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Shakti Pumps (India) Ltd.

BSE: 531431 Sector: Engineering
NSE: SHAKTIPUMP ISIN Code: INE908D01010
BSE LIVE 15:48 | 12 Dec 427.95 -10.70
(-2.44%)
OPEN

438.70

HIGH

440.00

LOW

425.95

NSE 15:52 | 12 Dec 427.70 -11.95
(-2.72%)
OPEN

437.00

HIGH

439.80

LOW

425.20

OPEN 438.70
PREVIOUS CLOSE 438.65
VOLUME 14342
52-Week high 556.85
52-Week low 129.00
P/E 38.80
Mkt Cap.(Rs cr) 787
Buy Price 427.95
Buy Qty 13.00
Sell Price 0.00
Sell Qty 0.00
OPEN 438.70
CLOSE 438.65
VOLUME 14342
52-Week high 556.85
52-Week low 129.00
P/E 38.80
Mkt Cap.(Rs cr) 787
Buy Price 427.95
Buy Qty 13.00
Sell Price 0.00
Sell Qty 0.00

Shakti Pumps (India) Ltd. (SHAKTIPUMP) - Chairman Speech

Company chairman speech

Even though our numbers may indicate that the Company did not report significant growthin revenues and bottomline we were pleased with the Company's performance for some goodreasons.

One the reason for which we did not report any growth was geopolitical issues insome Middle Eastern countries were largely outside our control. We could have stilldecided to increase our sales with stretched receivables; we prudently decided to focus oncash flows instead. Despite losing sales in these Middle East countries the speed withwhich we increased sales in other markets (including India) provides me with fair optimismthat we possess the organisational depth to respond to sudden marketplace changes withspeed.

Two we increased our geographical reach by accessing new markets as well aspenetrating deeper in each of the markets of our presence (other than some countries inMiddle East). While historically we focused on a higher 'shop share' we are now focusedon a higher 'country share'. It is this ability to penetrate deeper into various countriesthat translated into improved performance.

Three a few years ago we launched solar submersible pumps - not as another fancyrenewable energy product being offered to the marketplace but a product that was intendedto enhance user competitiveness. From insignificant revenues three years ago this productsegment demonstrated significant growth now generating RS 36 crore in revenues growingmore than 100% during the year under review.

Four the Company penetrated significantly in the industrial segment resulting inrevenues growing from RS 3 crore to RS 15 crore in 2014-15.

Five we enhanced our presence with a stronger sales force by recruitingexperienced professionals. We hired a number of professionals in our sales and marketingdivisions during the year under review.

Six the quality of our customers was reflected in the fact that we were notrequired to make any extensive writeoffs or provisions.

Seven the richness of our bandwidth was reflected in our continued address ofemerging opportunities launching sewage and reverse osmosis pumps to address growingdemand.

There are some pertinent reasons why I feel that Shakti Pumps is at an inflection pointin its existence.

When we started the financial year under review we derived 65% of our internationalrevenues from the Middle East. It was a robust and growing market for us; we wereoptimistic of the attractive growth coming out of this region. However increasedgeopolitical tension resulted in dealers within that region demanding longer creditcycles. However we focused on cash realisations resisting the temptation to providestretched credit tenures

"If the farmers in India are provided the facility of getting water with the helpof solar pumps it will definitely bring down their input costs. And if the input costreduces our farmers will become financially strong...the cost of procuring water is thebiggest cost component for the farmer which in turn arises from the cost of electricity.Once the farmer owns a [solar] pump he will resort to micro-irrigation; micro-irrigationhas been proven to offer several benefits. We will be able to save energy and waterenhance farm productivity and produce better quality crops."

Extracted and translated from the speech of Mr. Narendra Modi Hon'ble Prime Ministerof India

where agricultural traction was evident and where credit terms were in line with ourrequirements. The recalibration of our corporate direction was intense; we put in a hugeeffort to reinvent our international strategy and positioning. The result is that even aswe underperformed during the second quarter of 2014-15 with RS 55 crore in revenues ( RS72 crore in the second quarter of 2013-14) we reported a revenue rebound in the thirdquarter to RS 85 crore ( RS 79 crore in the third quarter of 2013-14) without much of acontribution from the Gulf finishing the last quarter with revenues of RS 99.33 crore.While annual sales growth was only 1% we grew domestic sales around 60% and exports(excluding Middle East) about 50% although on a lower base.

There are some significant changes transpiring the world over and in India theCompany's largest single market. These augur favourably for Shakti Pumps; what the Companyexpects to achieve over the foreseeable future could be significantly different from whatit has achieved over the last decade.

