Based on the earnings call, here are the key takeaways about Shakti Pumps (India) Limited's business and financial performance:
The company is a major player in solar water pumps, especially under the PM-KUSUM scheme. It has significant market share in key solar pump tendering states like Rajasthan, Madhya Pradesh, Maharashtra etc.
The company has been facing margin pressure in recent years due to increased raw material costs, especially solar panels. It has not been able to get compensatory price hikes from the government under PM-KUSUM tenders. This has impacted order execution and financial performance.
The company seems positive on the new PM-KUSUM 3 tenders that have been floated with revised price discovery. It expects improved margins and order execution going forward.
The company has strong execution capabilities, with ability to supply upto 1 lakh pumps per year. It is targeting 30-35% market share in PM-KUSUM 3.
Exports is a key growth driver, with increasing focus on markets like USA, Africa etc. The company has started execution of a $35 mn order in Uganda.
The company is also entering the EV segment through a subsidiary. It has developed EV motors and controllers, with plans for a Rs 250 crore manufacturing facility. Initial traction visible with bus manufacturers.
Revenue growth has been under pressure last 2 years due to PM-KUSUM issues. The company is targeting 20-25% growth in FY24, with improving margins. Strong order execution in PM-KUSUM 3 will be key monitorable.
Questions & Answers
Q. What's Management's commentary on Details about new PM-KUSUM solar pump tenders - size, eligibility, timelines, pricing, expected margins. Execution and order pipeline related queries - status of pending orders, new orders expected, run-rate/capacity. Growth outlook and guidance given new tender opportunities.
A. Here are the key points on management's commentary regarding the new PM-KUSUM tenders, execution pipeline, and growth outlook:
On PM-KUSUM Tenders:
New tenders for ~6.6 lakh solar pumps floated, to be completed by March 2023.
Tenders have tightened eligibility norms - requires proven experience of supplying >40,000 pumps earlier.
80% of tender quantity from MP, Rajasthan, Maharashtra, Haryana where Shakti has strong presence.
Expect improved margins compared to earlier tenders based on new price discovery.
Confident of receiving orders from Q1 FY24. Targeting 30-35% market share.
On Execution Pipeline:
Pending order of 12,000 pumps in Haryana on hold, expect to execute at new prices in Q1 FY24.
Current order book around Rs 100 crores to be executed in Q4 FY23.
Target installation capacity of 10,000-15,000 pumps per month once execution starts after price discovery.
Uganda order execution started, $1 million revenue recognized in Q3 FY23. Next milestone $2 million.
On Growth Outlook:
Guidance of 20-25% revenue growth in FY24, expect accelerated growth once PM-KUSUM 3 orders start.
Margins expected to improve with better price discovery. Double digit margins targeted.
Capacity utilization was ~30% in FY23. Expect to ramp up significantly.
Export business continues strong growth momentum.
So in summary, management is positive on executing PM-KUSUM 3 tenders with good margins and growth from FY24, based on strong competitive position. Topline growth with margin expansion is the focus.
Q. What's Management's commentary on Impact of raw material price fluctuations on margins. Ability to get price hikes. Breakup of revenue between EPC, exports, domestic, non-solar etc. Order book status and capacity utilization levels.
A. Here are the key points on management's commentary regarding raw material impact, revenue breakup, order book and capacity utilization:
On Raw Material Impact:
Solar panel prices increased ~40% over last 2 years, hurting margins on PM-KUSUM orders.
Held back execution of 12,000 pump Haryana order due to unviable prices.
New tenders have 20% higher pricing, will benefit from recent softening in solar panel prices.
No variable pricing clause in new tenders, so raw material fluctuations will impact margins.
On Revenue Breakup:
Solar EPC revenue was Rs. 623 crores in FY23. Export revenue was Rs. 235 crores.
Growth focus on Exports, guided for 25-30% export revenue share in next 2-3 years.
Domestic and Agri segments slowed down due to PM-KUSUM delays. Expect recovery.
On Order Book and Capacity Utilization:
Current order book around Rs. 100 crores, execution in Q4FY23. Low due to PM-KUSUM halt.
Overall capacity utilization was ~30% in FY23. Expect significant ramp-up in FY24.
Target installation capacity of ~1 lakh pumps annually once PM-KUSUM 3 execution starts.
Management confident of strong growth in order book and capacity utilization in FY24.
So in summary, while PM-KUSUM delays and raw material inflation impacted last year, management is gearing up for strong recovery in FY24 based on new tender prices and strong competitive positioning.
