Normal monsoon to lift revenue of agri-pump makers by 8-10%: Crisil

  • Industry News
  • Sep 24,22
Solar pumps being preferred over conventional ones. The Rs 5,000 crore sector is dominated by conventional pumps (grid-connected and diesel pumps), which account for 92% share, followed by solar pumps (8%).
Normal monsoon to lift revenue of agri-pump makers by 8-10%: Crisil

Mumbai


Increasing rural electrification and positive farm sentiment riding on normal monsoon, and improved cash flows after a healthy rabi season last fiscal will boost demand for agricultural pumps in the country this fiscal, leading to 8-10% revenue growth for their manufacturers, according to Crisil Ratings.

 

Higher volume-driven growth and stabilising input prices will lead to operating margins rising up to 100 basis points to about 11-12% this fiscal, and improve cash accruals. That, along with steady working capital levels and moderate capex spending needs will ensure debt remains at levels similar to last fiscal, supporting stable credit profiles.

 

An analysis of agricultural pump manufacturers rated by CRISIL, which account of about 40% of the sector’s revenue, indicates as much.

 

The Rs 5,000 crore sector is dominated by conventional pumps (grid-connected and diesel pumps), which account for 92% share, followed by solar pumps (8%).

 

Anuj Sethi, Senior Director, CRISIL Ratings, said, “This fiscal, the sector’s growth of 8-10% will be largely volume-driven because of positive farm sentiment, better farm cash flows, increasing rural electrification, and stable pump prices. Last fiscal, despite volumes declining on year by  about 6%, the sector’s revenue grew 17% largely due to a steep rise in realisation, in keeping with higher input prices (mainly pig iron and mild steel)."

 

Thanks to better demand, conventional pumps are expected to grow 7-8% this fiscal despite facing some headwinds, while solar pumps will see about 15% growth, propelled by government incentives.

 

Erratic power supply remains a key hurdle for conventional pumps as it impacts seamless water supply and therefore farm output. In addition, new and free grid connections for pumps are being curtailed. Besides, diesel pumps have become dearer in recent years. Besides, the Goods and Services Tax on conventional pumps has increased to 18% from 12% in the first quarter of this fiscal, making these pumps costlier.

 

Rajeswari Karthigeyan, Associate Director, CRISIL Ratings, said, “Solar pumps, despite being substantially costlier than conventional ones, are expected to benefit from the central government’s Kusum Scheme, which provides significant incentives. Under this, farmers need to pay only 10% of the cost of the pump — which is almost the same as that of a conventional pump — upfront, while government subsidy and bank loan (under priority lending) will contribute the balance in a 60:30 ratio, respectively.”

 

Net-net, credit profiles of agricultural pump manufacturers would remain stable, supported by better cash accruals, controlled working capital due to stabilising input prices, and no major capex. The sector is operating at only 65-70% of capacity at present, obviating the need for capacity expansion. Hence, the key debt metrics — interest coverage and gearing — should improve to 13-14 times and ~0.15 time this fiscal from ~11 times and ~0.20 time, respectively, in the last.

 

That said, the pace of monsoon in the second half of this fiscal and geopolitical risks affecting raw material prices, especially pig iron and mild steel, will bear watching in the road ahead.


Related Stories

Machine Tools & Accessories
Crossing the $2 trn export barrier

Crossing the $2 trn export barrier

The Government of India has set a target of tripling annual exports to $2 trillion within five years to boost economic growth, increase the contribution of manufacturing sector to GDP and create job..

Read more
Other Industrial Products
Bank GNPAs may touch low of 4% by FY24; MSMEs remain a concern area

Bank GNPAs may touch low of 4% by FY24; MSMEs remain a concern area

Gross non-performing assets (GNPAs) of corporate segment is likely to fall below 2% next fiscal from a peak of 16% as on March 31, 2018; GNPAs of MSME (micro, small and medium enterprises) segment m..

Read more
Pumps & Valves
Normal monsoon to lift revenue of agri-pump makers by 8-10%: Crisil

Normal monsoon to lift revenue of agri-pump makers by 8-10%: Crisil

Solar pumps being preferred over conventional ones. The Rs 5,000 crore sector is dominated by conventional pumps (grid-connected and diesel pumps), which account for 92% share, followed by solar pum..

Read more

Related Products

Vertical Tu Rbine Pumps – SVT

PUMPS & VALVES

Sintech Precision Products Limited offers a wide range of vertical turbine pumps – SVT.

Read more

Request a Quote

Barrel Container Pump

PUMPS & VALVES

HIS Pumps And Systems Private Limited offers a wide range of barrel container pump.

Read more

Request a Quote

Direct Drive Rotary High Vacuum Pump

PUMPS & VALVES

<p>Promivac Engineers offers direct drive rotary high vacuum pump.<br></p> Read more

Request a Quote

Hi There!

Now get regular updates from IPF Magazine on WhatsApp!

Click on link below, message us with a simple hi, and SAVE our number

You will have subscribed to our Industrial News on Whatsapp! Enjoy

+91 84228 74016

Reach out to us

Call us at +91 8108603000 or

Schedule a Call Back