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Robust Revenue & Margin Visibility; Upgrade to BUY

Est. vs. Actual for Q2FY25: Revenue: MISS; EBITDA: BEAT; PAT: BEAT

Changes in Estimates post Q2FY25

FY25E/FY26E: Revenue: -2%/2%;EBITDA: 9%/6%;PAT: 12%/6%

Recommendation Rationale

• Improving Margin Trajectory: KBL reported a significant improvement in gross margins and EBITDA during the quarter. This margin improvement was primarily driven by strong performance in the domestic segment, which led to operating leverage from higher volumes, cost control initiatives, and the softening of raw material prices. The company is also strategically focusing on increasing the share of value-added products, significantly reducing its exposure to low-margin and lumpy EPC orders. Additionally, KBL has been investing in technological upgrades aimed at enhancing operational efficiencies and increasing the value of its offerings

• Robust Revenue Visibility: With Rs 1,162 Cr in new orders, KBL maintained a robust order book of Rs 3,057 Cr (vs. Rs 3,053 Cr in Q1FY25) during the quarter. The company also launched a new product, “Petro Turbo,” a submersible turbine pump for fuel stations, alongside 13 new models for dewatering, solar, and water transfer applications. KBL is also focusing on expanding across geographies and improving its product mix, expecting continued traction in the overseas market. A strong order book, coupled with product launches aimed at addressing specific customer needs, provides clear revenue visibility for KBL.

Sector Outlook: Positive

Company Outlook & Guidance: The management expects sustained demand in both domestic and international business and has maintained guidance for double-digit revenue growth in FY25 (YoY). While the company noted strong performance in most overseas markets, it anticipates resolving issues in the remaining markets over the next few quarters. Additionally, the management is optimistic about continued improvement in EBITDA margins going forward.

Current Valuation: 25x FY27E EPS (30x FY26E EPS)

Current TP: Rs 2,100/share (Earlier TP: 1,977/share)

Recommendation: We upgrade our rating from HOLD to BUY on the stock considering the improvement in margin profile and current valuation levels.

Financial Performance: KBL reported revenue of Rs 1,036 Cr for Q2FY25, up 13% YoY, flattish QoQ, and missing our estimate by 3%. The company positively surprised on the EBITDA front which stood at Rs 142 Cr, up 50%/27% YoY/QoQ, beating our estimate by 25%. EBITDA margins improved by 334bps/288bps on a YoY/QoQ basis. The company’s PAT stood at Rs 96 Cr (88%/58% YoY/QoQ) against our estimate of Rs 80 Cr.

Outlook: With sustained demand from key end markets and a robust order book, KBL is expected to achieve double-digit revenue growth in FY25. Strategic initiatives taken by the company are likely to support the growth trajectory into FY26 and FY27. Furthermore, the focus on cost optimization and an improved product mix should facilitate additional profitability improvements.

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