Q. What's Management's commentary on Working capital and inventory management queries. Cash flow position. Competitive scenario - other players bidding, competitive positioning. Progress and roadmap for EV business under subsidiary. Revenue potential and timelines.
A. Here are the key points on management's commentary regarding working capital, competition, and EV business:
On Working Capital:
Inventory levels increased in FY23 due to execution delays. Stands at 51 days of revenue.
Debtor days is 76, creditor days is 101. Overall working capital cycle is 90-100 days.
Expect significant improvement in working capital cycle once PM-KUSUM orders start.
Comfortable liquidity position. Lower interest outgo in FY23 due to low debt.
On Competitive Scenario:
Main competitors are Kirloskar, KSB, Tata Power, WPIL for PM-KUSUM tenders.
New tender norms on experience favor established players like Shakti.
Competitive strengths are strong brand, distribution reach, execution track record.
Confident of maintaining 30-35% market share based on competitive advantages.
On EV Business:
Setting up new subsidiary for EV motors and controllers manufacturing.
Already developed motors for 2-wheelers and 3-wheelers. Some commercial orders received.
R&D team of 150 engineers working on EV products development.
Planning Rs. 250 crores investment over next 4 years. Revenue scale-up from FY25.
In talks with some OEMs for EV motor supplies. Overall traction is building up.
So in summary, while working capital has suffered in the near term, management expects meaningful improvements going forward. Competitive position seems comfortable. EV business has initial traction but longer gestation.
Q. What's Management's commentary on Queries on specific orders like Haryana, Uganda etc and their status. Margin outlook over next few quarters given raw material trends. Capex plans and capacity expansion projects to meet large order book.
A. Here are the key points on management's commentary regarding specific orders, margin outlook, and capex plans:
On Specific Orders:
Haryana: 12,000 pump order on hold due to unviable pricing. Expect execution from Q1 FY24 at new prices.
Uganda: $1 million revenue recognition done in Q3 FY23. Next milestone $2 million. Conservative ramp-up plans.
On Margin Outlook:
Expect improved margins in PM-KUSUM 3 with 20% price increase vs previous tenders.
Price escalation not allowed over 2-year tender period. Raw material fluctuations will impact.
Targeting double digit EBITDA margins on the back of operating leverage and better pricing.
On Capex Plans:
Current capacity at 5 lakh pumps p.a. Sufficient to meet growth requirements in medium term.
Planning Rs. 250 crore investment in EV subsidiary over 4 years. Shakti to contribute Rs. 50 crores equity.
No other major capex indicated. Focus is on order execution through existing facilities.
Comfortable balance sheet position provides cushion for any expansion needs.
So in summary, management is positive on margin recovery based on new PM-KUSUM pricing. Conservative approach on new investments, capitalize on current capacities.
Q. What's Management's commentary on Progress on receivables and working capital cycle. Cost reduction or efficiency improvement initiatives. HR ramp up plans for project execution, especially service network. After sales service and maintenance - revenue potential and progress.
A. Here are the key points on management's commentary regarding working capital, cost initiatives, and after-sales services:
On Working Capital Cycle:
Receivables at 76 days sales currently. Guided for 90% PM-KUSUM payment within 30 days.
Lower debtor days expected once government order execution starts. Advance monitoring.
Inventory was high in FY23 due to execution delays. Will normalize with order growth.
Overall working capital cycle expected to be brought down to 90-100 days levels.
On Cost Initiatives:
Continued focus on value engineering and product redesign to reduce costs.
Increasing in-house manufacturing of critical components like motors. Reduces import dependence.
Higher economies of scale will lead to better absorption of overheads.
Options of alternate supply sources being evaluated amid volatility in China prices.
On After Sales Service:
Expanding service network capabilities to support larger installed pump base.
Digital initiatives being deployed for better customer analytics and service efficiency.
Developing advanced remote monitoring systems for predictive maintenance.
After-sales services provide an annuity revenue stream. Focus on further strengthening it.
So in summary, the management is cognizant of working capital challenges and is focused on improving cycles. Cost control getting management attention. After-sales opportunity is being tapped.
Q. What's Management's commentary on Progress on developing new export markets. Technology trends in pumps and focus areas for R&D spending. Update on supplier relationships and security of raw materials. Potential impact of competing subsidy schemes on solar pump demand.
A. Here are the key points on management's commentary regarding exports, technology, suppliers, and competing schemes:
On Export Markets:
Expanding presence in Africa by leveraging experience from initial Uganda order.
Exploring opportunities in Middle East as conditions improve post-COVID.
Broadened distribution network and product range in USA resulting in 30% growth.
Evaluating partnerships for exports to South East Asia and Latin America.
