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WPIL Ltd - Global Water Pumps

WPIL is in the business of water pumps

  • The company is engaged in the business of fluid handling – from supply of pumps to turnkey project execution. It supplies a comprehensive range of pumps to the Industrial, municipal, irrigation and power sector. The company also has a strong project division which undertakes water management contracts in the above sectors.
  • Promoter holding increased from 66% to 68.8% on Mar-2018 to Jun-2018
  • About 33% of revenues come from Pumps and 66% come from spares & accessories. About 60% of revenues come from overseas subsidiaries / clients outside India
  • WPIL has ~20% market share in domestic conventional/engineered pumps in power, irrigation, city and industrial segments. It is the only dominant player in sewage and slurry pump (Government projects like Namami Ganga and clean Narmada in addition to most of municipal corporations going for sewerage treatment plants).

The co has 3 main divisions and strong international operations
Engineered Pump Division

  • Offers specialized water handling solution to conventional power generation, nuclear power solutions and industrial sector.
  • In FY18, supply of firewater pump package to ONGC, large axial flow submersibles to Thailand, metallic volute pumps to Telengana Irrigation was done

Conventional Pump Division

  • Standard pumps, largely utilized in the irrigation and water treatment systems
  • In FY18, execution of a major package for Telangana Water Grid, large order for Royal irrigation Dept., large number of high horsepower Submersibles for irrigation and water supply was done.

Infrastructure Division

  • Revenues of 170 cr in FY18
  • In FY18, execution on large water distribution projects in Madhya Pradesh and Rajasthan and an Irrigation system in Africa was done

International Operations

  • Company closed its operations at Mathers UK in July 2017 due to the continued downturn in the offshore oil market. The consolidated operations results were significantly affected by these onetime closure costs.

The co has many subsidiaries across geographies

Subsidiaries are key to operating performance and margins


Mathers Foundry has been closed down, so FY19 will see losses removed from it
Strong performance from Grouppo Aturia is expected to continue

Operations show improvement
Sales, margins and profits are on an uptick
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Receivables & Debt seem to be a significant problem
Debt has reduced significantly from the past, but continues to be very high.
Receivables % is down to historical average levels, though still quite high on an absolute basis
Receivables % is down to historical average levels, though still quite high on an absolute basis
In 2018, receivables > 1 year has jumped nearly 3x
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All return ratios are improving; current ROE is less than half 2009-2010 ROE

Recent ROE improvement on the back of increasing margins


Risks & Issues

  • Company has very high debt.
  • Company has about 19% of receivables which are pending for more than 1 year.
  • Performance of the company depends on infrastructure spending. Any reduction can impact the prospects.
  • Since the performance is linked to infrastructure there is cyclicality in results. The company works across geographies to minimize such risk.
  • Currency fluctuations can alter revenues and profits as a large proportion comes for subsidiaries
  • As the company operates across many countries, political & currency stability is important for the company.
  • Company operates in a space where expenditure by clients is mainly discretionary. During down cycles, demand can shrink drastically.
  • The company does not publish consolidated results on a quarterly results. It is difficult to understand & track operations across subsidiaries.

Long term price chart shows a new high

Financial details


Disclosure - Details of Financial Interest in the Subject Company:
I currently do not hold the stock of the company discussed above in my personal portfolio. I am studying the business. Please consult your financial advisors before taking any buy/sell/hold decision. I may change my opinion post publication of this note and may not be able to update because of time constraints. The post is for educational purposes only. It is NOT a buy/sell recommendation.

10 Likes

Any idea about the promoters or management structure?
Otherwise great details. Thanks

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W P I L Ltd was incorporated on February 6, 1952 at Calcutta under the name and style of Johnson Pumps India Ltd. subsequently the name of the company was changed to Worthington pumps India Ltd. on January 29, 1983.
The company is mainly engaged into manufacturing of vertical pumps, horizontal pumps, grey iron, castings and sluice valves.

