Shakti Pumps: Powering Sustainable Solutions for a Water-Smart Future

Shakti Pumps: Powering Sustainable Solutions for a Water-Smart Future

Shakti Pumps Ltd. has established itself as a leader in the renewable energy sector, especially in the production of energy-efficient pumps and solar water pumping solutions. Founded in 1982, the company has evolved significantly, growing from a domestic manufacturer to a global player exporting to over 120 countries.

As of FY24, company has 2 domestic subsidiaries and 3 international wholly owned subsidiaries

Shakti Pumps Making Headlines :

• Shakti Pumps (India) Limited has invested ₹3.8 crore in its wholly owned subsidiary Shakti Energy Solutions Private Limited (SESPL) through subscription of 3.8 crore equity shares at ₹1 per share
• Shakti Pumps India Limited has announced that it plans to raise funds of Rs 400 Crores or more by issuing qualified institutional placements. This additional equity is intend to be used for the company’s growth needs that include but are not limited to the building of new manufacturing plants, R & D, and acquisitions of firms.
• With the order book position as of September 30, 2024 amounting to Rs 1,800 crore, there are still unexecuted contracts which can contribute to its future revenue .The clean energy industry is expected to be future’s best investment and solar energy is the key factor. The renewable energy seems to be changing more from a hype into the future energy vision.

How it uniquely positioned itself within the Solar Energy industry

Pumping systems alone contribute to a large part of electricity consumption and are therefore considered to be one of the fuel consuming apparatus in industrial sector, as they consume roughly 40% and account for 15% of overall electricity usage in India. But there are implementations that could minimize power consumption by renovating their mechanism and control systems that are said to save more than 20% of the energy required to power them.

Here’s how energy-efficient pumping systems benefit companies:

·      Earning through energy savings

·      Reduction in CO2 emission

·      Enhance working creativity by replacing old system with new energy efficient system

·      Contribution towards sustainability and energy security

·      Use of funds towards business growth rather than expenditure on energy

Solar Energy: The Future's Brightest Investment

Renewable energy is rapidly transforming from a mere trend into the cornerstone of the future energy landscape. Specifically, solar energy is poised to play a pivotal role, with investments in clean energy projected to exceed $2 trillion by 2024. For the first time, these investments will outpace those in traditional fossil fuels, signaling a significant shift in the energy market.This transition opens up vast opportunities in solar energy, driven by increasing demand from sectors like data centers and electric vehicles. As countries worldwide focus on building resilient power grids and sustainable energy sources, the need for reliable solar solutions grows ever more critical. 

1. India's Contribution to the solar sector 

• India’s total renewable energy capacity has surpassed 200 GW, with solar power being the crown jewel of this growth. By the end of 2024, solar capacity alone exceeded 90 GW, contributing significantly to the overall renewable mix.
• The country aims to achieve 500 GW of renewable energy capacity by 2030, with solar energy projected to play a crucial role in this target. According to ICRA, India is on track to reach 132 GW of solar capacity by March 2026, with annual additions expected to be around 22 GW in fiscal 2025.

2. Government Initiatives and Investments

• The Indian government has launched various initiatives, such as the PM-KUSUM scheme, which promotes the installation of solar pumps for agricultural use, thereby enhancing rural electrification and sustainability.
• Investments in renewable energy are anticipated to double to over $32 billion by 2025, reflecting a growing commitment from both public and private sectors towards clean energy.

Overview of Shakti Pumps' Core Business Segments

 1. Solar Pump Segment

• Revenue Contribution: Approximately 69% of total revenue.
• Growth Rate: This segment has witnessed a remarkable 66.8% CAGR from FY 2020 to FY 2024.
• Key Highlights:
• Leading manufacturer of solar-powered pumps for agricultural applications.
• Significant beneficiary of government initiatives like the PM-KUSUM scheme, promoting solar energy in farming.
• Holds a market share of about 25% in the solar pump segment under government schemes.
• Extensive product range with over 1,200 variants, catering to various agricultural needs.

2. Export and Industrial Pump Segment

• Revenue Contribution: Accounts for approximately 21% of total revenue.
• Growth Rate: This segment has experienced a CAGR of 22.3% from FY 2020 to FY 2024.
• Key Highlights:
• Engages in exporting pumps and motors to over 100 countries, enhancing global reach.
• Supplies diverse products such as submersible pumps, centrifugal pumps, and wastewater solutions for industrial applications.
• Recognized as a “Star Export House” by the Government of India for its significant export performance.