For one there has been a gradual evolution in the nature of our largest marketplace -the farm -over the last couple of decades. A decline in the availability of manual labourlow productivity and realisations but increasing access to global best practices meansan increasing preference for farm mechanisation. The farmer is more likely to spend onmechanised intervention today with a clearer payback perspective than ever before. Thestainless steel pump represents

We increased our EBIDTA margins to 18.72% in 2014-15. The Company's capacityutilisation of 55% in 2014-15 indicates attractive operating leverage.

a next-generation tool in the farmer's pursuit of payback profitability andprosperity. A growing governmental insistence that farmers use stainless steel pumps willhelp reduce the country's energy consumption and in turn help the country save energyand resources.

Within India there is another quiet transition underway. The new Indian government haskick-started the process of moving away from a high subsidy environment towardsmarket-based economics. A significant part of subsidy includes the incidence of farmelectricity costs. It is estimated that around 20% of India's electricity is consumed atthe farm level. Much of this consumption is non-remunerative considering the country'semphasis on empowering the farmer to grow more food for national security.

The government has two alternatives: to continue subsidising the supply of electricityor find ways of moderating this outgo. In the first option the government will need toinvest

significantly in electricity transmission infrastructure to reach power to remote aridlocations which will be non-remunerative. The second alternative throws up a number ofpossibilities; the most interesting of them is that the government is likely to providefiscal support for the purchase of solar pumps brightening prospects for players like us.

Is this a far-fetched assumptionRs

Not at all. Over the last year Prime Minister Narendra Modi has been an enthusiasticadvocate of the use of solar pumps as one way of enhancing farm viability andstrengthening the country's food security.

Some state governments like Rajasthan Madhya Pradesh Chhattisgarh Andhra PradeshMaharashtra have already announced plans to install a significant number of solar pumps inthe farm and these state governments along with the Central Government have formulatedplans to finance pumps such that this becomes a win-win for all concerned players.

Besides the Indian government intends to build more roads homes toilets connectrivers and clean the Ganges. Most importantly the 'Make in India' initiative canpotentially widen the country's industrial base resulting in an increased demand forindustrial commercial offices and residential homes each of which could strengthen pumpsoff take. The sheer magnitude of this potential opportunity makes this sector one of themost exciting for years to come.

There is yet another development on the horizon that could virtually transform theindustry's dynamics. The proposed introduction of the Goods and Services Tax could removeinterstate tax variations; more importantly it could increase costs for unorganisedmanufacturers making branded players like us more competitive. The proportion oforganised manufacturers was 15% a few years ago which has now increased to 50% and I amoptimistic that the GST regime will only accelerate the transition over the foreseeablefuture.

From a global perspective we

are optimistic of making a deeper impression in large markets like US and LatinAmerica. The combination of our ability to make energy-efficient stainless steel pumpssupply large volumes address wide sectoral applications and provide a superiorprice-value proposition should translate into increased exports across a wider geographicfootprint.

So how is Shakti Pumps equipped to capitalise on these emerging realitiesRs

One our products conclusively provide users the advantage of higher productivity andenergy efficiency. This makes it possible for users to complete their schedules quickercompared to competing alternatives and at a lower cost.

We possess the capability to provide the entire range of water management pump-basedsolutions (except project pumps) coupled with back-end tooling capability which makes uslargely a one-stop integrated solution provider

capturing the entire value chain for agricultural and industrial usage.

We have invested in capacity expansion in the past which means that increase in demandwill not translate into enhanced capital expenditure effectively improving ourprofitability.

As water tables decline there is a limit to the depth that pumps manufactured in theunorganised sector can reach; our pumps can go down to 2000 feet which means that themore groundwater becomes scarce the quicker the switchover to branded pump alternatives.

Over the last few years we strengthened our operating efficiency. We have invested inanalytics with the objective to find customers rather than follow the conventionalapproach of selling.

Even as our revenues remained largely flat (only 1% growth) our domestic salesincreased around 60% helping counter the unexpected setback in our key markets of theMiddle East which reduced exports by 25.12%. The Indian market last year accounted foraround 30% of the Company's revenues; this increased to almost 50% in 2014-15 and over theforeseeable future we expect this trend to continue. We increased our EBIDTA margins to18.72% in 2014-15. The Company's capacity utilisation of 55% in 2014-15 indicatesattractive operating leverage which can be extensively leveraged in the event ofincreased demand; besides new products can be developed without corresponding capitalexpenditure.

In view of these realities I am optimistic that we can expect to grow significantly inthe coming years and enhance value for all our stakeholders.

I would like to place on record my sincere appreciation to all my shareholdersemployees customers suppliers banks and government for their constant support.

Dinesh Patidar

Chairman