Buy Kirloskar Brothers Ltd For Target Rs. 2,100 by Axis Securities
Growth & margins In Line with Expectations; Maintain BUY
Est. vs. Actual for Q3FY25: Revenue: Broadly Inline; EBITDA: Broadly Inline; PAT: Broadly Inline
Changes in Estimates post Q3FY25
FY25E/FY26E: Revenue: -0.2%/-0.2%; EBITDA: 2.8%/0.5%;PAT: 6.2%/-0.1%
Recommendation Rationale
* Robust Revenue Growth and Order Intake: KBL posted a 19% YoY revenue growth during the quarter, with a 23% increase in the overseas business. Growth in the overseas segment was driven by strong performance in SPP UK and Dutch subsidiaries, while the company has observed traction in SPP US post-elections. KBL also maintains a strong order book of Rs 3,094 Cr (vs Rs 3,057 Cr in Q2FY25), indicating robust revenue visibility in the future
* Strategic Steps Paying Off: KBL has been strategically focusing on increasing the share of value-added products while significantly reducing its exposure to low-margin and lumpy EPC orders. Additionally, it has been investing in technological upgrades to enhance operational efficiencies and increase the value of its offerings. These efforts are evidently translating into the company’s strong performance, as it has managed to expand margins significantly over the last two quarters. The management expressed confidence in sustaining the margin improvement going forward
Sector Outlook: Positive
Company Outlook & Guidance: The management has maintained its guidance for doubledigit revenue growth in FY25, citing strong demand and a robust order book. The company delivered strong performance across most overseas markets and expects further improvement going forward. Additionally, the management remains optimistic about continued improvement in EBITDA margins
Current Valuation: 25x FY27E EPS (Unchanged)
Current TP: Rs 2,100/share (Unchanged)
Recommendation: We maintain a BUY rating on the stock.
Financial Performance: KBL reported revenue of Rs 1,144 Cr for Q3FY25, up 19% YoY and 10% QoQ, largely in line with our estimate by 3%. The company delivered a positive surprise on the EBITDA front, which stood at Rs 166 Cr, up 34% YoY and 17% QoQ, in line with our estimate of Rs 161 Cr. EBITDA margins improved to 14.5%, expanding by 169 bps YoY and 78 bps QoQ. PAT stood at Rs 114 Cr, up 37% YoY and 19% QoQ, aligning with our estimate of Rs 115 Cr
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SEBI Registration number is INZ00016163