3. Electric Vehicle (EV) Segment (Emerging)

• Revenue Contribution: Currently emerging but expected to grow rapidly.
• Key Highlights:
• Operates under the subsidiary Shakti EV Mobility, focusing on manufacturing EV motors and controllers.
• Aims to capitalize on the growing electric vehicle market by developing innovative components for two- and three-wheelers.
• Committed ₹1.1 billion over five years to support growth in this segment, positioning itself for future expansion.

What’s Next for Shakti Pumps ?

Upcoming Initiatives and Plans:

Order Book and Execution

• As of now, Shakti Pumps has an order book valued at approximately ₹ Rs. 2,250 crs. (~2.3 times of Consolidated Revenue in FY23).
•  Further, Rs. ~ Rs. 250 crs. orders received in Q4.

New Business - EV segment

• Shakti EV Mobility was incorporated as thier WOS in FY22 and is engaged in manufacturing and sale of EV motors, charging stations, battery management systems, electric control panels, smart electric control panels, VFDs etc.SPIL Board has approved investments of Rs. 114.3 crores in Shakti EV Mobility over 5 years; Their investment in the subsidiary has now reached Rs. 26.92 Crores. Shakti EV has already catered to the two-wheeler and three-wheeler segments and is in the process of testing and developing of other products

 R&D

• The Co. spent <~1% on R&D expenditure, in-house research and development in respect of eligible facilities at Pithampur. The Co. has filed for 29 product patents for its products and received 13 approvals till FY24.

Market Outlook

• Shakti Pumps has demonstrated impressive financial performance, with a revenue increase of 3.5 times in H1 FY25 compared to H1 FY24. The company is targeting a revenue growth of 30% over the previous year, aiming for around â‚¹1,750 crore in FY25.

Strategic Goals

• The management has indicated plans to double the capacity of its solar pumps and continue focusing on technological advancements and innovation. This includes ongoing investments in research and development to enhance product offerings.

Company's Competitive Landscape  : 

KSB Limited is a leading player in the Indian pumps and valves industry, established in 1960. KSB holds an approximate market share of 13% in the Indian pump market. 

While Shakti Pumps is a smaller player compared to KSB, which has a market capitalization of ₹120.8 billion versus Shakti's ₹23.3 billion, both companies have similar order books valued at around ₹22 billion. Despite its smaller size, Shakti has outperformed KSB in terms of stock market returns over the past year, showcasing a remarkable return of 196.4% compared to KSB's 100.6%

Both companies are debt-free; however, Shakti's profitability has been affected by rising raw material costs and intense competition. Nevertheless, recent cost-cutting measures and increased order inflow have led to a rebound in profits and margins for Shakti Pumps

Financial Analysis

P&L Statement

• Sales have steadily increased from ₹434.95 crores in FY18 to ₹1,370.74 crores in FY24, showing a compounded annual growth rate (CAGR) of approximately 20%.
• Depreciation has had a steady increase due to capital investments in manufacturing and capacity expansion.
•  Significant turnaround in profitability:  

• FY24: â‚¹189.89 crores (highest over the period)  
• FY20: Loss of ₹21.65 crores due to lower revenues and higher fixed costs.

• EPS improved significantly from ₹2.19 in FY23 to ₹11.79 in FY24, driven by the surge in net profit.

Profitability Ratios

Strengths:

• Significant recovery in FY24 profitability ratios shows effective turnaround strategies.
• Strong ROIC and ROCE in FY24 indicate efficient capital and resource utilization.
• Improved EPS suggests enhanced value for shareholders.

Weaknesses:

• Declining Operating profit margins in earlier years (Mar-18 to Mar-23) reveal susceptibility to input cost fluctuations and competition.
• FY23’s poor profitability ( Net profit Margin )indicates that challenges like high fixed costs, delayed government orders, or external economic pressures can still impact financial performance.

Valuations Ratio

The current PE ratio of Shakti Pumps : 46.9

The average P/E ratio for the industrial machinery sector is around 48.28, placing Shakti Pumps slightly below this sector average.

• Price-to-Earnings (P/E) Ratio: Measure how much investors are willing to pay for each unit of earnings . A lower P/E indicates undervaliuation while a very high PE may suggest overvaluation. A lower P/E indicates undervaluation, while a very high P/E may suggest overvaluation. The P/E ratio spiked in FY23 due to weak profitability (lower Earnings ). In FY24, improved earnings normalized the P/E.

• P/B of 3.54 in FY24 indicates the market values the company’s equity higher than its book value, likely due to its future growth prospects.
• lower EV/EBITDA (<10) is generally considered attractive and hence Y24’s 11.19 is slightly higher than the preferred range but acceptable given the company’s recovery phase. It indicates moderate market confidence in operational efficiency.
• The company is likely retaining most of its profits to fund growth and expansion rather than distributing dividends. This is typical for a company in recovery or growth phases.

About the Management :

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