IGI Logo

Kirloskar Oil Engines’ (KOEL) 3QFY24 quarterly number was broadly in line with JMFe. Revenue grew 13.5% YoY to INR 11.4bn, driven by growth across segment. EBITDA margins expanded 80bps YoY to 11.7% due to favourable revenue mix. Demand scenario continues to remain strong in domestic market driven by government focus on Infrastructure spend. Management reiterated its growth strategy of growing revenue by 2x in 3 years (targets revenue of INR 65bn in FY25) with double digit EBITDA margin. Margins are likely to be better than expectation driven by 1) expanding HHP market opportunity with launch of OptiPrime 2) growing aftermarket segment and 3) expanding reach in exports market. Introduction of CPCB-4 norms product is expected to increase the addressable market size in new export geographies (with stringent emission norm) and also drive aftermarket sales due to increasing complexity of products. We transfer coverage to Deepak Agarwal. We expect revenue and earnings CAGR of 20%/27% over FY23-26E. Maintain BUY with SOTP of INR 930 FY26, valuing standalone business at 20x FY26E.

* Strong growth across segment: Standalone revenue grew 13.5% YoY to INR 11.4bn, inline with JMFe of INR 11.3bn, driven by growth across segment (except farm mechanisation). Powergen grew up 5.2% YoY to INR 4.3bn, Industrial grew 23% to INR2.3bn, Aftermarket grew 17% YoY to INR 1.8bn and Exports grew 22% YoY to INR 1.4bn. Overall B2B segment grew 13% to INR 9.7bn. B2C segment grew 17% YoY to INR 1.5bn, driven by strong growth in water management system (up 33% YoY to INR 1.3bn).

* Favourable revenue mix drives gross margins: Gross margins expanded 170bps YoY to 34%, mainly due to higher execution of medium and HHP genset order. EBITDA grew 21.5% YoY to INR 1.3bn, with EBITDA margin expanding 80bps YoY, partly impacted due to higher employee cost as % of sales (7% vs 6.1% last year). PAT grew 21% YoY to INR 822mn.

* Recent acquisition to enhance presence in North America: KOEL acquired 51% stake in Engines LPG, LLC dba Wildcat Power Gen an America based company engaged in designing, manufacturing, selling and servicing of generators powered by gas, diesel and other environmental fuel and power solutions under the brand name of Wildcat Power gen for all types of applications. This acquisition is step towards business expansion and to enable market development in powergen applications for the North American markets. Company has also appointed GOEM serve and grow our business in the Middle East.

* Maintain BUY with TP of INR 930: We remain positive on stock given its focus on new product launches in high KVA (launched OptiPrime), thrust on aftermarket segment, push towards exports market and sustained demand in domestic powergen and industrial segment. We expect revenue and earnings CAGR of 20%/27% over FY23-26E. Maintain BUY rating on stock with SOTP of INR 930, valuing standalone business at 20x FY26E (16x Sep’25E earlier).

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361