Shakti Pumps: Revolutioning Indian Agriculture

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Summary of the Business

India is an agriculture-dominant country with vast irrigation needs. India houses 3 crore agricultural pumps out of which around 1 crore are run on diesel and the other 2 crore are grid-connected and run on electricity. The Government of India has introduced a PM Kusum Yojana which promotes solar energy usage in rural areas.

Under this initiative, existing agricultural pumps are being replaced with solar pumps which cost around INR 3 lacs per pump. Here, the government is providing a subsidy of 60% or more to enable farmers to make the replacement. This is broadly a one lac crore market opportunity at the least and can be up to a 9 lac crore market opportunity.

As a leader in the manufacturing of solar-powered pumps and motors, Shakti Pumps has capitalized on the growing demand for sustainable irrigation solutions with a significant market share of ~25% under India’s PM-KUSUM scheme.

Shakti Pumps has secured 14 patents and continues to expand its offerings in both domestic and international markets. The company has experienced robust revenue growth, driven by its participation in government projects and exports, contributing to a revenue increase of 41.7% year-on-year for FY24, reaching ₹1,370 crores.

Let’s understand what the future holds for the company

Our AI tool analysed public information on what management thoughts on Shakti Pumps’s future and this is what they have to say on the following five parameters:

  1. Revenue Growth: The company expects a year-on-year growth of 25% to 30% in sales and revenue. For FY25 and FY26, they anticipate executing a minimum of 25% to 30% more pumps compared to previous years.
  2. Profit Margin: They anticipate EBITDA margins stabilizing around 14% to 15% annually.
  3. Fundraising: They mentioned raising around Rs. 200 crores through a Qualified Institutional Placement (QIP). However, it indicates that the company is planning for capacity expansion and has raised funds for that purpose.
  4. Expansion: They are targeting to double their capacity. They have indicated that they will complete their investment in about two years, after which their capacity is expected to reach Rs. 5,000 crores.
  5. Order book: Shakti Pumps India Limited has a current order book of approximately Rs. 2,400 crores. This includes a significant order of Rs. 1,500 crores from Maharashtra, with Rs. 110 crores already sold in the previous quarter. Additionally, there are orders from various states, including Rs. 100 crore from MEDA in Maharashtra, Rs. 240 crore from Uttar Pradesh, Rs. 420 crore from Haryana, and Rs. 150 crore from Rajasthan's Ajmer DISCOM.

The future looks all rosy but Is it at the right price? The best parameter to understand is the Price to Earning to Growth (P/E/G) Ratio along with the sustainability of growth.

Current Price to Earnings Ratio: 37

Expected Growth: 25%

P/E/G Ratio: < ~1.5

With an immense market opportunity ahead, Shakti Pumps may see a 10X revenue mark from here someday. What’s your thought?

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