BSE ID : 505872 NSE ID :
RECOMMENDED PRICE 457.95
PEAK FROM RECO 799.00 74.47%
CURRENT PRICE 532.75 16.33%
WPIL Ltd. with major focus on Engineered Pumps & EPC contracts has its fortunes linked to the economy. With improving ordering scenario in domestic and overseas markets, the company is likely to have better growth visibility going forward. We maintain BUY on the stock with price target of Rs 525.
WPIL is one of the leading players in the organized market with vast experience in Designing, Manufacturing, Commissioning & Servicing of Pumps & Pumping Systems catering to all the major sectors including Irrigation, Power, Industrials etc. The Company also provides turnkey execution for water handling projects in all the above sectors by leveraging its engineering capabilities & experience.
We recently had a conference call with the management of WPIL Ltd. which was represented by Mr.K.K.Ganeriwala (ED) in order to have better insights on the industry dynamics & company’s growth prospects. The following are the key takeaways.
Healthy Order book Position - The domestic order book position of the Company stands healthy at Rs.10 bn (~4.7x FY16 Std. Rev.) providing good revenue visibility over the next few years. Of the total order?book position, Engineered Pumps contributes ~Rs.2?2.5 bn (market share ~25%) while EPC (turnkey) contributes ~Rs.6?7 bn; rest comes from traditional pumps. After?market services contributes ~18?20% to the top - line. Execution cycle for Engineered pumps & EPC projects stands at 18?24 months & 36?48 months respectively. Moreover, the Company has outstanding bids to the tune of Rs.10 bn which is likely to open over next few months.
Utilizations to improve going forward - Slowdown in economy resulted in lower order-inflows impacting revenues which de-grew at a CAGR of ~8% over FY12?16 to Rs.2120 mn. However with improvement in ordering scenario, the Company witnessed healthy top?line growth of ~16% in 9MFY17 to Rs.1600 mn. Current capacity utilization stands lower at ~50% which is expected to improve going forward resulting in some margin improvement on back of operating leverage benefits.
Improving Domestic Scenario - Management indicated towards improvement in domestic scenario with comparatively higher tendering & improving ground level activities. Considering the huge potential in the irrigation sector, they expect lot of investment to flow in over the next 3?4 years. Many states like AP, Telangana, Maharashtra etc. have planned huge expenditure in Irrigation sector.
Turnaround of Subsidiaries - In order to pursue growth & diversify in newer products, the Company went for many overseas acquisitions in countries like Australia, Africa, Europe, UK etc. over the last couple of years. Fall in commodity prices has been one of the major reasons for under?performance by subsidiaries since majority of economies where subsidiary operates are commodity dependent. However, with revival in commodity prices, management expects economies to perform better going forward. Order?backlog for majority of its subsidiaries has improved & is at comfortable levels. The Company derives ~70% of its revenues through exports & hence revival of subsidiaries would auger well for the Company going forward.
Other Key Points -
1) Capex - The Company has already incurred good capex for its Nagpur plant & is further expected to spend ~Rs.150?200 mn over the next 1-2 years.
2) The Company is also focusing on Water management segment (mainly municipalities) which can provide good opportunities. It has bid for few projects in states like J&K, Rajasthan etc.
Key Risks - 1) Delay in economic recovery. 2) Aggressive overseas acquisitions.
Outlook and Valuation
WPIL with major focus on Engineered Pumps & EPC contracts has its fortunes linked to the economy. Slowdown in economy resulted in lower order?inflows impacting growth & margins. Also, underperformance by subsidiaries due to turmoil in overseas markets led to additional pressure on profitability. However, with improving ordering scenario in domestic & overseas markets, the Company is likely to have better growth visibility going forward. Likely turnaround of subsidiaries coupled with operating leverage benefits can result in better profitability growth. We maintain a BUY on the stock with price target of Rs 525.
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