but I feel that if the overhang of pledging starts to come down, the stock could do well. The fact that mgmt is aware of the high WC and striving to bring it down and better margins should allow them to achieve this.

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Abhishek… did u manage to have a chat ? Stock seems to have moved quite a bit again

Hi Varun,

I did manage to speak to a company insider. The salient points of the discussion are as follows:

1). The target of 400 crore that the management has indicated does not include a single penny of solar pumps orders. Any orders they receive through that route will be a bonus

2). There is no company currently in the market who is assembling pumps using SS materials.

3). Efficiency is important in the Indian context not just from the point of view of saving power but also because power is available for only a limited time period in the day and in that time the farmer wants to have maximum quantity of water that is pumped and so with Shakti pumps for same pump capacity he is able to get a higher amount of water as compared to competition.

4). Their solar pumps are more superior as compared to the market because they are able to run the pumps at night too because of their compatibility with the grid.

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so- the view within the company is that the products are indeed of better quality… thats a tick.

what we need to see over time then is how well their marketing and distribution engines work to drive sales…

thanks for the effort

I think its a given that their products are of better quality. Definitely some scuttlebutt is required to confirm by talking to some of their dealers but this was confirmed by one of their past investors too with whom I had spoken a few days back.

Regarding marketing and distribution, I think, strategically they seem to be heading in the right direction by appointing exclusive dealers and having Big B as their brand ambassador. They have ambitious plans to double their dealer network. What we need to see is how well they execute.

The bigger issue however is the WC requirement (which is also leading to pledging). I feel that if they are able to address this issue then there should be a case for rerating.

I think that there is a good chance that this can happen going forward because their domestic sales are growing much faster than their exports and domestic materials are sold on immediate payment basis unlike exports which are sold on 90 days credit.

Disc: I have taken up a tiny position in the stock with a view to track it. Will take a bigger plunge if fundamentals improve going forward.

I spoke to someone in Grudfos and he did not have a great view of the company.

1). There are other companies in India that do SS pumps - KSB, shakti pumps - you can look at their websites and that seems true. Whoever, is saying they are the only SS pump makers, has not done scuttlebutt.

2). more than 65% of their revenues is from exports to african countries via the government -his view is that this is not a clean channel given the way african governments operate.

3). standard practice in the industry is always to capitalize advertisement expenditures and if one rolls back the Rs. 11 Cr. spent on advertisement, I am not enthused by the bottomline.

4). I checked with three dealers in bangaloree and chennai - they said shakti is not strong in south and KSB or CRI are better in the mid-market and grundfos at the high end.

I think we will have a better view if other VP-ers do some scuttle butt. We should never rely just on the company and our own views to avoid confirmation bias.

Thoughts, any one ?

I used to own some shares in this company and sold recently. I was very uncomfortable with the corporate governance practices these guys were following. Some of the things I didn’t like:

  1. Their repeatedclaims that they are the only guys whose pumps run on AC and DC is not true. I looked at KSB Pumps’ website. They have the same thing too - http://www.kirloskarpumps.com/pdf/packaged-system/Solar-leaflet.pdf. Now I understand from Varadharajan that they are also not the only makers of SS pumps. Either they think we are fools or they don’t know who their competitors are. Either way I don’t want to own this business.
  2. Cash generation has been weak because of continuous jump in loans and advances to related parties. The company has to depend on warrants from promoters for capex needs because of this reason -low internal accruals. Note thatthe impact of dilution from warrants outstanding is very substantial.
  3. If you see the FY14 cash flow statement, Rs 18cr of positive operating cash is eaten up by 29cr of investment outflow. Rs 12.5cr out of this 29cr outflow is increase in loansand advances (which BTW, is shown as an investment outflow to show operating cash asnice number). As long as this way of cash transfer from the company happens, this company will show reported profits but never generatecommensurate cash.
  4. Finally, the one that crossed the line for me - there is a new related party in FY14 annual report from which the listed entity has bought solar pumps. It appears that the listed Shaktiis going to trade in solar pumps while the actual manufacturing will be done by a promoter entity. Lets not forget that Shakti has supposedly invested two years of research to develop this product. Now the manufacturing seems to have nicely moved toa promoter entity.

I haven’t spoken to the company on any of this because am never gonna believe what they say anymore.

