External Operating Environment

The global economy faced major headwinds in CY 2022 and global economic activity experienced a broad-based slowdown, with inflation seen higher in several decades, and due to tightening financial conditions, cost of living crisis, and as Russia’s war in Ukraine weighed on activity. The economy started to recover towards the end of CY 2022, as inflation appears to have peaked, consumer spending remains robust and the energy crisis following Russia’s invasion on Ukraine has been less severe than initially feared. World GDP growth is seen falling from 3.4% in CY 2022 to 2.8% in CY 2023, an improvement on previous estimate of 2.7%, and the slowdown is expected to be less pronounced than earlier anticipated.

Improved economic growth will lead to increased investments in infrastructure and construction projects, creating a positive impact on the global pump market and boosting the demand for pumps, which will benefit KBL.

Spiralling inflation in global commodities including energy, metals and minerals changed the geopolitical landscape in the year. Key geopolitical risks intensified with disrupting global supply chains and the collapse of Silicon Valley Bank and Signature Bank, two of the largest US banks, towards the fag-end of the year led to a banking crisis, which primarily affected the US economy.

Rising geopolitical risk can lead to economic and financial instability, pause the transformation of global business environment, impacting infrastructure development and growth in pumps market, and indirectly impacting KBL.

Climate change continued to act as a pre-eminent threat multiplier, spurring geopolitical upheaval in the energy sector. 2022 was a year of extremes, being the 5^th warmest year with record high temperatures and rising concentration on greenhouse gases. Climate change directly impacts natural recharge of ground water, which is replenished by precipitation. Gradual climatic processes (sea level rise, changing rainfall pattern) and frequent weather events (heatwaves and droughts) impacted businesses.

The consequences of the warming world will require the entire society to urgently reduce carbon emissions and swiftly adapt to the changing climate. The rise in weather and climate extremes, such as flooding and drought, as well as unseasonal and extended monsoon in India, can pose a risk to agricultural/rural economy, which may lead to a change in demand pattern and product mix of pumps for KBL.

The Indian economy emerged as an outlier after maintaining its growth rate as among the highest compared to other nations, following the post-COVID-19 lockdown and disruptions, comparing favourably with emerging markets amid a broader global slowdown. Gross Domestic Product (GDP) grew by 7.2% in FY 2022-23, from 9.1% in FY 2021-22, displaying resilience in the face of negative trade shock and difficult global geopolitical backdrop. It continues to be the fastest growing economy.

Robust growth in the economy, rising investment in the agricultural and construction sectors, and the smart cities initiative will significantly increase India’s need for pumps. Growth in infrastructure also has a direct impact on the pumps industry. Rapid urbanisation and strong development in home and commercial segments will positively impact the pumps market, also be benefiting KBL.

India is among the top global consumers of pumps. Rapid industrial growth, government initiatives for infrastructure development and increasing demand for water supply and irrigation creates growth opportunities in the pumps industry. However, being a highly fragmented market, the small pumps market witnessed continued competition from small and mid-sized, and unorganised players. There is also direct competition from the top global market players mainly in industrial pumps segment.

Increasing reliance of customers on the companies offering reliable and efficient products, has created larger opportunities for KBL by utilising advanced Research and Development (R&D) facilities and manufacturing technologies. Also, with limited distribution channel network, new entrants are finding it difficult to penetrate the widespread domestic pump market, while established players like KBL have competitive edge in this respect.

Growing urbanisation, high dependency on surface water resources in the rural areas, rapid depletion in ground water levels, expansion in domestic infrastructure, construction, process heavy industries, and various other measures aimed at enhancing infrastructure contributed to the Indian pump market’s expansion in the past year. During the year, rising applications in industrial sectors, including agriculture and chemicals, and an increased focus on energy-efficient products and environment-friendly design also led to strong momentum in demand. Despite challenges, KBL continuously improved output, quality and service.

Pumps are essential equipment across industries, including infrastructure and agriculture. Expansion in domestic infrastructure and construction sectors, and a growing demand for technologically-advanced pump sets, will benefit bigger industry players such as KBL. As larger players further strengthen their offerings and provide energy-efficient and smart pumping solutions, the pump industry will witness continued growth.