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Growing HHP at a fast pace

KOEL has announced a large order win from one of the hyperscalers in the data center space, HyperNext, for the supply of 96 units (192 MW) of 2,500kVA optiprime dual core power systems. This indicates the growing traction of KOEL’s HHP products in the fast-growing data center market in India. We expect the ongoing capex (INR7b announced in FY25) and upcoming capex (INR14b announced in May’26) to enable the company to continue to participate in high-growth opportunities in the DC market, along with non-HHP products. We also expect industrial segment growth to get the boost from deliveries of large orders over the next two years, which can more than offset any weakness in the segment due to overall weak construction activity in the country. With improving volumes, we expect operating leverage to also start playing out. We raise our estimates for the powergen segment and expect slightly better margins. KOEL’s entry into hyperscalers as well as its fast-growing overall powergen and industrial business is resulting in a further reduction in the valuation discount vs. Cummins, which we believe will play out as such orders increase. We roll forward our TP to Sep’28, valuing the core business at 33x. We maintain BUY with a revised SoTPbased TP of INR2,350. (INR1,900 earlier)

Powergen segment: Getting the boost from data center orders

KOEL’s powergen segment posted 32% YoY growth in FY26, outperforming the market, largely aided by market share improvement and a sharp scale-up in HHP product sales. KOEL now has announced a large order win from one of the hyperscalers in data center space, HyperNext, for the supply of 96 units (192MW) of KOEL’s 2,500kVA optiprime dual core power systems. This indicates growing traction of KOEL’s HHP products in the fast-growing data center market in India. The company is continuously targeting projects across Edge, co-location and hyperscaler data center projects. We expect a similar traction to continue over the next few years for the company. KOEL is also scaling up capacities to cater to the fast-growing HHP and data center markets. We increase our estimates for the powergen segment and expect a revenue CAGR of 26% over FY26-29.

Ongoing capex to benefit volumes further as demand remains strong

In May’26, KOEL also announced a capex of INR14b for expanding engine capacity by 20,000 engines, targeted to be completed by FY28. This capex is targeted to cater to demand coming from HHP and Optiprime, industrial, and exports. This follows the earlier INR7b investment announced for the addition of 50,000 engine capacity, which is expected to come online by Apr’28. As per the company, the current capex can potentially give incremental revenue worth INR50-56b at peak utilization (by around FY30) at an asset turnover of nearly 4x. We expect this capex to enable the company to target opportunities from high-growth segments too beyond the non-HHP segments.

Industrial segment to benefit too from execution of large orders

The industrial segment of KOEL has delivered a 20% CAGR over FY22-26, much better than its immediate peer Cummins, which saw a 16% CAGR in industrial revenue over the same period. We also expect industrial segment growth to get the boost from deliveries of large orders over the next two years, which can more than offset any weakness in the segment due to overall weak construction activity in the country. The company is also expanding into advanced system integration opportunities through the newly incorporated, subsidiary, Kirloskar Advanced Systems, focusing on defense and other critical sectors. We thus marginally increase our estimates for the industrial segment too and expect a revenue CAGR of 26% over FY26-29.

Valuation and view

KOEL is currently trading at 42x/31.5x EPS for the core business, adjusting for subsidiary valuations. We raise our estimates for the powergen segment and expect slightly better margins. KOEL’s entry into hyperscalers as well as its fast-growing overall powergen and industrial business should result in a further reduction in the valuation discount vs. Cummins, which we believe will play out as such orders increase. We roll forward our TP to Sep’28, valuing core business at 33x. We maintain BUY with a revised SoTP-based TP of INR2,350 (INR1,900 earlier)

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