Kirloskar Brothers reports 65.8% EBITDA decline in 2016 and 4.5 pp EBITDA Margin decline from 7.1% to 2.5%

10-05-2016 • About Kirloskar Brothers ($KIRLOSBROS) • By InTwits

Kirloskar Brothers reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

EBITDA Margin is declining: 2.5% in FY2016 vs. 7.1% in FY2015 vs. 5.7% in FY2012
EBITDA Margin is quite volatile: 2.5% in FY2016, 7.1% in FY2015, 7.7% in FY2014, 8.0% in FY2013, 5.7% in FY2012
Kirloskar Brothers has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.1%. At the same time it's in pair with industry average of 4.5%
CAPEX is quite volatile: ₹134m in FY2016, ₹44m in FY2015, ₹2,284m in FY2014, ₹930m in FY2013, ₹3,745m in FY2012
The company has unprofitable business model: ROIC is -0.8%
It operates with high leverage: Net Debt/EBITDA is 4.7x while industry average is 0.4x

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

The company's Revenue decreased on 4.9%. During the last 5 years Revenue growth topped in FY2014 at 3.0% and was decelerating since that time. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 4.5 pp from 7.1% to 2.5% in FY2016. During the last 5 years EBITDA Margin topped in FY2013 at 8.0% and was declining since that time.

Net Income margin decreased on 2.8 pp from 1.5% to -1.3% in FY2016. During FY2012-FY2016 Net Income margin topped in FY2013 at 2.5% and was declining since that time.

Investments (CAPEX, working capital and M&A)

In FY2016 Kirloskar Brothers had CAPEX/Revenue of 2.6%. CAPEX/Revenue showed almost no change from FY2013 to FY2016. It's average CAPEX/Revenue for the last three years was 3.3%. Battling declining revenue the company made large investments to CAPEX (102% of EBITDA) but that didn't help at least in this year.

Return on investment

The company operates at negative ROIC (-0.8%) and ROE (-3.4%). ROIC decreased on 8.2 pp from 7.4% to -0.82% in FY2016. ROE decreased on 7.5 pp from 4.1% to -3.4% in FY2016. During FY2012-FY2016 ROIC topped in FY2013 at 12.5% and was declining since that time. During FY2012-FY2016 ROE topped in FY2013 at 7.3% and was declining since that time.

Leverage (Debt)

Debt level is 4.7x Net Debt / EBITDA and 5.5x Debt / EBITDA. Net Debt / EBITDA jumped on 3.1x from 1.5x to 4.7x in FY2016. Debt increased on 2.7% while cash decreased slightly on 1.3%. During the last 5 years Net Debt/EBITDA bottomed in FY2014 at 1.1x and was growing since that time.

Kirloskar Brothers has short term refinancing risk: cash is only 18.0% of short term debt.

Financial and operational results

Kirloskar Brothers ($KIRLOSBROS) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	25,545	26,125	26,904	27,279	25,944	-4.9%
SG&A					306
EBITDA	1,444	2,093	2,082	1,928	660	-65.8%
Net Income	488	660	641	411	-332	-180.9%
Balance Sheet
Cash	292	632	668	584	576	-1.3%
Short Term Debt	3,256	2,785	2,642	3,039	3,195	5.1%
Long Term Debt	501	555	324	515	455	-11.7%
Cash flow
Capex	700	773	686	1,332	676	-49.3%
Ratios
Revenue growth	-4.3%	2.3%	3.0%	1.4%	-4.9%
EBITDA growth	-43.4%	45.0%	-0.5%	-7.4%	-65.8%

EBITDA Margin	5.7%	8.0%	7.7%	7.1%	2.5%	-4.5%
SG&A, % of revenue					1.2%
Net Income Margin	1.9%	2.5%	2.4%	1.5%	-1.3%	-2.8%
CAPEX, % of revenue	2.7%	3.0%	2.5%	4.9%	2.6%	-2.3%

ROIC	7.7%	12.5%	11.9%	7.4%	-0.8%	-8.2%
ROE	5.6%	7.3%	6.7%	4.1%	-3.4%	-7.5%
Net Debt/EBITDA	2.4x	1.3x	1.1x	1.5x	4.7x	3.1x

Peers in Industrial Machinery

Below we provide Kirloskar Brothers benchmarking against other companies in Industrial Machinery industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Lloyd Electric & Engineering ($LLOYDELENG)	-	-	-	22.3%	27.3%
Kabra Extrusiontechnik ($KABRAEXTRU)	-13.3%	-8.7%	28.4%	21.6%	-
Akar Tools ($AKARTOOL)	21.1%	2.1%	-2.3%	16.7%	-
Honda Siel Power Products ($HONDAPOWER)	28.1%	2.4%	5.0%	16.5%	-
Mazda ($MAZDALTD)	22.1%	14.7%	-15.6%	16.2%	-
Median (27 companies)	20.1%	2.1%	-1.2%	3.7%	8.7%
Kirloskar Brothers ($KIRLOSBROS)	-	2.3%	3.0%	1.4%	-4.9%