On Technology and R&D:
Continued focus on developing energy efficient motors and pumps - key differentiator.
Investing in remote monitoring systems and IoT integration.
R&D team of 150 engineers working on new product development including EV offerings.
28 patents filed - demonstrates technology innovation focus.
On Suppliers:
Diversification of solar panel suppliers being evaluated due to dependence on China.
Developing domestic vendors for components like motors, controllers etc.
Maintaining adequate inventory buffer for key raw materials.
On Competing Subsidy Schemes:
Other state specific schemes ancillary, not materially impacting PM-KUSUM demand as of now.
Positioning to benefit from any additional state schemes through strong brand and distribution.
Underlying agricultural demand driver remains robust.
So in summary, the management is actively tapping new export markets. R&D and technology development is an area of strength and focus. Mindful of raw material dependence, but comfort on PM-KUSUM demand outlook.
Q. What's Management's commentary on Order pipeline beyond the announced PM-KUSUM tenders. Fund raising plans if any to fund expansion and new initiatives. Contingency plans to minimize disruptions given dependence on government schemes. Strategy for driving non-subsidy based consumer solar pump sales.
A. Here are the key points on management's commentary regarding order pipeline, funding plans, contingencies, and non-subsidy sales strategy:
On Order Pipeline:
PM-KUSUM 3 tenders of 6.6 lakh pumps provide near term visibility.
Water infrastructure tenders from municipal agencies also being targeted.
Exploring rural electrification projects with state electricity boards.
International order pipeline build up through exports.
On Funding Plans:
Existing facilities sufficient to meet medium term growth needs. No major capex indicated.
EV subsidiary investments to be met through mix of equity and debt funding.
Comfortable balance sheet position provides leverage for growth funding if needed.
On Contingencies:
Developed capabilities to handle policy changes and order delays - temporary impacts.
Focused on exporter partnerships to diversify revenues beyond Indian schemes.
Leveraging industry partnerships for policy advocacy and pragmatic decision making.
On Non-Subsidy Sales:
Positioning energy savings and quick payback period for commercial buyers.
Exploring deferred payment models to lower initial capex for farmers.
Building solar pump knowledge and access through vocational training programs.
Rural electrification and higher MSPs expected to improve farmer buying capacity.
So in summary, the management is focused on diversifying revenues beyond PM-KUSUM, while building levers to handle disruptions. Exploring financing models to drive non-subsidized solar pump adoption.
Bonus
Business Model
Core business is manufacturing of solar and electric water pumps. Key products are submersible pumps, openwell pumps, pressure boosting pumps etc.
Major revenue comes from selling solar pumps under government schemes like PM-KUSUM. The company bids for tenders floated by central and state nodal agencies.
Exports is the other big business segment, with focus on markets like USA, Middle East, Africa etc. Products are sold through distribution partners in these regions.
The company manufactures most critical components like motors and controllers in-house. This provides better control over quality and technology.
For PM-KUSUM projects, the company provides turnkey solutions including supply, installation and maintenance of the solar pump systems.
The end customers are mainly farmers and rural households buying pumps under subsidy schemes. The company has a wide distribution and service network to cater to these customers.
Revenue is generated from one-time product and project sales. After-sales service and maintenance provides additional revenue stream.
Raw materials are sourced from domestic and international suppliers. Solar panels are major imported item. Cost control and efficient operations are key for maintaining margins.
So in summary, Shakti Pumps operates as an integrated solar pump manufacturer with presence across the value chain. Government tenders and exporter partnerships are key for driving revenues.
Competitors
Shakti Pumps' major competitors include:
Kirloskar Brothers
KSB
Tata Power
WPIL
Some of the competitive advantages and edge that Shakti Pumps seems to have over competitors:
Strong brand and distribution network in key states for solar pump tenders like Rajasthan, Madhya Pradesh etc. This provides an edge in winning govt tenders.
Technology and R&D focus, with capabilities across motors, controllers, pumps etc. This allows differentiation.
End-to-end execution capabilities - from manufacturing to installation and maintenance. Provides integrated solution to customers.
Presence across export markets through distribution partners. First mover advantage in some markets.
Experience of executing large government contracts like PM-KUSUM. Execution track record important criteria for new tenders.
Dominant market share of 30-35% claimed in solar pump market. Provides scale advantage.
In-house capabilities across the value chain instead of dependency on third-party suppliers. Better control over quality and costs.
Strong balance sheet, cash flows and financial position compared to competitors provides stability.
So in summary, Shakti Pumps' brand reputation, execution experience, technology focus, integrated operations and financial strength seem to provide it a competitive edge over other players in the solar pump market.
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