Add Oswal Pumps Ltd For Target Rs.340 by Choice Institutional Equities Ltd
Geopolitical Issues and Aggressive Bidding Contract Margin
Q1FY27 EBITDA margin contracted 1,169 bps YoY and 747 bps QoQ to 15.7%, coming in lower by 33.3% at INR 0.7 Bn (vs CIE est.). Competitive bidding under Maharashtra's Magel Tyala scheme cut realisation by ~9% and negative operating leverage compounded the gross margin fall. Margin recovery is expected to be pushed ahead driven by lower-realisation Magel Tyala and diversification into low margin new products like wires and cables and PM Surya Ghar modules. We therefore build a margin trough in FY27E at 18.7% (23.3% earlier) before a gradual climb to 25.5% by FY29E, contingent on KUSUM 2.0 notification timelines and EPC diversification scaling at accretive margins.
Risk to our Valuation
Possible further delay in KUSUM 2.0 announcement and implementation or, lower allocation to solar pumps in KUSUM 2.0
KUSUM 2.0 Slips Again; Diversification Moves from Pilot to Pipeline Order book stands at 22,025 pumps, though the composition has shifted sharply away from direct PM KUSUM toward Maharashtra’s MTSKPY, indirect and export orders. Encouragingly, the non-KUSUM businesses have moved beyond pilot stage: The rooftop solar order book stands at 72 MW against a 359 MW pipeline and 953 MW of tenders participated, while a 42,000-pump Jal Jeevan Mission opportunity has been identified. Non-government revenue at INR 1,435 Mn is already running ~47% above the FY26 quarterly average.
Valuation & View
We maintain our revenue estimates. However, due to inflationary pressures and rising competition among companies for Maharashtra’s Magel Tyala Orders, we expect realisation per pump to fall. Volume will likely improve driven by diversification into other schemes and non-pump revenue. We now anticipate Revenue / EBITDA / PAT CAGR of 14.2% / 15.1% / 11.9% over FY26–FY29E. We value OSWALPUM using the DCF approach at INR 340 (vs. 450). Our valuation implies a PE of 10.7x on FY28E EPS. Thus, we retain our ‘ADD' rating, given an upside of 11.1%.
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