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Co.was rep by Dinesh Patidar, CMD, B R Patidar, Director-Finance, Ramesh Patidar, Director-Exports.Highlights of the call by Capital Mkt;

Sales fell 27%to Rs 55.71 crore. in Sep.14 quarter. PAT was down 44% to Rs 3.35 crore.Sales were affected due to its exports business in Iraq. Iraq constitutes 40% of the company's exports. Exports to Iraq were Rs 14 crore in Sept 13 quarter & were NIL now.COhas given guidance of Rs 65 crore exports in Sept 14 quarter but managed to do only Rs 35 crore.Co has orders from Iraq but is not servicing those orders as it is not very confident of getting the money.The company used to export 2 containers worth Rs 5-7 crore every month to Iraq but has now stopped.Problems in Middle East are temporary as the company foresees constant demand for water from the geographies like Iraq, Syria, Libya.Sales also got impacted as some of them got shifted to December 2014 quarter due to extended rain and elections.The company is working in new geographies to shore up its exports especially in Europe, Morocco, Africa and USA.The management is bullish on solar pumps.

The company said its board allotted 15 lakh 15% compulsory convertible preference shares (CCPS) at a nominal value of Rs 100 each at a premium of Rs 200 each aggregating to Rs 45 crore and convertible into 1.64 million equity shares of Rs 10 each at a premium of Rs 265 each of the company at a conversion ratio of 1:1.0909 to Global Environment Fund (GEF) (through its arm AF Holdings,), a Company incorporated under the laws of Mauritius.Through this investment the company hopes to get new dealers and clients in US and European markets.

Global Environment Fund invests only in companies which have environment friendly products and are unlisted. Shakti Pumps is the only listed company where it has invested.For December 2014 quarter the company expects sales to be around 90 crore out of Rs 35 crore is expected to come from the export markets and Rs 55 crore from the domestic markets.In March 2014 quarter it expects sales to be around Rs 115 crore.

It sees huge opportunities in Solar pump markets. And any recovery from Iraq, Syria and Libya market will be added to these guidance as the company has not factored sales of single penny from these geographies.The company's pledged shares have come down from 78% to 54%. The management did not know that pledging adversely effects the image of the company. Now that it has come to know it has de-pledged its shares. It will continue to do so. The management said that it had pledged its shares in the year 1995.

NABARD has come out for orders of 60000 pumps which will be distributed among 19 channel partners. Out of these 17 channel partners use Shakti Pumps's pumps. Cost of each pump is Rs 35000 so there is an potential order of Rs 210 crore.It did sales of Rs 3 crore from USA. It has just started focusing on the US market.The company is working at capacity utilization of 60-70% and there is no capacity expansion plans in the near future.

Line 1 - “Shakti Pumps (I) Ltd. is an Indian pump manufacturer and exporter with a formidable presence in over 100 countries of the globe”

Line 2 - “Iraq constitutes 40% of the company’s exports.”

Line 3 - " more than 65% of their revenues is from exports to african countries via the government"

All the lines are taken from material which is already present in this thread.

Lot of inconsistencies, no ?

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Iraq is passing through highly turbulent times .

High exposure to iraq may lead to high receivables / write downs

Franklin Templeton has picked up a small stake recently,

http://www.moneycontrol.com/stocks/marketstats/blockdeals_query.php?sc_id=SPI08&post_flg=1&myexchg=Both#SPI08

Call was rep byDinesh Patidar, CMD, B R Patidar, Director-Finance, Ramesh Patidar, Director-Exports. Highlights of the call by Capital Mkt:

Shakti Pumps is a leading manufacturer of 100% stainless steel submersible pumps in India with exports to over 100 countries.It reported total revenue of Rs 85.23 crore for the quarter ended December 2014 a 53.0% QoQ growth. Net Profit stands at Rs7.64 crore registering a growth of 128.7% QoQ.Revenue up by 5.5% YoY at Rs 85.23 crore compared to Rs.80.76 crore last year. EBIDTA up by 16.5% YoY at Rs 15.78 crore.

