Oswal Pumps Limited (May Subscribe)

Highlights

Oswal Pumps Limited (OPL), incorporated in 2003, is engaged in the business of manufacturing of solar-powered and grid-connected submersible and monoblock pumps, electric motors comprising induction and submersible motors as well as solar modules. They sell their product under the Oswal brand.

The company caters to the diverse requirements of end-users in the (i) agricultural sector for irrigating fields (ii) the residential sector for maintaining gardens and fountains, extracting water, supplying water to overhead tanks and cleaning households and small establishments; (iii) commercial premises such as shopping malls, offices and hotels;  (iv) industries which use OPL pumps in boilers and water treatment, water transportation and sewage applications and use their electric motors in machinery applications and cooling tower systems.

OPL emerged as one of the largest suppliers of solar powered agricultural pumps under the PM Kusum Scheme, (i) providing Turnkey Solar Pumping Systems directly under the PM Kusum Scheme to farmers, (ii) providing Turnkey Solar Pumping Systems to players participating in the PM Kusum Scheme, and (iii) supplying only solar pumping system (including solar pump sets, solar modules, structures and balance of systems (BOS) kits and excluding installation services) to players participating in the PM Kusum Scheme.

Out of the total proceeds of Rs. 13,873 mn, Rs. 898 mn would be utilized for capex of the company. Rs. 2,727 mn would be utilized to invest in their wholly own subsidiary, in the form of equity, for funding the setting up of new manufacturing units at Karnal, Haryana. Rs. 3,110 mn would be utilized for re-payment/ re-payment, in part or full, of certain outstanding borrowings availed by the company and its subsidiaries. Rs. 2,163 mn would go towards general corporate purpose and Rs. 4,973 would go towards existing selling shareholders of the company.

Key Highlights

• The Indian pump market was Rs. 380.5 bn in FY25 and is expected to reach Rs. 591.9 bn in FY30, growing at a CAGR of 9.2 pct between FY25-30. The Indian pump industry is segmented into the agricultural pumps, industrial pumps, and residential pumps; agricultural pumps sector is expected to grow at a CAGR of 8.4 pct. The Indian solar pump market was valued at Rs. 164.5 billion in FY25 and is expected to grow at a CAGR of 11 pct between FY25-30, expected to reach Rs 271.1 bn by FY30.
• They have end-to-end pump manufacturing capabilities and have undertaken backward integration initiatives enabling recycling scraps to minimize waste and improve margins with in-house production of components of pump, providing competitive advantages.
• In FY24, they introduced the ‘Oswal Shoppe’ concept to bolster market presence under which they provided financial support for interior design of retailers’ shops, while retailers maintain ownership of space. Currently 300 shoppes are operational and they are planning to ~2000 shoppes in next few years.
• As of now OPL’s annual installed capacity for solar modules was 570 MW and they intend to increase capacity for solar modules by 1,500 MW by FY27 to support the demand for Turnkey Solar Pumping Systems in the future and meet the growing demand for solar modules in the Indian and international markets.
• The company largely benefitting from PM Kusum Scheme which focuses on the solarization of 3.50 mn existing grid-connected agricultural pumps and provides subsidies to individual farmers who have grid-connected pumps to retrofit their pumps with solar panels. The company also anticipating PM Kusum 2.0 scheme by FY26 which will be bigger than earlier scheme with low working capital requirement.
• OPL’s key growth strategies includes (i) Backward integration in pump manufacturing value chain, enhance automation in pump manufacturing and strengthen capabilities through strategic acquisitions (ii) Continue to focus on government schemes and maintain leadership position (iii) Increase manufacturing capacity for solar modules and backward integration in solar module manufacturing (iv) Introduce new products in the industrial pumps and electric motors categories (v) Increase presence in select geographies in India and grow exports.
• The company’s sales have grown by 45.08 pct CAGR over FY22-24 where EBITDA and profit grown 97.45 pct and 140.44 pct CAGR over same period. In FY24 the company reported sales of Rs. 7,586 mn, rose 97.04 pct YoY. EBITDA grew 159.69 pct YoY while margins expanded sharply 300 bps to 33.7 pct. Profit rose 185.67 pct YoY to Rs. 977 mn. As of 9MFY25 company registered sales/EBITDA /profit of Rs. 10,657 mn/Rs. 3,210 mn/ Rs. 2,167 mn.

Key Risk

• The company’s significant portion of revenues deriving from the supply of Turnkey Solar Pumping Systems, awarded by state and central Government under the PM Kusum Scheme might be adversely impacted due to changes in Government funding or the company’s inability to obtain the same.
• Their business might be vulnerable due to overreliance on agricultural sector (~ 96.55 pct of sales as of 9MFY25).
• Due to high receivables-to-sales ratio and rising receivable days, stretching the working capital requirement and the absence of positive operating cash flows, they might require more funds.

Financial Performance

Peer Comparison based on FY24 Financials

Valuation

Oswal Pumps Limited is one of the fastest-growing, vertically integrated solar pump manufacturers in India and also being given a star export house status. The company is well positioned to capitalise on strong industry tailwinds in India, supported by favorable domestic policies and rising focus on renewable energy. At the upper end of the price band of Rs. 614 the issue is priced at an PE of ~24.2x of its FY25E annualized earnings. The issue looks fully priced. Only long-term investors can subscribe to this issue.

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