MUMBAI, December 16: The hype that had surrounded KSB Pumps after it announced its annual results for 1996-97 seems to have dissipated slowly, especially with the reversal in the expectations for the company's first-half performance. The stock price has more or less mirrored the changes in the company's fortunes.

The stock price had corrected to around Rs 120 some time in August/September 1997 after it hit a high of Rs 240 following the declaration of the annual results.

The stock has since recovered to Rs 190 on expectations that the second half will be better.

Surprisingly, despite a poor performance in the first half of the current year, the market expects KSB to put up a better show in the second half. The fortunes of the company are squarely dependent on growth in the industry -- particularly in the fertiliser and petrochemical industries which are major consumers of its pumps, and where fresh capacity additions have either been scrapped or deferred.

In the first half, the company reported a drop in both revenue as well as the net earnings by 10 per cent and 26 per cent respectively.

And it does seem very likely that for the first time in the last seven years the company may not be able to show even a modest growth in 1997-98 and in all likelihood, will report a negative growth over last year's performance.

Otherwise, the company has managed to grow its revenue by 24 per cent compounded annual growth rate (CAGR) over the last six years. And the post results euphoria over the stock earlier in the year could have been partly justified simply from the 93.8 per cent incremental return that it earned on capital employed for 1996-97.

Growth in revenue during 1996-97 was 40 per cent.

Besides, as far as the stock mattered, the market had bet that the company's German collaborator and 40 per cent shareholder, KSB Aktiengesellschaft AG, will increase its stake in the company which is what is keeping it attractive for investors and punters alike.

Despite the poor immediate outlook the fact remains that KSB Pumps is the dominant player in the fragmented industrial and submersible pumps market in the country and it controls 15 per cent to 20 per cent of the market for boiler feed and special pumps (industrial pumps) and over a quarter of the market for submersible pumps. The higher price-to-earnings multiple of 20 times could be justified on the grounds that the company has consistently achieved higher than average growth rates in the past and has so far managed to increase its return on capital year-on-year.

And then corporate performance is always relative and competing companies like Mather & Platt that were responsible for limiting KSB's margin growth for the past couple of years, have comparatively fared much worse in the first half of the current year, with revenue down by 16 per cent and profit slipping by 85 per cent.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.