Sales from Europe stood at Rs 6 crore during the quarter, sales from Africa stood at Rs 14 crore and sales from Asian countries stood at Rs 16 crore and from USA stood at Rs 11 crore.In recent years it has forayed into the domestic markets. Domestic sales were up 108% YoY.PAT up by 20.3% YoY at Rs 7.64 crore as against Rs 6.40 crore

Traditionally, the company has done well in the second and third quarter but this time it is especially pleased with its performance as it came in the face of a strong monsoon deficit in India.The export performance has also been satisfactory given the uncertain global economic climate.

Nine months revenue grew 1.0% at Rs 210.64 crore as compared to Rs 208.60 crore last year.EBIDTA grew 11.4% at Rs 39.53 crore as against Rs 35.49 crore.PAT grew 4.9% at Rs 17.79 crore as against Rs 16.95 crore.The company exports its products to over 100 countries with the number steadily growing.In 9 Months sales from Europe grew 82%, America grew 69%, Africa grew 30%, Fiji 100%.In next 2-3 quarters sales from Gulf region is expected to improve.

The government initiatives like Swachh Bharat Abhiyan, Ganga Cleaning project, River connecting projects and initiative towards solar energy and energy efficiency will lead the sector with a positive growth

The company’s plans to expand into new geographies and tap new markets is on track. It is also strengthening its brand further and has renewed the contract with Amitabh Bachchan as the brand ambassador this quarter.

The promoters had 55% of shares mortgaged with the bank long back. The bank has now released 2000000 shares so now it has 25% of shares mortgaged. It hopes to release this also soon.Domestic sales in Q4 is expected to be at Rs 66 crore.

Industrial pumps account for around Rs 9 crore of sales in 9 months. This segment has good scope and the company is also focusing on this segment as once it becomes established then they get auto generated orders from the OEMs.The company is still in entry level in the Industrial pumps business.

The central government has planned to install 1 lakh solar pumps. Rajhasthan government plans to install 5000 solar punps, Gujarat government has given orders for 1000 solar pumps and currently negotiations are on. In Tamil nadu the company has already supplied 1000 pumps thru Jain Irrigation, its OEM.The company has 98% market share in Solar pumps business.

The cost of solar pumps is Rs 43000 (which it supplies to its OEMs like Tata BP, Jain Irrigation etc). On the other hand complete installation costs Rs 6.10 lakh.NABARD has come out for orders of 60000 pumps out of which funds has been transferred for 30000 pumps. Cost of each pump is Rs 35000 so there is an potential order of Rs 210 crore.

The Pumps made by the company perfectly fits in the Solar vision of the current Indian Government. The company feels that this is the best and pro active government.

Capacity is 525000 pumps. It is currently operating 50-55% capacity in 2 shifts. Thus the company does not envisage any expense for capacity increase.In Q4 it expects Rs 54 crore will come from exports and Rs 66 crore from domestic business.Steel price has not fallen much so no impact to the company of the falling commodity prices.

The company expects Rs 500 crore of sales in FY 2016 which will be equally divided by domestic and export business. The company has not taken into account any business from the Solar pumps as this is a tender based business and little delay in the same will put the company’s projections haywire.Advertisement expense is expected to be 8-9%.

The company has 325 exclusive dealers. It works only with exclusive dealers. It plans to increase this to 500 in FY 2016.

