Shakti Pumps (India) Ltd : A Promising Investment with 16% Upside Potential

Shakti Pumps India Ltd., established in 1982, specialises in manufacturing energy-efficient pumps and motors, particularly for agriculture. With over 1,200 products, the company is a leader in renewable energy solutions and has a significant presence in the solar pumping industry. 

It exports to over 120 countries and holds a 40% market share in India’s PM-KUSUM scheme, which promotes solar power in agriculture. Shakti Pumps is committed to research and development, creating innovative products for various applications including irrigation, industrial processes, and water supply.

Why should you invest in Shakti Pumps (India)?

Investment Rationale

Healthy order book and increasing revenues ensure robust growth in the near future
Shakti Pumps (India) Ltd. has a promising outlook with a strong order book of Rs. 22.5 billion, including a significant Rs. 15.5 billion order from Maharashtra State Electricity Distribution Company Limited to be completed within two years. Other orders involve Off-Grid and Grid Connected Solar Water Pumping Systems, with execution timelines ranging from three to nine months. 

The company anticipates a minimum 25% order growth in the upcoming financial year and expects H2FY24 revenues to reach around Rs. 900 crores, up from Rs. 497 crores in H2FY23. With over 69,000 pumps to be installed in the next two years, Shakti Pumps’ top line and order book appear robust for the foreseeable future.

PM KUSUM Scheme – a potential for earnings and growth
Under the PM KUSUM Scheme, the goal is to install over 20 lakh off-grid solar pumps and 15 lakh on-grid solar pumps by 2028, creating an opportunity worth Rs. 1,050 billion. As of January 2024, 12.9 lakh units have been sanctioned, but only 2.9 lakh units have been installed, leaving a significant opportunity for growth. Shakti Pumps India Ltd., as a market leader, is well-positioned to capitalise on this expanding market in the coming years.

Valuation and Outlook

Shakti Pumps (India) Ltd. is a leading manufacturer of pumps and motors, offering a wide range of water pumping solutions for various applications. The company has over three decades of experience and is known for its quality-driven products. 

With the growing emphasis on solar power in India, Shakti Pumps is well-positioned to benefit from the increasing demand for solar-powered water pumps. The company’s recent financial performance has shown strong growth, and it has a healthy order book. The government’s support for the solar sector and the rising need for sustainable water pumping solutions are expected to drive the company’s growth in the coming years. 

Therefore, the current macro situation, a healthy order book, and rising government support towards the sector makes us constructive on the company and assign a buy rating with an investment horizon of 12 months. On the valuation front, we have arrived at a target price of Rs 1,753 (16% upside from CMP) based on P/E of 43x of FY24E earnings.