Product range of the company includes:

.Vertical Turbine Pumps
.Vertical Mixed Flow & Axial Flow Pumps
.Submersible Pumps
.Horizontal Centrifugal Pumps
.Inclined-wet-pit-pump

Stock P/E: 13.41
Profit growth 5 years: 20.23%
EV / EBITDA: 8.38 (lowest among peers)
Expected quarterly sales growth: 62.81%
No pledging by promoters, promoter holds 68.8%
Debt to Cash Flow from Ops reduced from -15.53 in 2009 to + 1.18 in 2018
Adjusted Net profit growth from 8.3 Cr in 2009 to 40.1 in 2018
Improving Operating Profit Margin
Debt to Equity reduced from 1.42 in 2009 to 0.21 in 2018

ROCE reduced from 24.81% in 2009 to 13.75 % in 2018
ROE reduced from 41.42 in 2009 to 14.52 in 2018

2 Likes

Some risks are discussed here:

Investing lesson

The first key lesson is that when you invest you should look at the underlying business carefully. We did not understand the demand side factors well enough. We assumed a turn in the capex cycle but it did not materialise because of various factors. Oil capex was poor because of collapse in prices, nuclear did not take off because of government inaction, and the rest of the industry didn’t spend because growth continued to be poor and companies were debt-laden. One key lesson is never buy a business when the underlying has got huge inflation built in. Even though WPIL was a pump company, its demand was dictated to an extent by oil prices and the softening of oil prices impacted its business. In today’s context, for instance, it’ll be difficult to grow housing finance or mortgage book over the last 10 years as they have benefitted due to inflation in real estate prices, which will see deflation going forward.

4 Likes

WPIL wins 52 million euro order in Cameroon. 18 month execution period.

Been tracking and studying this company for a while.

Needs to be seen if WPIL gets into the solar pumps space with the KUSUM pumps project announced by the government recently.

Also, improvement in international subsd should be propel further growth. India business might see some slowdown due to elections. But healthy order book in place and execution seems to be happening.

Another acquisition for WPIL in Italy. It is Finder Pompe in Italy having turnover of about Euro. 30 Million. The company seems to have a good customer base. From its website, it seems company has a good product portfolio (http://www.finderpumps.com/)

WPIL seems to have built of a good geographical footprint across Europe, Africa, Australia and India. And coming few years may see investment in Oil & Gas sector coming back slowly, if oil price stabilizes.

Not much details about price paid for the acquisition is available yet but the company would be integrated with Gruppo Aturia, the subsidiary of WPIL in Italy.

Exchange notification available here: https://www.bseindia.com/xml-data/corpfiling/AttachLive/0cae7806-910f-49b6-9aa6-d1ea49febe8b.pdf

The standalone result of the company is increasing gradually.

Most importantly, the Mather Foundry which they purchased in 2011 was bleeding them with loss to the tune of Rs, 25 Cr per year. This foundry has been closed and all liabilities settled. We can expect improvement in bottom line at consolidated level as a result of this.

However, the RM cost is 47% of consolidated revenue and main RM is Steel which is in upward trajectory. But in Engineered pumps, in spite of competition, the possibility of passing on the cost is high.

Standalone revenue showing marked improvement with orders from irrigation and water supply projects of various state governments. The working capital cycle would remain elevated for the nature of the business.

Overall at the present valuation, seems the challenges are priced in.

The credit rating report gives a good overview of the business and opportunities: http://www.careratings.com/upload/CompanyFiles/PR/WPIL%20Limited-11-27-2018.pdf

Disc: This is not a Buy, Sell, Hold recommendation. Do your own due diligence before investing. I hold the stock in accounts where I have beneficial interest. We run a SEBI registered investment advisory (https://aveksatequity.com) where this stock has been recommended.

7 Likes

Finder Pompe is looking like a good purchase by WPIL.

Acquisition Price: $24 million cash.

Dover paid $145 million for the same business in 2013.

Dover will be taking a write down of $ 40-50 million.

Need further information on the profitability of Finder as well as how Gruppo Arturia has financed the acquisition.

http://www.pumpscout.com/articles-industry-updates/dovers-psg-group-finalizes-finder-pompe-acquisition-aid653.html

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Q4 19 Results

Excellent numbers by WPIL.

Consol EPS 129/- 3x YoY

Reduced debt.

Looks like it has put its Mathers troubles behind it.

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Commentary in the Annual Report pretty interesting. Growth in sales and bottomline of Gruppo Atturia quite encouraging!

Disc: Invested.

