Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai S t o c k I d e a KSB PUMPS LTD.

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1 S t o c k I d e a Date: 10-August -12 CMP: `201 TARGET: `256 Upside: 27.4% B U Y SENSEX NIFTY 5320 Eq. Cap. (` Crs) Face Value (`) 10.0 M. Cap (` Crs) `700 BSE Code NSE Code Financial Year KSBPUMPS Jan-Dec 52-w H/L 266/141.5 Avg. Daily Vol. 2,029 TTM EPS (`) TTM P/E (x) 14.3x BVPS (`) P/BVPS (x) 1.64x Stock vs. Sensex Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai KSB PUMPS LTD. (KSBPL) Established in 1960, KSB Pumps Ltd (KSBPL) - Indian subsidiary of Klein Schanzlin & Becker (KSB AG), Germany - is one of the largest manufacturer and seller of pumps and valves in India. The company is engaged in manufacture of power driven pumps and industrial valves, Cast Articles of Iron or Steel. While the foreign promoter holds 40.5% stake in the company, the Indian promoters hold 26.3% taking the total promoter holding to 66.8%. Strong Parentage: ~140 years existence in the field The KSB Group (KSB AG) is one of the leading producers of pumps, valves and related systems with annual revenue of ~2000 mn euro. The group has 29 manufacturing sites in 19 countries. In its ~140 years existence, KSB AG has developed the cutting edge of almost every major centrifugal pump. With its strong R&D back up, KSB AG has been growing continuously since it was founded in Catering to Diversified set of Industries KSBPL pumps and valves are used in applications where liquids need to be transported or reliably shut off. The company manufactures pumps and valves to support functions of agricultural sector and water & sewage management systems apart from industrial applications such as power, petrochemicals, etc. The company also takes up project execution on turnkey basis and caters to niche industrial as well as highly competitive low margin agricultural and domestic (residential/commercial buildings) segments. Doubling Capacity in Pumps division: Valves division to see additional capacity KSBPL's manufacturing facilities are one of the largest outside Germany (where its parent company is based) and serve as an important sourcing location for the KSB Group worldwide. Over the years, KSBPL has grown geographically and currently it has 5 plants in India. The company has earmarked a capex of ~`90 Crs (to be spent over 2-3 years), which will double its capacity in pumps and also add capacity in the valves division. MIL Controls Ltd: Critical control/robotic valves + A Niche segment + consistently reporting profits MIL the associate company which was acquired in the year in which KSBPL has 49% stake, is into business of manufacturing critical Control Valves (robotic control valves). With over two decades of immense experience MIL has become the name to reckon with for the supply of critical control valves in the Process Industries in India & abroad with heavy emphasis on Thermal/ Nuclear Power, Oil & Gas, Petrochemical & Fertilizer sectors. Strong Operating metrics + Debt free + Cash rich Strong Dividend and Bonus history: Since last 20 years KSBPL has been consistently paying dividend and never missed a year without Dividend. Dividend Yield currently at 2.7%. The Book Value Per Share stood at Rs at the end of CY2011. Virtually Debt Free Company (except Working Capital Advances of `63 Crs) at the end of CY2011). The company has taken `50 Crs as loan against FD, for its working capital requirements in CY2011. Cash & Cash Equivalent on the books stood at `123 Crs at the end of CY2011. Full taxpaying company, Average tax rate at 33.2% since last 5 years. At the CMP of `201, the stock is trading at 11.8x its CY13E EPS of ` We recommend BUY on the stock with a months target price of `256, providing an upside of 27.4% from the current levels. Please Refer DISCLAIMER on the Last Page

2 Company Profile Engaged in manufacture of power driven pumps and industrial valves, Cast Articles of Iron or Steel Established in 1960, KSB Pumps Ltd (KSBPL) - Indian subsidiary of Klein Schanzlin & Becker (KSB AG), Germany - is one of the largest manufacturer and seller of pumps and valves in India. The company is engaged in manufacture of power driven pumps and industrial valves, Cast Articles of Iron or Steel. While the foreign promoter holds 40.5% stake in the company, the Indian promoters hold 26.3% taking the total promoter holding to 66.8%. The company follows Calendar year (Jan- Dec) as its financial year. It is perhaps the only company that manufactures pumps and valves to support functions of the agricultural sector and water and sewage management systems apart from industrial applications such as power, petrochemicals, etc. Revenue Model KSBPL has 6 important business areas, comprising, Irrigation and Process Division (IPD), Foundry Division (FD), Power Projects Division (PPD), Industrial Valves Division, Water Pumps Division (WPD), and Marketing Division. However the company reports its revenue under 2 segments: Pumps and Valves. Revenue Mix Valves 19.0% Pumps 81.0% Source: Company, LMSPL Research KSB Pumps Ltd August-2012

