Rationale

 The rating reaffirmation considers the strong order inflow of Rs. 1,558 crore in CY2021 (Rs. 1,328 crore in CY2020) for KSB Limited (KSB), riding on the revival in demand of select end-user industries such as agriculture, chemical, power, oil and gas, paper, mining and sugar, among others. Further, the order inflow in CY2022 is likely to remain healthy, driven by orders from the end-user industries. ICRA also takes note of the company's established market position, leading to long-term revenue visibility, a conservative capital structure, ample liquidity in the form of free cash and bank balances and unutilised bank lines. The rating considers the technological support from KSB's parent, KSB SE & Co. KGaA (headquartered in Germany), a leading player in the global pump business, which has enabled it to foray into the domestic manufacturing of pumps for supercritical power plants and flue gas desulfurisation (FGD) units for power plants, besides various other applications. ICRA also takes note of the company's plans to diversify into new product in pumping for application in life science, defense, marine, food/ beverages, desalination, locomotives & fire-fighting and hence, the company's ability to scale up in the same remains a monitorable. ICRA derives comfort from KSB's leadership position in the energy, oil and gas, and nuclear (pumps) sectors in the domestic market and its growing presence in the export market. The standard pumps segment formed ~48% of the company's domestic CY2021 revenues, while the project business contributed ~19% to the company's domestic CY2021 revenues. The ratings are also supported by the company's favourable cost structure arising from its backward integration into the castings segment. The company's operating income is expected to improve over the medium term owing to a healthy current order book along with its diversified geographical presence, faster turnaround to customers and constant focus on introducing new products and services with evolving customer requirements. These factors have resulted in healthy profitability and steady accruals, despite an increase in raw material prices and intense competition. The increased access to advances from customers, besides healthy cash accretion over the years, has resulted in a largely debt-free capital structure and strong coverage indicators. Also, the company's liquidity profile is expected to be strong with moderate capex plans for automation and capacity enhancement, which are expected to be funded from internal accruals. However, the ratings are constrained by the vulnerability of KSB's revenue to the economic environment and capex cycle in the underlying consuming sectors. Further, the margins are susceptible to raw material price fluctuations as cast iron, stainless steel, MS, wires, hydraulic & pneumatic elements etc. form majority of the mechanical parts used in the production with the fixed price nature of the contracts. Despite various measures taken by the company to manage raw materials and execution costs through back-to-back contracts with vendors and adequate project scheduling, KSB's operations remain vulnerable to such risks. Additionally, the pricing power of KSB is impacted by the intensely competitive nature of the industry in both the domestic and the overseas markets. The company faces high competition from domestic players in the standard business segment and from foreign players in the engineered business segment. The working capital intensity also remains moderately high with elevated inventory levels because of the large lead time involved in the manufacturing of engineered pumps. The inventory position is expected to remain high, going forward, given the introduction of new products by the company in its portfolio. Nevertheless, the company's diversified customer base, geographically diverse presence, varied end users, in-house engineering capabilities with high level of product efficiency and reliability, technological advancement and ability to expand product portfolio and faster turnaround time to customers have allowed it to build a strong pipeline of orders and compete with large players with global presence. The Stable outlook reflects ICRA's opinion that KSB will continue to benefit from the current healthy demand trends across segments, its long track record of operations, reputed client profile, growing focus on export markets, technological support from parent entity and its conservative financial policy.