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FY20 Q1 Results

Very weak numbers - Significant Drop in Sales and other parameters but for standalone Op Margins FY20Q1 Results.pdf (1.7 MB)

Inputs requested

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I had attended AGM of WPIL Ltd at Kolkata. Some of the key points I noted during the AGM:
• One of the major reasons for improvement in margins during FY19 is supplying of large, value added pumps where we also did designing.
• In domestic markets, company expects higher investment on municipal and irrigation side. Even the business environment in Middle East is improving. Furthermore, the nuclear market has started reviving.
• During FY19, we supplied a large submersible pump of 30 MW (one of the largest to be installed in the country) for Telangana project.
• Post acquisition of Finder Pumps, we are able to cover largely all the major areas in the pump segments. We are much more diversified now and not dependent on any sector. Finder gives us an entry into high end Oil & Gas pumps which is USD 10 billion market and growing rapidly. It is currently present in downstream refinery market and major demand is for replacement only. Last year Finder did revenue of USD 30 million with EBITDA margins of 11%. We plan to increase it to our current margins (around 15 – 20%). Furthermore, Finder’s plant is just 20 miles away from our existing plant of Aturia. We think there can be significant synergies between both the companies. No other Indian company has presence in oil & gas pump space. One of the largest companies in the oil & gas space is Flowserve Inc which had sales of USD 2 billion in the segment.
• Advances given to Hindustan Udyog Limited? WPIL has given advances for the acquisition of the unit but labour force at the unit has entered into a litigation against the sale. Hindustan Udyog has better and larger facility than our existing units and Nagpur (location of unit) has better accessibility for shipping our pumps compared to Kolkata unit. The unit is an important part for our growth plans. The valuation of Hindustan Udyog Limited has been done by independent valuation companies.
• Current order book in domestic market is Rs.1100 crore while for subsidiaries, its 700 crore plus. Consolidated order book is Rs.1800 crore. We have been very judicious in order book and only book contracts where funding for project is cleared. Current order book doesn’t include Cameroon project of EUR 52 million as funding for the project is yet to be secured by its Government. Expect the funding for the project to be completed in next 2 quarters. We don’t have any outstanding order from Telangana government.
• We are looking to sell Mathers actively.
• Performance of subsidiary in Thailand was impacted due to elections in the country. Thse year expect the performance to improve.
• Last year saw significant growth for us in terms of revenue and profitability. We target to growth it this year as well not withstanding quarterly fluctuations due to lumpiness in our business. We target to grow revenue and profitability these year as well. Most of our businesses have stabilized.
• On margins, we continue to target 15% plus margins. Given our product complexity and lower cost structures, margins are higher. One of the reasons for higher margins for us is the service business that we do which is a high margin segment.
• We are a strong player in project business in domestic and global markets. We are one of the strongest players in the industry to capitalize on the water opportunity emerging due to Government’s thrust. We are present in all the segments in water including piped water, irrigation, river linking etc.
• In exports, while working in markets like Africa, we work for projects either funded through Government directly or through multilateral agencies like World Bank etc. However, we only start working on the project if entire funding for the project is secured.
• We have been continuously reducing debt. Currently, debt has increased to Rs.120 crore in Q1FY20 due to Finder acquisition. We continue to increase dividends too.
• In India and Africa we are present in engineered pump division, conventional pump division and infrastructure (EPC division) while in Europe and other markets we are largely doing engineered pumps and conventional pumps. Europe is largely focussed on oil & gas and nuclear segment.
• We have strong operational CEO across our global subsidiaries. We have 1000 employees working for us (including off roll employees). 550 of them are in India while remaining are at our global locations.
• We have been extremely judicious in writing off our bad debts in past and will continue in future as well. We have infact recovered some of our bad debts.
• In nuclear markets, we are one of the biggest player globally and it’s a difficult market to crack. It takes 10 years to build a nuclear power plant.
• Are we looking for any further acquisition? Not in the near to medium term. We are present across segments now with acquisition of Finder.
• We have improved our balance sheet a lot over the past 3 years. As a company while bidding for orders we are first focussed on cash flows, profitability margins and last on revenue.
• Reason for reducing stake in Aturia International to 61% from 76% in FY17? At that time, WPIL was facing liquidity issues and our international subsidiaries were bleeding. The promoters had to infuse liquidity in Aturia directly and increase their stake. We will bring back the stake to WPIL in near to medium term with its liquidity situation improving. We want to complete transaction at the earliest.

14 Likes