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We recently hosted management of Kirloskar Oil Engines (KOEL), where management sounded positive on business opportunity across segment and highlighted company will be focusing on 1) technological advanced products, 2) HHP segment, 3) exports market, 4) expansion in non-ICE products (few products are in prototype stage) and 5) capacity expansion. To achieve this vision, company will be investing in R&D, building teams and looking for inorganic opportunity in similar line. Going forward we believe entry in HHP segment, approved products for CPCB-IV across nodes, expansion in exports markets and service segment will be key growth driver for company

* 2B2B strategy-2030 focus on all round growth levers: Ambition to reach revenue of USD 2bn by 2030 at consolidated level. Key strategy includes 1) Increasing manufacturing capability, 2) focus on technology, 3) increase share of business of Arka Retail, 4) exploring inorganic opportunities, 5) increase export revenue, 6) market share improvement of B2C, 7) focus on Defence and Rail, 8) expand in non ICE programs, in line with the core business and 9) product expansion in B2C.

* Re-iterated its focus towards 2x3Y strategy: KOEL continues its efforts to achieve 2x3Y target starting from FY22, where it target to reach revenue of INR 65bn by FY25 (implying growth of 36% in FY25 vs JMFe of 25%), with double digit EBITDA margins. Growth will be mainly driven by 1) introduction of new product in HHP segment, 2) expanding geographical presence and 3) growing service business.

*  Domestic power gen market continues to be promising: Demand for Power genset is likely to remain strong (short term slowdown expected due to CPCB-IV transition). With increasing complexity of product on account of energy norm getting stringent we believe it will be beneficial for company focusing on R&D like KOEL. Entry in HHP segment and approval in place for CPCB-IV product will be key growth driver for company going forward. We expect revenue CAGR of 22% between FY24-26E.

* Industrial segment benefitting from continued capex momentum: Segment reported a growth of 18% to INR 10bn in FY24, driven mainly by growth in the construction and railways sectors. Going forward, growth will be driven by manufacturing and infrastructure segment in domestic market while international market will be driven by continued momentum in fire-fighting and dewatering products. We expect revenue CAGR of 26% between FY24-26E.

* Maintain BUY with TP of INR 1665: We continue to remain positive on KOEL factoring in - domestic demand drivers for the Power gen and the Industrial business being very strong due to continued traction in construction activity, private capex and need for backup power in critical sectors (hospitals, real estate, manufacturing etc). KOEL with its new product launches in the HHP segment, is looking to establish its presence which was lacking for company. Focus on exports market will aid revenue and profitability growth going forward. We expect revenue/EPS CAGR of 23%/35% between FY24-26E. Maintain BUY, with TP of INR 1,665 valuing core business at 35x FY26E (30x FY26E earlier).

* Expanding International business a key focus area: KOEL continues its effort to increase its geographical presence resulting in its revenue growing 32% to INR 5.2bn in FY24. KOEL is working towards establishing exclusives Genset Original Equipment Manufacturers (GOEMs) in key markets worldwide. It has successfully appointed GOEM in two key region; America and Middle East.

*  B2C add on to the exiting core business: Revenue growth of 15% to INR 6.2bn in FY24 was driven by 23% growth in Water Management Solutions to INR 5.4bn, while it declined for Farm Mechanisation declined 19% to INR 870mn. La-Gajjar Machineries Ltd. reported PAT of INR 241mn vs INR 47mn in FY23.

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