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Excise cut to boost demand for solar pumps

Excise cut to boost demand for solar pumps


Reduction in excise duty from 12.5 percent to 6 percent will benefit Shakti Pumps as it manufactures motors for all products on which the duty is dropped, says Akhilesh Maru, CFO of the company.

In an interview with CNBC-TV18, Maru said that the excise duty reduction will result in a 3-4 percent positive impact and the company expects demand for solar pumps to pick up post increased allotment to new and renewable energy projects.

Below is the verbatim transcript of Akhilesh Maru’s interview with Reema Tendulkar & Mangalam Maloo on CNBC-TV18.

Mangalam: There was an excise duty cut from 12.5 percent to 6 percent on electric motor shafts etc, at the same time we saw the allocation to new and renewable energy going up nearly 10 or 20 times. What does this mean for your company in terms of financials? How much of your financials stand to benefit from this?

A: We are manufacturing motors for all the products on which excise duty was 12.5 percent which has now come down to 6 percent which has a good positive impact on duty side. However, solar is a buzz of the time and everybody is focusing on solar and renewable energy and we were expecting some good announcement on solar side. Now that the budget of solar ministry of new and renewable energy (MNRE) ministry has gone up from Rs 500 crore to Rs 5,000 crore, which is a good push to the industry. Therefore, we expect in ’16-17 the solar market will pick up and pumping projects will go on execution side.

Reema: The decrease in excise from 12.5 percent to 6 percent, what will be the financial gain to a company like Shakti Pumps. Can you quantify for us?

A: In overall pump, the motor components is almost 40-50 percent, so while talking about the impact cost price because of reduction of excise duty from 12.5 to 6 percent and overall at a pump cost level may impact us positively by 3-4 percent.

Reema: If your cost of production comes down by 3-4 percent, will you pass it on to your consumers or customers or will you be absorbing it and therefore your margins will increase?

A: It will be in both the ways. We are still on premium side in some of the markets and on other side we are spreading ourselves in new territories, new markets, be it in India and export side. We had gone to all three-four continents, where we were not there earlier. So we will take advantage of this in both the areas to improve the margins where we are in a premium category and on other side, where we are not established, we will try to use this margin to establish ourselves.

Mangalam: Talking about the company, in the first nine months there has not been satisfactory performance; in fact the profits are down nearly 90 percent. When do you see that improving, any guidance for FY17 considering we are almost done with FY16?

A: After the Gulf exit, which was our prominent market, we have moved to all three-four continents where we were not there. So we are trying to establish ourselves and for that we are facing initial entry barriers or competition and because of that we cut our prices in some markets to enter there. The moment we will start picking up orders from these markets, we will start getting the pricing in once again and at that point our margin improvement will see the bottomline. All these new markets which yet to give us the right order flow, once it start then margins will automatically pickup.

Reema: You indicated that the reduction in excise duty will benefit you; the incentivising solar business will also be positive, any other announcements in the Budget which could benefit you and if yes, which ones?

A: There are few announcements in the Budget. First, the government focus on the rural development and agri growth, which is a main incentive for pumping segment or other agriculture related companies and even in National Rural Employment Guarantee Act (NREGA) the jump in the amount which is highest ever around Rs 38000 crore, the additional cess of 0.5 percent also gives boost to agriculture and related companies then additional 226 lakh hector of land to bring under irrigation – that itself is a huge boost to agriculture and pumping segment. So there are many positive announcements like that. Shakti Pumps stock price On March 04, 2016, at 11:40 hrs Shakti Pumps (India) was quoting at Rs 143.10, down Rs 4.1, or 2.79 percent. The 52-week high of the share was Rs 231.50 and the 52-week low was Rs 95.00. The company’s trailing 12-month (TTM) EPS was at Rs 5.73 per share as per the quarter ended December 2015. The stock’s price-to-earnings (P/E) ratio was 24.97. The latest book value of the company is Rs 114.98 per share. At current value, the price-to-book value of the company is 1.24.

Anand Gupta Editor - EQ Int'l Media Network


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