3 INVESTMENT POSITIVES Strong Parentage: ~140 years existence in the field KSB AG has presence in all continents with its own sales and marketing offices, manufacturing facilities and service operations The KSB Group (KSB AG) is one of the leading producers of pumps, valves and related systems with annual revenue of ~2000 mn euro. The group has 29 manufacturing sites in 19 countries. In it s ~140 years existence, KSB AG has developed the cutting edge of almost every major centrifugal pump. With its strong R&D back up, KSB AG has been growing continuously since it was founded in Today the Group has a presence on all continents with its own sales and marketing companies, manufacturing facilities and service operations. For the past 50 years, it has been customizing and offering products, solutions, systems and service to match needs and expectations of customers from various market segments. KSB AG is also a leading international supplier of pumps, valves and related systems for Building services, Process engineering, Water treatment, Water transport, Energy conversion and Solids transport. Catering to Diversified set of Industries The growth of the pump and valves sector is driven by the growth and increased investments in power and energy sectors apart from the agricultural sector. Moreover Pumps and valves form part of large projects across the aforesaid industries. KSBPL pumps and valves are used in applications where liquids need to be transported or reliably shut off. The company is the only player that manufactures pumps and valves to support functions of agricultural sector and water & sewage management systems apart from industrial applications. The company also takes up project execution on turnkey basis and caters to niche industrial as well as highly competitive low margin agricultural and domestic (residential/commercial buildings) segments. On industrial front the company caters to diverse industries such as chemicals, petrochemicals/ refiners, breweries/distilleries etc and power generation (both thermal and nuclear for feeding water to boilers). The company also manufactures and supplies high value valves, especially the control valves, which are used in power and other engineering sector. Strategically located manufacturing units KSBPL's manufacturing facilities are one of the largest outside Germany (where its parent company is based) KSBPL's manufacturing facilities are one of the largest outside Germany (where its parent company is based) and serve as an important sourcing location for the KSB Group worldwide. Over the years, KSBPL has grown geographically and currently it has 5 plants in India located at Pimpri (Pune) (1 st plant of the company), Ahmednagar, Chinchwad (Pune), Nashik and Coimbatore. The company's own foundry plant is at Ahmednagar in Maharashtra. In 1997, KSBPL has acquired MIL Controls Ltd, a producer of control valves and level instruments to support its growth. KSB Pumps Ltd August-2012

4 Earmarked a capex of ~`90 Crs (to be spent over 2-3 years), which will double its capacity in Pumps and add capacity in Valves as well Wide distribution network comprising 4 zonal offices, 16 branch offices, ~575 authorized dealers, 4 service stations, ~88 authorized service centers and 18 go-downs At present the company capacity for producing Power Driven Pumps, Industrial Values, Carbon Steel Alloy Iron Castings and Non Ferrous Castings stands at 150,500 Tonnes, 186,000 Tonnes, 9,000 Tonnes and 200 Tonnes respectively. KSBPL has earmarked a capex of ~`90 Crs (to be spent over 2-3 years), which will double its capacity in pumps, and add some additional line of manufacturing in the valves division. Strong Marketing, Sales and Service setup KSBPL has a very strong Marketing, Sales and Service setup to offer solutions to its customers effectively. All of its products (pumps and valves) being offered to the market through a very wide distribution network comprising 4 zonal offices, 16 branch offices, ~575 authorized dealers, 4 service stations, ~88 authorized service centers and 18 godowns; all this to ensure that for every KSBPL pump and valve in use, there is a KSBPL sales and service outlet around the corner, says the company. Edge over Competitors Within the KSB Group globally, KSBPL has comparatively the highest range of pumps and valves to offer. Even among its competitors (Crompton Greaves, Kirloskar Bros, Shakti Pumps, Dynamatic Tech.) in India, KSBPL has a large range of pumps to offer under one roof. Both these give the company the required competitive edge over its peers. Moreover, KSBPL is likely to capitalise on any opportunity that might arise from the on-going capex across power generation and petrochemical industries. In addition, the high-wear condition in such industries is also likely to result in a good replacement market for its products. The competition in this segment is fairly low since pump manufacturers catering to the refineries and petrochemical industries are required to conform to the API (American Petroleum Institute) standards. KSBPL scores with energy efficient pumps, benefiting from technological innovations by its parents KSB AG and is also a sourcing base for components. MIL Controls Ltd : Critical control/robotic valves + A Niche segment + Consistently reporting profits MIL has consistently reported profits (made a profit before tax of `28 Crs in CY11) MIL Controls Ltd (MIL) the associate company which was acquired in the year in which KSBPL has 49% stake is into business of manufacturing critical Control Valves (robotic control valves). With over two decades of immense experience MIL has become the name to reckon with for the supply of critical control valves in the Process Industries in India & abroad with heavy emphasis on Thermal/ Nuclear Power, Oil & Gas, Petrochemical & Fertilizer sectors. MIL is among the leading Control Valve manufacturers world-wide with strategic alliances in place for products like Turbine Bypass & Desuperheater, Foundation Fieldbus & HART Technology Positioners (METSO, SIEMENS and ABB). KSB Pumps Ltd August-2012

