Global Economics

Pumping Up the Profits in India


Making pumps is an unfashionable business, but it has paid off for Kirloskar Brothers, No. 18 in BusinessWeek's ranking of Asia's Hot Growth Companies

If you see a pump anywhere in India, whether on a farm, factory, dam, or nuclear power station, chances are it's one made by Kirloskar Brothers. The $445 million company is the premier pumpmaker in India, with a dominant 24% of the market. It's been a stellar performer: Return on investment over five years has been a steady 28% on average. A share bought five years ago for $2.30 has multiplied almost 50 times.

Pumpmaking is an unfashionable business. But in India it's a vital one, and that's why Kirloskar Brothers is No. 18 in BusinessWeek's annual ranking of Asia's Hot Growth Companies. India needs $500 billion in infrastructure investments to build everything from roads to ports to airports to dams, homes, factories, irrigation projects, and electricity grids. Almost every one of those investments requires a pump of some sort—rotodynamic pumps for home swimming pools, large ones in thermal and nuclear power plants. Kirloskar also has customers overseas, including water, power, and oil and gas companies in Europe and the U.S. The nearly 120-year-old company also pays special attention to smaller markets in Africa, which are similar to India's. Kirloskar has had a presence in that continent for 30 years.

For a group that began as a bicycle repair shop in 1888, Kirloskar Brothers has done rather well. Based in Pune, a satellite city of Mumbai on India's west coast, Kirloskar is run by three brothers, who together own 62% of the company. Chairman and Chief Executive Sanjay Kirloskar, 50, joined Kirloskar Brothers at age 25, and, after the sudden death of his father, found himself the head of the family and company at 28. The brothers keep a low profile, but "know their business very well and focus on it," says Bhavin Vithlani of Bombay investment house Enam India Research. "Growth is their mantra, and profitable growth more so." The company has not missed a dividend payout for 70 years. Analysts like the company for its steady growth, professional management, and synchronization with India's infrastructure boom.

British Acquisition Fuels Expansion

The synchronicity with India's boom was not serendipitous for Kirloskar Brothers. Indeed, the company has a history of looking ahead. In 1939, it was asked by the government to help with the war effort and build more pumps. But S.L. Kirloskar, Sanjay Kirloskar's grandfather, thought beyond the war, and began to manufacture machine tools. The group's companies now make motor engines, power generators, and steel castings for the auto sector.

The new opportunities for Kirloskar are nuclear power and overseas expansion. "Our board says this is the time for Indian companies to move forward aggressively," says Sanjay Kirloskar, "so we are." They sure are. In 2003, Kirloskar Brothers made its first overseas acquisition, a $6 million deal for SPP Pumps, a Britain-based maker of pumps used to put out fires in homes, offices, and on oil rigs, which had a subsidiary in South Africa. That acquisition has helped Kirloskar enter new markets and introduce new product lines for their overseas markets in the years since.

That was followed by setting up a similar U.S.-based venture, SPP Pumps, in Atlanta in 2005, and in 2006 with the buyout of Aban Constructions, an Indian gas and pipeline construction firm. So far, the company has spent $18 million on acquisitions, and more deals are likely. The goal? To be among the top five global pumpmakers by 2015—up from being the 15th largest in the world today—with sales of $3 billion, and to effectively compete with world leaders like Switzerland's Sulzer. "We need to catch up with our global competitors," says Sanjay Kirloskar.

Kripalani is BusinessWeek's India bureau chief.

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