Kirloskar Oil Engines Ltd : Strong performance continues, outlook positive; maintaining a Buy - Anand Rathi Share and Stock Brokers
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Strong performance continues, outlook positive; maintaining a Buy
KOEL carried on with its promising performance in Q2. Focusing on new products and expanding its reach have paid off. Consolidated revenue (excl. financial services) grew ~20% y/y to Rs11.4bn from a mix of volume and price hikes. Exports were also good, revenue growing ~88% y/y. Further, good price realisation and segmental mix have enabled it to post superior profitability.
We believe strong demand across segments, sharper focus on exports, management thrust and efforts to enhance operations augurs well for coming years. New emission norms (CPCB4+, BSVI) would help it increase traction internationally. On revising our FY23e and FY24e, rolling forward to FY25 and assigning 12x to core FY25e EPS, our TP is Rs374 (earlier Rs279), on a sum-of-parts valuation. We uphold our Buy rating.
Strong all-round performance. With good export demand, new products and greater contribution from the Mobility category, power generation revenue rose ~24% y/y. Industrial revenue, too, clocked strong, 40% y/y, growth. In Farm Mechanization, power-tiller sales fell 39% y/y on an unprecedented monsoon, while power weeder sales rose 78% y/y. LGM revenue grew only 2% y/y as demand was hit by prolonged rains and a higher GST rate (18% vs 12% earlier).
Better-than-expected margin. The consolidated EBITDA margin expanded 500bps y/y to 14.7%. The stronger margin reflects better-than-expected profits of the core business bolstered by price hikes and better exports and customer support segment. Overall profitability was aided by favourable financial services EBIT margin of 78.7%. Electric pumps and other (farm mechanisation and water-management solutions) saw losses due to lower cost absorption.
Valuations. Considering the good demand outlook and profitability, we raise FY23e/F24e. Also, we introduce FY25e: 13%/23% revenue/PAT growth, a 13.8% EBITDA margin. Thus, we expect ~16%/~38% revenue/PAT CAGRs over FY22-25. Risk. Less demand than expected; negative margin surprise.
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