M & P Pumps
Pumped up
Strong investment climate in industry and infrastructure sectors will help this 63% subsidiary of a German company grow on sustainable basis
| Buy | M & P Pumps |
| BSE Code | 532469 |
| NSE Code | Not listed |
| Bloomberg | MPP@IN |
| Reuter | MAPP.BO |
| 52-week High/Low | Rs 280 / 123 |
| Current Price | Rs 134 (as on 7th March 2008) |
M & P Pumps (MPPL) was originally established in Manchester, U.K. in 1845 for designing and supplying multi-stage centrifugal pumps. Over the years, it established manufacturing plants across the globe in South Africa, Ireland and India. The Pune operations commenced in 1959. In 1985, Mather & Platt split and sold off worldwide.
In 1987, Mather & Platt India became a member of the Jumbo Group, Dubai. Mather & Platt Pumps came into existence with the de-merger of the fluid engineering division from Mather & Platt India. The company was part of the Jumbo Group owned by the Chhabria family.
In Mid 2005, Germany-based Wilo AG acquired the Indian promoter’s 62% stake in the company. Consequently, Wilo made an open offer to acquire 1.85 million shares from the public at Rs 109.32 per share. Wilo currently holds 62.84% stake in the company.
MPPL is engaged in the business of design, development, manufacture, installation and servicing of centrifugal pumps/valves and contracts of pumping systems on turnkey basis.
The company caters to diverse industries namely, Power plants (for circulation, boiler feed, de-scaling, condensate extraction, cooling towers), Municipal water supply and distribution, Sewage and effluent transport, Petrochemical & Fertiliser, Pumps for fire fighting sector covering major industries, ports, power plants, building services etc., Steel, Mining, Water Supply, Irrigation, Municipal Services and Pulp and Paper Industry. M&P products have inherently better Hydraulic Design resulting in higher efficiency and lower power consumption.
Consequently, business prospects are linked to investment in urban infrastructure, power generation and capex in industrial end users.
Strong German parent
Wilo is one of the leading international suppliers of pumps and pumping systems. It is ranked among the top 10 pump manufacturers of the world. The Wilo group’s business segments are Heating, refrigeration and air-conditioning, Water supply and sewage lifting.
Wilo has been extending business activities in water supply & sewage and industrial pumps and is seeking to increase presence in the Asian market which is growing the fastest. Towards this end it has earlier made the acquisition of EMU in Germany for entering the municipal sewage and now MPPL to enter in the domain of industrial pumps. Each of its manufacturing facility specialises in a specific line of pumps. Wilo has also acquired another Mather & Platt group company, Mather & Platt Fire Systems.
Wilo expects its main growth impulse from Asian, Eastern & South Eastern European markets. Furthermore, the pump group strives to gain noticeably more market shares in climate control, water supply and waste-water management. These segments are showing marked growth worldwide.
Wilo’s reputation has helped MPPL in getting orders faster.
Wilo has given the company a new lease of life
Established in 1870, MPPL is historically well-known for high split case pumps. Its strong technological capability has earned it strong goodwill. However the company suffered due to its financial problems. Ever since the Chhabria group took over the company from 1988, the financial condition kept on deteriorating.
Though orders were good, the supply of raw material, spares etc never met the requirement, nor anything was done from management side to make the system productive and rational. MPPL had to pay high price for raw materials, which affected the margins. There were continuous problems on part of working capital and productivity. The company had to take high interest loans from co-operative banks.
Since the management hardly took any interest on the core business of the company, this lead to huge debtors pile up and also more bad debts. For FY 2005, the company wrote off Rs 12 crore as bad debts and further Rs 2.69 crore during nine months ended Dec’05.
This fell to 68 lakh in FY 2006 and nil in FY 2007. Thus the company has mostly cleaned up the balance sheet.
MPPL specializes in the fast growing water supply segment
MPPL is specialized in High split case pumps (one type of centrifugal pumps). Such pumps are used for water supply related activities. Thus the usage may vary from pumps of 2 hp used in residential locality for supply of water and to 1000hp in power plants. The demand for such pumps come from existing and new commercial and residential buildings, power plants, steel plants, cement plants and all such industries where water requirement becomes an integral part of the project. The new power projects, steel and cement projects that are coming up will assure strong growth of such large pumps in future. Thus, the strong investment climate in industry and infrastructure sectors continues to lend support for sustainability of a strong growth in the industrial and infrastructure pumping solutions business. MMPL is well placed to capitalize on the pump business boom.
The customers include, in refineries (BPCL, Reliance Ind, HPCL), in Power (NTPC, PGCL, Reliance Energy), in steel (Tata Steel, Bhusan steel, Jindal Steel), in irrigation and water supply (BMC, Maharashtra Jivan Pradhiyan (MJP), Maharashtra Krishna Valley Irrigation (MKVI) etc).
MPPL has several growth strategies in place
Focus on growing product segments: Wilo will be making its line of water supply, drainage/ sewage and HVAC pumps at MPPL. The former has strong potential with 15-20% growth in the domestic and East European markets and in any case is the largest market globally. The HVAC segment is a growing segment across Asia whose growth is dependent on construction activity and building construction norms. (e.g. Elimination of overhead tanks has resulted in booster pump installations in high-rises to deliver water).
The company has expansion plans on three fronts: Facilities, Products and Research & development. Test Bed at Chinchwad Works is being modernized to handle higher capacities and larger number of pumps. The production facility will have additional CNC machines to meet increasing demands. The company has commenced manufacturing the WILO range of pumps at its Kolhapur unit built with the world class state of art technology leading to global quality products. The company anticipates great prospects for these products.
