Shakti Pumps: Q2-25 Earnings Call Highlights
Exceptional Q2-25 & H1-25. Strong demand for solar pumps. Efficient execution & margin expansion. Future growth supported by order book, & capex. EV business gaining traction, strong growth expected.
shaktipumps.com | NSE: SHAKTIPUMP
1. Key Takeaways
1.1 TLDR
Shakti Pumps delivered exceptional Q2 and H1 FY25 results, driven by strong demand for solar pumps, efficient execution, and margin expansion.
The company is confident in its future growth prospects, supported by a robust order book, ongoing capacity expansion, and a focus on innovation.
The management is optimistic about the potential of the solar market and its role in driving sustainable agricultural practices.
The EV business is gaining traction and is poised for significant growth in the coming years.
1.2 Key Themes:
Record-breaking quarter: Q2 FY25 revenue reached ₹633 crore, exceeding the previous high of ₹69 crore in Q4 FY24.
Significant margin expansion: EBITDA margin expanded to 23.4% in Q2 FY25 from 10% in Q2 FY24. This was attributed to higher order execution and economies of scale.
Strong H1 performance: H1 FY25 revenue grew 3.58x year-on-year, reaching ₹1220 crore. EBITDA margin stood at 23.7%.
Robust order book: Order backlog stands at approximately ₹1800 crore.
Export growth and diversification: Shakti Pumps is experiencing strong export order growth and is actively pursuing new opportunities in various countries.
Capacity expansion: Existing capacity is sufficient for ₹2500 crore revenue. Expansion plans are in progress, aiming for a peak revenue of ₹5000 crore.
Focus on innovation: The company highlighted its patented technology that allows solar pumps to operate even when the grid is unavailable, ensuring uninterrupted water supply for farmers.
EV business update: Shakti EV, a wholly-owned subsidiary, is making progress in EV motor manufacturing and is in discussions with major Indian automotive companies.
1.3 Key Quotes
On record quarter: "I am very happy to share that we have broken all our records. Compared to our biggest quarter, March 24, which was ₹69 crore, we have achieved ₹633 crore this quarter."
On margin sustainability: "This margin is very good. It is calculated based on the solar panels we purchased. If you subtract them, the margin will look even higher."
On order book execution: "We have to finish the ₹1800 crore order book in the next three to four quarters. Business is in good shape, but the solar pumping segment is unique and benefits everyone. We should do it even faster. Our team is ready for that, and we are thinking of moving forward every day."
On client concentration risk: "The money is secured with the state government. It will not sink, it will come... We also see the state budget. So, we get a solid feeling that our money will not sink anywhere."
On the potential of the solar market: "This is just a pilot, a testing of the market... The total market in India is 4 crore pumps connected to the grid, meaning that the requirement for grid pumps is 4 crore pumps. The grid is also roughly around the same. So, it’s a very big market. Right now, the sky's the limit for this market size."
On Shakti Pumps' role in Kusum Scheme: "The main duty of this scheme is to replace the pump. This scheme will not work unless pumps are replaced because the current pump consumes 40 to 50% more electricity...Shakti Pumps has a patented technology that will save electricity while running the pump. It will also save water, and the electricity saved while saving water can be supplied to the grid at the same time. This means that we will be able to do two things at the same time. We will be able to run the pump and at the same time supply the remaining electricity to the grid...This technology of Shakti Pumps is patented, and as soon as the market moves towards grid connection, Shakti Pumps will benefit immensely."
On Shakti EV Business: "We have set up a 100% wholly owned company of Shakti, in which we are manufacturing EV motors, and we have started selling to some manufacturers... We are also testing some motors for motorcycles. We have already given motors for some scooters for testing. We are also in talks with companies like EC, Tata and Ashok Leyland in the designing stage...We have already sold out about 3000 motors in JBM, which are running in the market."
1.4 Analyst Concerns
Client Concentration Risk: Reliance on state government contracts raises concerns about payment delays and potential budget constraints. Management addressed this by highlighting their selection process, prioritizing states with healthy budgets, and closely monitoring payment cycles.
Execution Delays in Kusum Scheme: Analysts questioned the slow implementation of the Kusum scheme, particularly the feeder-level solarization component. Management attributed delays to grid infrastructure challenges, specifically the availability and reliability of power supply in rural areas.
Potential Order Book Slowdown: A slight decrease in the order book from the previous quarter raised questions about potential slowdown in new orders. Management reassured analysts that orders are being executed and new projects are in the pipeline, highlighting the long-term nature of the order book.
Shakti Pumps India Limited (NSE: SHAKTIPUMP) Q2 and H1 FY25 Earnings Conference Call FAQ
Q1: What is the reason behind the significant revenue growth in Q2 FY25?
A1: Shakti Pumps reported a remarkable three-fold increase in revenue, reaching ₹635 crore in Q2 FY25 compared to the same period last year. This impressive growth is attributed to robust order execution both domestically and in export markets. The company also witnessed a 16-fold surge in profit compared to the previous year, driven by strong sales and improved margins.
Q2: What is the company's current order book position?
A2: Shakti Pumps has a strong order book position of approximately ₹1,800 crore, ensuring revenue visibility for the coming quarters. The company's leadership in the PM Kusum scheme contributes significantly to this robust order backlog.
Q3: Are the current margins sustainable?
A3: Shakti Pumps believes the current margins are healthy and sustainable. The company enjoys a leading position in the market with limited competition. Stable raw material prices, especially for solar panels sourced domestically, have also helped maintain favorable margins. The company aims to maintain an EBITDA margin of 16-18%.
Q4: Is there a risk of capacity becoming a bottleneck to future growth?
A4: The company acknowledges its existing capacity can handle around ₹2,500 crore in revenue. However, they have already planned a capacity expansion with secured funding in place. The expansion will increase the total capacity to ₹5,000 crore. In the short term, the company is confident of reaching ₹3,000 crore to ₹3,200 crore by adding new machinery to their existing facilities within the next 3-6 months.
Q5: What are the key concerns regarding the company's receivables, given the concentration of clients in state governments?
A5: Shakti Pumps understands concerns about client concentration risk, as state governments are their primary customers. However, they highlight that the funds are secure with the state governments. The company adopts a cautious approach and monitors payments closely. Delays in payments can occur but are viewed as a natural part of doing business, particularly during periods of high order execution. The recent introduction of the PM SSF (PM Scheme for Subsidy) is expected to streamline subsidy disbursement and expedite the payment cycle.
Q6: What is the outlook for the solar pump and overall solar power market in India?
A6: The company views the solar sector as a crucial driver for India's future development. With a massive market size and strong government support, the potential for growth in both solar pumps and solar power generation remains significant. Shakti Pumps expects the market to grow at a healthy pace, driven by initiatives like the PM Kusum scheme.
Q7: What is the status of the company's electric vehicle (EV) business?
A7: Shakti Pumps has established a wholly-owned subsidiary, Shakti EV, to manufacture EV motors. They have begun selling motors to manufacturers and are testing motors for motorcycles and scooters. The company is engaged in design collaborations with major players like Tata Motors and Ashok Leyland. Production is expected to start in December, with an aim to be a leading player in the "Made in India" EV motor segment.
Q8: What is the expected revenue and margin profile for the EV business?
A8: While current revenues from the EV segment are negligible, the company expects to scale it up in the next two to three years. The management aims for an EBITDA margin of 15-17% for the EV business, consistent with its overall profitability goals. The final pricing and market dynamics will depend on factors like competition and potential anti-dumping duties on imported EV components.
Source: Link to Earning Call Transcripts
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