Hello Sir,

Hope you are doing well.

Remember, a few days back we shared a mail on Solar Pumps industry and if Government's KUSUM scheme will prove to be a game changer or not.

Shakti Pumps is one of the largest players supplying Solar Pumps under the KUSUM scheme and expects strong growth going ahead.

Like all the other stocks, this one too is going through a phase of correction and is down 45% from the peak. We decided to dig deeper into the company.

Below, we have shared our notes (unedited) from the Q4 FY 22 con-call transcript of Shakti Pumps. Hope you find them useful for your own investments or to add the stock to your watchlist:


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Shakti Pumps - Q4 FY 22 concall transcript notes

  • Introduction – Shakti Pumps started in 1982 an MSME company which used to make pumps. After that, we started a little bit of government supplies and gradually moved forward. In 1985, we went for a public issue, post which we moved our attention towards export business and started developing stainless steel pumps.
  • We were the first company in India, which was producing steel pumps and were the only company to get the certificate for a 5-star rated in the energy efficient pumps. We make all kinds of steel pumps
  • Solar Pumps - Post that, we started focusing in the solar market only and started making energy efficient pumps. The most critical item for this industry was VFD which is an instrument to convert the solar energy into the electrical energy. These were being mainly imported in our country. So, we thought that now since solar market is being developed in India, so we should manufacture these VFM in-house. And six years earlier the dream that we had visualized, we got success in that and we developed manufacturing capacity of producing 2,00,000 VFD
  • On grid pumps - The patented solar pumps that we will install are on-grid pumps, means it has an inbuilt electrical connection. The farmers generally do irrigation for around 200 days, so our objective is to that in the remaining time, they can export the extra electricity to grid. That is the reason the on-grid pump concept has started in India. There are about 17.5 lakh pumps reserved in the KUSUM scheme, but we had seen even a bigger dream and developed this on-grid pump which can be adjusted depending upon the demand supply; if our farmer feels that he does not require that much water, he can set up the pump’s speed and supply the remaining electricity to the grid
  • Off-grid pump - In the off-grid solar pumps scheme it is mandatory that the farmer should not have any electrical connection, then only he will get the pump in the off-grid scheme. The farmer also has other machines, equipment, which he would want to run, like flour mill or freezer or grass cutter, he requires even more things to run
  • So, we have added our USPC and due to this now you will be able to cook food with the solar pumps, prepare tea, charge your EV, and charge any inverters and batteries. This means that if you have a solar pump with a USPC controller, then you will be relieved off all the electrical issues
  • Capacity - Today we have a capacity of around 5,00,000 pumps and motors annually
  • Capacity utilization - Our capacity utilization is standing at 30% to 35% because gradually the market is being developed in solar and the customer’s requirement is also coming good, and even farmers have well accepted our products
  • KUSUM scheme - today our country’s one of the largest schemes, wherein the Indian Government has aimed to install 40,00,000 solar pumps, which is a scheme of Rs. 1,00,000 crores, Shakti Pumps has been contributing a major chuck in this since the last two years
  • We have ~30% market share in the KUSUM scheme. During the last year, we have installed nearly 22,340 pumps in the KUSUM scheme, and we wish to install 1,00,000 pumps in the coming times
  • 3,17,000 pumps is in this KUSUM-2 scheme and we are planning that we will do 1,00,000 pumps in that. We have got the enquires from Maharashtra now, in Rajasthan we have already signed, in Haryana and Punjab we are already selling it and in UP we will start in this month
  • Non - KUSUM - focusing on India and have built a network of about 500 dealers. Through, this we are directly dealing with customer; say in B2C and focusing directly on our customers. We are developing a ‘without subsidy’ market as well (non-KUSUM market). In that we have developed a very good product which runs by two panels, which will support a lot in Bihar and UP in the agriculture
  • We have increased our Domestic and export prices and we are going in the B2C market also where we feel in the upcoming times, we will create a very good market for us and the small farmers of India, the two panels concept that is there, which requires 1 HP pump. We are going to market such pumps in Bihar and from the next month our B2C campaign will be in full force
  • KUSUM we are treating them as pilot projects to show to the farmers that from this the farming can be done and work can continue and even, they can make money. There is a replacement market as well and we are addressing them. We believe that still in India there are around 4 crore farmers who need solar pumps. If we are able to address them efficiently, we can take care of our growth
  • Price of 5 HP pump - in Maharashtra it is Rs. 2,35,000 and in other places it is Rs. 2,40,000 and at some other places it is Rs. 2,20,000
  • Guidance - We feel that in the coming year we will be able to install 1,00,000 solar pumps in our country
  • We are planning that we will install 1,00,000 pumps but when you talk about the revenue, we will grow from 25% to 30% year-on-year basis
  • It is only EPC for 1,00,000 pumps. we have changed some strategy, we are only doing EPC now. Strategically we have decided that we are not going to give to OEM
  • Sir my first question is that ma’am was asking me that we are going to do 1 lakh pump costing Rs 2 lakh so it should be Rs 2,000 crore from here, plus we have domestic also and export, so why are we giving a conservative guidance of 20%, 25% growth?
  • We are comfortable with a growth of 25-30%
  • Competition - we are competing with Tata. Tata do not build pumps or structures, but we build the structure and VFD too, so Tata just makes solar panels, and they purchase externally the VFD, pump and motors. There are a few MSMEs which will do this together
  • Margin contraction in FY 22 - our margins have declined because there has been price increase in all the raw materials, it has increased in solar panels as well. Prices have increased for steel, copper and zinc too. So, that is why you are seeing a hit on our profit
  • You assume that we will try our best to maintain 10% - 11% because the scenario of this war is such that we are not able to gauge at what prices we will get zinc, SS and what will be the rate of solar panels also
  • Raw material composition - you assume that of the Rs. 2,50,000 pumps, 40% will be the price of the solar panel. In 60% we have the structure, pump, motors, VFD and cables as well. In this 60%, major items are stainless steel, for VFD chip is required and for structure MS and zinc is required and for motor it is copper and silicon sheet and for pump stainless steel is there
  • Exports - Africa exports will start in the next quarter and we are now in such a stage that in the coming months we will start its sales
  • our sales team has started touring from last month and I am also going to Europe now, so in the coming months we will be travelling and meeting the customers too, which was almost not happening since the past 2 years
  • We are in USA since last 10 years and have gradually established there as a marketing company in USA which is a 100% subsidiary of Shakti Pump. Second company which is in Dubai serves our Middle East customers and provides after sales service
  • In export we work in a good margin. In USA we have a good margin available, 50% export comes from Middle East there also the margin are pretty good
  • Debt - Around Rs. 100 crore. term loan is Rs. 10 crore and the rest is working capital

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Disclaimer: This is not a recommendation to buy/sell Shakti Pumps. These notes are as announced by the companies on exchanges and only for the purpose of information and education.


Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/


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