Utilization of Wilo’s distribution network: Wilo’s comprehensive distribution network will be used to market MPPL’s existing products in energy, chemical industry and irrigation. Wilo has 44 marketing outlets across the globe and a very strong presence in the east-European markets.
Entry into growing markets: The fastest growing pump markets are in Asia and Eastern Europe where a lot of activity is occurring in waste-water and municipal water supply and construction. MPPL will have access to both through Wilo’s comprehensive presence in Europe and its Korean and Chinese operations.
MPPL and Wilo have lots of untapped synergies
The new parent plans to utilize MPPL’s manufacturing capacities for producing and selling centrifugal pumps for which Wilo currently has no product (energy, chemical industry and irrigation) in its worldwide Wilo sales organizations. MPP has sufficient production facilities at its Pune plant.
Furthermore, MPPL is also planning to venture into manufacturing small and horizontal pumps using the technology of WILO group. Initially such pumps will be imported and assembled in the factory and later on the entire manufacturing base will be set up in the factory.
Thus, both the companies will conglomerate the products as, Wilo will be able to utilize the technology advantage of MPPL and selling the products made by MPPL outside India through its 44 subsidiaries worldwide, while MPP will be able to cater to the small and horizontal pump market in India by selling Wilo’s products. Also going forward, Wilo plans to establish MPP as a manufacturing hub for its products considering the labour and manufacturing cost advantage in India. All these synergies will reflect in the company’s financials in the long-term.
Financials are pumping up
For the fourth quarter ended December 2007, MPPL registered sales growth of 60% to Rs 67.09 crore. OPM improved by 440 basis points from 11.7% to 16.1%. This took OP up by 119% to Rs 10.77 crore.
PBT grew 84% to Rs 8.14 crore and PAT was up 94% to Rs 5.21 crore.
For the year ended December 2007, its sales grew 38% to Rs 181.88 crore and PAT was up 8% to Rs 10.1 crore.
The company has been able to deliver impressive results due to the initiatives taken by the management in controlling costs, optimization of product mix and better working capital management and its endeavor in exploring export opportunities in Europe, Africa and Middle East and South-East Asia.
Valuations
With rising capital expenditure in putting up large scale steel plants, cement plants, refineries, power plants in the country and the thrust of the government on irrigation projects, ensuring water supplies to villages and expansion of sewage handling & treatment facilities for growing urban areas, the demand for water & sewage pumps is expected to grow impressively in the years ahead.
In FY 2008 (ending December), we expect the company to register sales of Rs 233.53 crore and PAT of Rs 13.67 crore. On equity of Rs 9.23 crore and face value of Rs 10 per share, EPS works out to Rs 14.8. The share price trades at Rs 134. P/E works out to just 9.1.
| | 0503(12) | 0512 (9) | 0612 (12) | 0712 (12) | 0812 (12P) |
| Net sales | 89.46 | 67.12 | 131.37 | 181.88 | 233.53 |
| OPM(%) | 20.7 | 10.0 | 13.2 | 11.2 | 13.0 |
| OP | 18.55 | 6.68 | 17.35 | 20.43 | 30.45 |
| Other inc. | 1.97 | 0.29 | 1.08 | 1.29 | 0.84 |
| PBIDT | 20.52 | 6.97 | 18.43 | 21.72 | 31.29 |
| Interest | 3.58 | 2.24 | 2.65 | 5.12 | 7.50 |
| PBDT | 16.94 | 4.73 | 15.78 | 16.60 | 23.79 |
| Dep. | 1.16 | 0.96 | 1.24 | 1.61 | 2.09 |
| PBT before EO | 15.78 | 3.77 | 14.54 | 14.99 | 21.70 |
| EO | 12.00 | 2.69 | 0.68 | 0.00 | 0.00 |
| PBT after EO | 3.78 | 1.08 | 13.86 | 14.99 | 21.70 |
| Tax | 3.13 | 0.61 | 5.28 | 5.69 | 8.03 |
| PAT | 0.65 | 0.47 | 8.58 | 9.30 | 13.67 |
| Prior period items | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| PAT after adjust. | 0.65 | 0.47 | 8.58 | 9.30 | 13.67 |
| EPS | 11.1 | # | 9.3 | 10.1 | 14.8 |
| * On current equity of Rs 9.23 crore: | |||||
| M & P Pumps: Results |
| | 0712 (3) | 0612 (3) | Var. (%) | 0712 (12) | 0612 (12) | Var. (%) |
| Net sales | 67.09 | 41.99 | 60 | 181.88 | 131.37 | 38 |
| OPM(%) | 16.1 | 11.7 | | 11.2 | 13.2 | |
| OP | 10.77 | 4.91 | 119 | 20.43 | 17.35 | 18 |
| Other inc. | -0.18 | 0.46 | PL | 1.29 | 1.08 | 19 |
| PBIDT | 10.59 | 5.37 | 97 | 21.72 | 18.43 | 18 |
| Interest | 2.00 | 0.62 | 223 | 5.12 | 2.65 | 93 |
| PBDT | 8.59 | 4.75 | 81 | 16.60 | 15.78 | 5 |
| Dep. | 0.45 | 0.32 | 41 | 1.61 | 1.24 | 30 |
| PBT before EO | 8.14 | 4.43 | 84 | 14.99 | 14.54 | 3 |
| EO | 0.00 | 0.00 | -- | 0.00 | 0.68 | -100 |
| PBT after EO | 8.14 | 4.43 | 84 | 14.99 | 13.86 | 8 |
| Tax | 2.93 | 1.75 | 67 | 5.69 | 5.28 | 8 |
| PAT | 5.21 | 2.68 | 94 | 9.30 | 8.58 | 8 |
| EPS | # | # | | 10.1 | 9.3 | |
| * On current equity of Rs 9.23 crore: | ||||||
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