5 This critical control/robotic control valves is a niche business and offers tremendous opportunity as it is highly technology intensive and is particularly used in Oil & Gas (production, upstream, midstream and downstream activities) industries and in all industries where human intervention is not possible. MIL has consistently reported profits (made a profit before tax of `28 Crs in CY11) and more importantly, even when there was general downturn in the industry, it continued to grow. Exports: ~10% of total revenues KSBPL has export orders outstanding for execution of `54 Crs at the end of CY 11 On the exports front, revenues are likely to improve, given the increased sourcing by KSB AG, its parent company. This has not only helped KSB diversify its target market, but also improve the overall realisation for its products. During CY 11, exports of pumps and valves in terms of value were `70.1 Crs against `63.3 Crs in CY 10. Moreover, the export of submersible pumps has helped KSBPL to decrease seasonal influences on its business, due to monsoons. The company had an export orders outstanding for execution of `54 Crs at the end of CY 11. KSB AG focus remains on Energy saving products: Positive India is seeing tremendous growth in energy efficient pumps Worldwide, many customers of the KSB AG demand products with low energy consumption, from the perspective of not only economic considerations but environmental aspects as well. KSB group provides pumps with high efficiency levels as well as automation systems that help identify and make use of potential for saving energy. The group R&D center continuously working towards additional solutions, which can simultaneously reduce the use of energy resources and cut operating costs. According to KSB AG, India is seeing tremendous growth in energy efficient pumps. The pumps and valves industries in India are very important especially in the light of growth in Oil and Gas sectors, water supply and sewage. In response to the scarcity of energy, a large-scale govt programme has been initiated with the objective of replacing units, which consume large amounts of energy with more efficient machines. Strong Operating metrics + Debt free + Cash rich + Strong Dividend and Bonus history Full taxpaying company, Average tax rate at 33.2% Strong Dividend and Bonus history: Since last 20 years KSBPL has been consistently paying dividend and never missed a year without Dividend. Dividend Yield currently at 2.7%. The Book Value Per Share stood at Rs at the end of CY2011. Virtually Debt Free Company (except Working Capital Advances of `63 Crs) at the end of CY2011). The company has taken `50 Crs as loan against FD, for its working capital requirements in CY2011. Cash & Cash Equivalent on the books stood at `123 Crs at the end of CY2011. Full taxpaying company, Average tax rate at 33.2% since last 5 years. KSB Pumps Ltd August-2012

6 Strong Shareholding: Public More than 1% Management Guidance: CY 12E Worst seems over, financials have started to improve Management expects to maintain sales of CY'11 in CY12E and try to grow sales in single digit. The major reason for such guidance is the delay in investments in energy and power sector. Lack of confidence together with policy paralysis is hurting the growth. However, long term future continues to remain bright. Management believes that the worst is over on Margin front. The margins were abnormally lower in 9MCY11 and picked up from 4QCY11, as sales and margins on some of the delayed orders were booked in last quarter, as customer took the delivery. It expects the margins to improve going forward. The EBITDA margin improved in 1HCY12 to 10.6% as compared to 7.7% reported in 1HCY11. Of the planned capex of ~`90 Crs, the company has phased out the capex in different years and will gradually expand the capacities. It has now plans to spend ~`30 Crs towards capex in CY'12E. EBITDA margin improved in 1HCY12 to 10.6% vs 7.7% reported in 1HCY11 On Valves business, the management has indicated that the entire restructuring process is complete and it expects the business to continue to do well in future and to get the benefits of cost rationalization and product differentiation. For CY'12, the KSBPL is expected to do well in exports, as higher crude prices is helping in some way and company is not present in Middle East areas where there are some issues. CONCERNS Any slowdown in the capex plans of user industries is likely to affect the growth of KSBPL negatively. Any unprecedented volatility in raw material prices could also affect the company's earnings. KSB Pumps Ltd August-2012

7 VALUATIONS At the CMP of `201, the stock is trading at 11.8x its CY13E EPS of ` We recommend BUY on the stock with a months target price of `256, providing an upside of 27.4% from the current levels. Source: Company, LMSPL Research Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai Tel. (022) , Fax (022) research@lmspl.com LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. KSB Pumps Ltd August-2012