Multibagger stock Shakti Pumps takes a breather after 16% rally in 3 days; what drove the recent upswing?

Multibagger Stock: Shares of Shakti Pumps, a leading manufacturer of solar pumps and motors in India, took a breather on Friday, 4 October, after rallying 15.76% in the last three trading days to ₹4,708 apiece. 

The stock was locked in the 5% upper circuit for the past three consecutive sessions. However, today the scrip slid to the day's low of ₹4,506.75 on the NSE, down nearly 5% from its previous close.

The stock has been one of the top performers in the Indian stock market, emerging as a significant wealth creator for investors over the past few years. So far in 2024 alone, the stock has surged 357% while in the last one year, it is up nearly 450%, giving multibagger returns to investors.

 The company's consistent growth trajectory, driven by its strong presence in the pump industry space, particularly in solar pumps and motors, has made it a favourite among market participants.

After peaking at an all-time high of ₹5,075 in early August, the stock experienced a period of profit booking, followed by sideways movement. However, it regained momentum this week, driven by renewed investor enthusiasm.

The key trigger for this surge was the company's announcement on September 30 regarding the potential issuance of bonus shares which sparked significant interest among investors. Shakti Pumps' board of directors will meet on Monday, October 7, to consider issuing bonus shares in a 5:1 ratio, meaning five new fully paid-up equity shares for every one existing share, at a face value of ₹10 each.

If approved, this will be the company's first bonus issue. A bonus issue is a corporate action where additional shares are offered to existing shareholders at no extra cost, typically in proportion to the number of shares they already hold.

For the June ending quarter, the company reported a significant increase in revenue to ₹567.6 crore, up from ₹113.1 crore in Q1 FY24. The EBITDA also saw a remarkable rise, reaching ₹135.9 crore compared with ₹7.9 crore in the same period last year, while the EBITDA margin expanded to 23.9% from 7%.

The company's profit after tax (PAT) surged to ₹92.6 crore in Q1 FY25, a significant jump from ₹1 crore in Q1 FY24, with the PAT margin expanding from 0.9% to 16.3%. As of June 30, Shakti Pumps had an order book of ₹2,300 crore, according to the company's earnings filing.

Well-Positioned

Recognised as a leading manufacturer in the Indian pump industry, Shakti Pumps holds a dominant market position with a 25% share in the domestic solar pump market under the PM KUSUM scheme, an initiative aimed at transforming the Indian agriculture sector.

Through the PM Kusum Scheme, led by the government, it is estimated that there are over 14 lakh solar pumps under Component B (off-grid pumps) and 35 lakh solar pumps under Component C (on-grid pumps) to be installed.

India, primarily an agrarian economy, boasts a flourishing agricultural sector with a consistent demand for pumps. This demand is fueled by declining groundwater levels and supportive government policies, such as subsidized electricity and exemptions for solar water pumps, which encourage independent irrigation systems.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.