We feel the valuation (stock is trading at 18 times) is reasonable considering the opportunity in the sector, leadership position, focus on single segment, good return ratios and strong growth visibility
Shakti Pumps surprised the market with an expansion in earnings and profitability, led by growth in its core business. The stock saw a strong surge in trade on Wednesday, before closing the session with a gain of 6.64 percent at Rs 447.8 per share. This year the stock is down merely a percent in a market where mid- and smallcap stocks have fallen severely.
The reason for Wednesday’s rally was improved performance, particularly when investors had very little expectations. To put things in perspective, the management was cautious as a result of delays in some of the flagship programmes of the state and the resultant increase in inventory and slowing growth at a time when investors were building 25-30 percent growth in sales. Revenue in the June quarter grew at a mere 6.8 percent to Rs 96 crore.
The management said it hoped that some of these orders will fructify in H2 FY19. The quarter gone by saw a spurt in sales, which grew 104.9 percent to Rs 138.7 crore. While an increase in direct expenses such as input cost for metals and energy had a negative impact on margin, the overall impact was negated as a result of huge operating leverage in the business.
Operating profit grew 92 percent in Q2, but because of the relatively lower indirect expenses such as interest cost and depreciation it was able to deliver a strong 207 percent increase in net profit to Rs 9.27 crore.
This year the stock has not corrected much and that shows its strength in a weak market. For FY19, we expect the company to report an annual profit of about Rs 45 crore. We feel the valuation (stock is trading at 18 times) is reasonable considering the opportunity in the sector, leadership position, focus on single segment, healthy return ratios and strong growth visibility.
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