Buy Kirloskar Oil Engines Ltd For Target Rs. 1,220 By JM Financial Services
Domestic powergen volumes picking up, strong outlook
Kirloskar Oil Engines (KOEL) reported a revenue growth of 1.5% YoY to INR 14.1bn, which is below our estimate. 4QFY24 was a high base quarter due to pre-buying impact before emission norm change. EBITDA margin contracted 80bps YoY to 12.1% and PAT decline 10% YoY to INR 1bn. Domestic volume for LHP and MHP has picked up sequentially and expected to further pickup to reach pre-emission change level (KOEL has a major presence in this space). HHP market continues to witness healthy demand traction, driven by infrastructure and Data Center sector. Miss on company 2X3Y strategy was on account of slower than expected exports pickup. Company focus will be on strengthening channels and expanding global sales & service network to grow exports revenue. We believe company focus on HHP segment and expanding exports market reach will result in healthy revenue growth going forward. On Industrial side demand stands strong from construction and defence sector.
* Revenue growth driven by Powergen and Aftermarket: Std. revenue reported growth of 1.5% YoY to INR 14.1bn (JMFe INR 15.5bn) with powergen revenue growing 5% YoY to INR 5.4bn (despite high base) and aftermarket reported a growth of 11.9% YoY to INR 2.4bn. Industrial segment declined 5.8% YoY to INR 2.9bn and exports market declined 15% YoY to INR 1.5bn. Within the B2C segment, the water management system segment grew 11.9% YoY to INR 1.6bn. EBITDA declined 4.5 YoY to INR 1.7bn (JMFe INR 1.7bn), EBITDA margin contracted 80bps YoY to 12.1% (JMFe 11.2%). Adj. PAT fell 10.1% YoY to INR 1.1bn (JMFe of INR 1.2bn). For FY25 HHP powergen reported revenue of 1.1bn, up 20% YoY.
* Consolidation of LGM facility completed: The company had consolidated LGM’s five manufacturing plants located at Ahmedabad into a single newly constructed unit in Sanand Gujarat at end of 3QFY25 for total capex of INR 1.4bn. This resulted in strong performance for consolidated B2C segment with revenue growing 14.8% YoY to INR 3bn and EBIT margins of 11% vs 5.2% YoY. This facility has 30% higher capacity and will help the company in cost optimisation and improving delivery time. Apart from this in FY25 company incurred capex of INR 3.8bn in standalone business towards product development, capacity enhancement and digitalisation.
* Maintain BUY with TP of INR 1,220: We believe new product launches in the high KVA segment, thrust on the aftermarket segment, push on exports, demand recovery in domestic powergen, and healthy industrial segment outlook augur well for the company in the medium to long run. Company continue to invest in product enhancement, new product launch and capacity expansion to meet the upcoming opportunity. The stock is currently trading at 26.1x/21.7x FY26/27E. We maintain BUY rating on stock with SoTP of INR 1,220, valuing core business at 28x FY27E.
Please refer disclaimer at https://www.jmfl.com/disclaimer
SEBI Registration Number is INM000010361