Top companies by Gross margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Bell Agromachina ($BELAGRO)	0.0%	0.0%	0.0%	0.0%	0.0%
Median (1 company)	0.0%	0.0%	0.0%	0.0%	0.0%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Texmaco Infrastructure & Holdings ($TEXINFRA)	-	-	-	40.5%	-
Dhp India ($DHPIND)	-	-	-	26.3%	-
Shilp Gravures ($SHILGRAVQ)	-	-	-	19.4%	-
Solitaire Machine Tools ($SOLIMAC)	-	-	-	19.4%	-
Wendt (India) ($WENDT)	28.3%	21.6%	18.6%	19.0%	16.5%
Median (43 companies)	11.3%	9.5%	10.5%	10.4%	12.0%
Kirloskar Brothers ($KIRLOSBROS)	5.7%	8.0%	7.7%	7.1%	2.5%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Texmaco Infrastructure & Holdings ($TEXINFRA)	-	-	-	14.0%	-
Wendt (India) ($WENDT)	13.5%	9.0%	8.8%	9.4%	9.3%
Ingersoll-Rand (India) ($INGERRAND)	4.3%	10.9%	3.6%	9.2%	-
Kabra Extrusiontechnik ($KABRAEXTRU)	6.5%	1.8%	0.5%	8.8%	-
Forbes & Company ($FORBESCO)	1.8%	2.6%	3.0%	5.1%	-
Median (21 companies)	6.1%	4.4%	3.0%	3.1%	2.2%
Kirloskar Brothers ($KIRLOSBROS)	2.7%	3.0%	2.5%	4.9%	2.6%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Greaves Cotton ($GREAVESCOT)	-	24.8%	16.3%	26.7%	25.7%
Gmm Pfaudler ($GMM)	-76.2%	6.8%	17.4%	18.2%	16.1%
Lakshmi Machine Works ($LAXMIMACH)	18.0%	11.7%	16.2%	17.6%	-
Honda Siel Power Products ($HONDAPOWER)	16.9%	8.8%	11.5%	15.3%	-
Wendt (India) ($WENDT)	38.2%	20.2%	16.2%	15.1%	12.6%
Median (52 companies)	13.5%	10.2%	9.2%	13.0%	14.2%
Kirloskar Brothers ($KIRLOSBROS)	7.7%	12.5%	11.9%	7.4%	-0.8%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Forbes & Company ($FORBESCO)	2.2x	3.3x	4.7x	6.3x	-
Nitin Fire Protection Industries ($NITINFIRE)	3.6x	3.5x	3.0x	3.7x	-
Elgi Equipments ($ELGIEQUIP)	-1.2x	2.3x	2.7x	3.3x	-
Lloyd Electric & Engineering ($LLOYDELENG)	-	-	3.7x	3.2x	2.7x
Elecon Engineering Co ($ELECON)	3.0x	3.2x	4.0x	3.1x	3.9x
Median (34 companies)	0.6x	1.5x	0.0x	0.0x	0.0x
Kirloskar Brothers ($KIRLOSBROS)	2.4x	1.3x	1.1x	1.5x	4.7x

Kirloskar Brothers stock price chart

Kirloskar Brothers financials

mln.	FY2010	FY2011	FY2012

Revenue	31,821	26,699	25,545
EBITDA	2,773	2,549	1,444
Net income	1,128	970.2	488.1
CAPEX	636.4	754.8	700.2
Debt	4,533	3,907	3,757
Cash	579.4	701.7	292.1

About Kirloskar Brothers

Kirloskar Brothers Limited provides fluid management solutions in India. It manufactures various pumps, including end suction, split case, multi-stage, special and engineered, monobloc, submersible, and sump pumps. The company also offers valves, such as butterfly, sluice, non return, kinetic air, foot, gate, suction diffuser and triple duty, ball, steam trap, forged steel gate, and globe check valves, as well as cast steel globe, gate, and check valves. In addition, it provides hydro turbines comprising Francis, Kaplan, and Pelton wheel turbines; and mobile pump controllers to assist a pump user to monitor and operate the pump remotely with the help of a mobile. Further, the company offers packaged systems, which include pressure boosting hydro-pneumatic, pressure booster, fire fighting, solar pumping, and condition monitoring systems, as well as heating, ventilation, air conditioning, and refrigeration systems. Additionally, it undertakes turnkey projects for supply and application of coatings on various equipment; provides stators, rotors, and electric motors; steel castings for various industries, such as power sector, mining, cement, heavy engineering application, sugar, etc.; undertakes turnkey projects in power, water resource management, and irrigation sectors; provides energy audit services; and offers customer service and spares. The company serves industry, building and construction, gas oil and defense, irrigation, power, water resource management markets through a network of dealers and distributors; and exports its products to various countries. Kirloskar Brothers Limited was founded in 1888 and is headquartered in Pune, India.