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Growth outlook intact, watchful on execution

We interacted with the management of Kirloskar Pneumatic Company (KKPC), during which they discussed the current business outlook, global operating environment, new product developments, and growth opportunities. Near-term execution remains impacted by delayed dispatches amid the ongoing Middle East conflict, which could weigh on Q2 performance. However, the management remains confident of a backended recovery in H2. Precision Engineering dispatches are expected to be completed during the current quarter, providing scope for recovery. Domestic packaging demand remains healthy, with larger oil & gas orders expected in Q4, while KKPC remains selective on packages to protect profitability. The management remains constructive on growth, supported by product-led opportunities across Air Compression, Refrigeration, CNG and higher margin complex-gas applications. Tezcatlipoca continues to see traction within its INR5–7bn target market, with INR8.5–9.0bn unaddressed market, while Refrigeration should benefit from its 70%+ market share in ammonia reciprocating compressors and opportunities across food processing and coal gasification. Zeyphros has secured its first commercial sale and is targeting the broader comfort-cooling market, with a roof-mounted variant expected next quarter. Overall, broad-based demand across core businesses and new product opportunities support the medium-term growth outlook, while near-term execution remains the key monitorable. The stock is currently trading at P/E of 30.5x/26.0x on FY27E/FY28E. We roll forward to Sep’28E and upgrade our rating from ‘Accumulate’ to ‘BUY’ given the recent correction in price. We value the business at PE of 30x Sep’28E (32x Mar’28E earlier) and arrive at revised TP of INR861 (INR855 earlier)

Long-term view:

Despite the near term macro challenges, we believe KKPC is well placed for healthy long-term growth driven by

1) continued scaling of Air Compression (Tezcatlipoca) to capture import-dominated centrifugal and screw compressor markets

2) increasing focus on new product platforms across Compression and Refrigeration segments

3) new product launches (Tyche, Khione, Zephyros) to enhance penetration in commercial and industrial refrigeration

4) leveraging the Precision Engineering Division (PED) to support margins while driving growth

5) strong cash flows and balance sheet.

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