Call rep by Dinesh Patidar, CMD, B R Patidar, Director-Finance, Ramesh Patidar, Director-Exports.Highlights by Capital Mkt:
For March 2015 quarter, on y-o-y basis sales fell 1% to Rs 99.3 crore , PBT fell 9% to Rs 12.79 crore and PAT fell 18% to Rs 7.93 crore.On q-o-q basis sales grew 16%, EBIDTA grew 17% and PAT went up PAT up 4%.Q-o- Q export sales grew 23% to 49.74 crore.
Shakti Pumps is a leading manufacturer of 100% stainless steel pumping solutions in India. It exports to over 100 countries.In FY 2015, revenue grew 1% to Rs 309.97 crore. EBIDTA grew 5% to Rs 58.01 crore. PAT fell 3% to Rs 25.72 crore.Domestic sales grew 60% to Rs 142.08 crore as against Rs. 89.03 crore last year.Solar business grew 100%.Industry grew 400%.Retail grew 30%.
Exports stood at Rs 157 crore in FY 2015 and at Rs 42 crore in March 2015 quarter.Exports sales from USA grew 100%.FY 2015 was a year of many ups and downs. In a way this allowed the company to prove its capacity to absorb shocks.Except gulf region, demands from both domestic and international markets have shown healthy growth.The company is taking efforts to spread awareness about energy efficiency and benefits of solar power, which resonated with the government’s policy to focus on renewable energy. This is starting to bear fruits.
Internationally, the company is witnessing demand from regions like USA, Saudi Arabia, Latin America and Western Europe which are strong, developed and politically stable economies.The company has managed to penetrate these markets quickly and planned to establish brand identity.In the coming year, its industrial product offerings will become significant contributors to topline and bottomline as it is getting recognition for the same.
The Government’s focus on installation of solar pumps for irrigation and other ambitious projects like sanitation, drinking water, waste water treatment, river-linking, roads & infrastructure, rural electrification and focus on energy efficiency will lead to industry’s growth in general and that of Shakti Pumps in particular.Co is a manufacturer of India’s first 5 Star rated pumps, renowned for producing stainless steel products like pumps, energy saving submersible motors, SRN booster pumps and Solar Pumping Solutions in India.Co is among the few pioneers in the world to produce 100% stainless steel pumping solutions.Co rubs its shoulders with the best brands in the world with exports in around 100 countries.The main focus of the company is to manufacture quality pumps which consume less energy, have long life and easy to maintain.Shift in demand of Pumps from unorganized sector to organized sector is happening faster than ever.Shakti is investing aggressively for strengthening product mix with value added pumps to cater growing international and domestic market.
In coming years, government focus on energy conservation with star rated pumps and International focus in renewable energy products will drive growth.Below average monsoon is a positive factor.The company is presently operating at 50-55% percent utilization level and currently it has a capacity of five lakh pumps with a standard size and standard capacity of products.The configuration of products keep changing hp wise, like from 5hp to 200 hp and again in terms of the size of the pumps from two stages to fifty stages. So this five lakh will vary in terms of the value of the pumps and presently it is at 50-55% utilisation of the 100% percent level. With this capacity it can easily go up to Rs 700 crore level.In India, that is in domestic market, in retail category products, the company is enjoying margins of around 12-15% at the EBITDA level.
All the value-added products that it launched in the previous year starting with solar pumps then booster pumps and many more products in the pipeline is catering to the industrial segment. All these products are value-added products which could beat the margins in terms of what it is getting higher margin in export market also.Co has planned to grow 25% as it banks on its good positioning on Industry segment. Industry segment accounted for Rs 15 crore against Rs 3 crore. There is huge potential in the Industrial product business.Co just entered this business with few products and now with many products waiting to be launched for this segment it hopes to grow impressively.
Solar Pump revenues stood at Rs 35 crore in Fy 2015 against Rs 17 crore in FY 2014.Capex stood at Rs 20 crore. For coming one and a half year there will be no major capex except maintenance capex as the company does not need to add capacity until it reaches 85% of utilization.In FY 2016 it hopes to achieve 70% utilization. .Co Sold 1.90 lakh pumps in FY 2015 against 1.87 lakh pumps.Last year the company has capitalized Rs 10 crore.Maharashtra Government will soon come up with 7500 solar pump tender and the company has 98% market share thus it is in a strong position to get the orders.
In Bhubaneshwar the government has come out with tender of 500 pumps the company is L2 for this tender but is still expected to get order of 250 pumps from this order.

Any clue how is the business currently faring ? Any positive development in its working cause the numbers are still low.

Promoter buying heavily from the market. Seems like some good news for their business.

Can someone explain this. ML Securities and Finance Pvt Ltd has been holding big stake in the company. They had 10% stake in December 2016 reduced to 9.64% stake in March 2017 and further to 7.44% stake in June 2017. Directors of ML Security are Vikas Patidar and Hari Narayan Patidar. ML Security was given given lakhs of warrants few years back at Rs 176 per share. The company is registered in Indore. Although these two people name does not appear in promoter holding but seems like they are from promoter family.

At one side ML Security is offloading and other side promoter is buying. Seems like a circular trading going on. This should be seriously investigated and people should trade with greater caution.

Views are invited.

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Your suspicion was correct. They are linked to Shakti Pump Management.

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There are thousands of companies listed including blue chips who buy shares from market throw various entity for example future group has numerous entity which do all kind of such activity it is good that some how promoters have increased his stake