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Genset demand improvement continues

Genset channel checks

Our genset channel checks indicate that demand momentum is building up and inquiry levels have increased from Apr’25 onwards. Volumes have improved by nearly 10-12% from 4QFY25 levels, though they remain lower 15-20% YoY on account of the genset industry’s high base in 1QFY25, fueled by pre-buying activities. 1QFY26 will be the last quarter impacted by the base effect of CPCB 2 gensets, after which it will be a like-to-like comparison. Pricing is broadly stabilizing with only select nodes witnessing pressure. With demand and competition normalizing by 1QFY26, we expect pricing to stabilize thereafter. We expect revenue growth in the overall powergen segment in 1QFY26 to be driven by a 25-28% YoY price hike and a 5-15% YoY decline in volumes for listed players. Export markets may remain volatile in the near term due to geopolitical issues. We maintain our positive stance on genset players and believe that, following this transitory phase, companies with a strong product portfolio and an extensive distribution network will stand ahead of the competition in the medium to long run. We broadly maintain our estimates for KKC and KOEL and reiterate BUY on both KKC (TP: INR4,100) and KOEL (TP: INR1,150).

Key highlights from our interaction with genset channel partners

Demand has improved sequentially

Demand and inquiry levels have improved quite well since Apr’25. Volumes have increased by 10-12% from 4QFY25 levels, driven by improved construction activity across key areas such as manufacturing, government projects, retail, and hospitality. The summer season, starting Apr’25, has also contributed to the uptick, with increased demand for backup gensets. Demand from the real estate segment, which accounts for 10-15% of overall demand, is improving selectively but remains lower YoY. Meanwhile, demand from the rental market, which accounts for nearly 10% of overall demand, remains weak due to lower acceptance of CPCB 4+ products. We, thus, believe that genset players could see a 10-12% improvement in volumes QoQ and 5-15% decline in volumes YoY due to the base effect for products up to 750kVA. HHP demand remains strong across both product and project sides, with the segment continuing to grow at 15-20% YoY. KKC continues to maintain its leadership in the HHP segment, while KOEL is actively working to increase its HHP sales. Overall, for the full FY26, we expect industry volumes to improve by 10-15% YoY.

Prices stabilizing with only select nodes witnessing pressure

The powergen industry witnessed a price correction of roughly 10-12% for CPCB 4+ products in FY25, following the initial hikes of 20-40%. This was driven by lower demand, higher competition, and inventory stocking of CPCB 2 products last year. Pricing is now stabilizing, with only smaller nodes up to 300-400kva witnessing a 2- 4% QoQ correction. In contrast, nodes of 400kVa and above are witnessing improved demand and stable pricing. KKC’s product prices continue to remain at a premium to other players, though select nodes have seen some correction. KOEL has maintained its pricing, while Mahindra Powerol may now contemplate price hikes of 2-4% from next month. Other players like Ashok Leyland and Greaves Cotton continue to price below the top three players.

Distribution reach continues to differentiate players

Although the number of players remains high in the low to mid kVA ranges, distribution reach is the key factor that differentiates them. This is where Cummins and KOEL hold an advantage over other players. Both players have strong dealer, distributor, and OEM networks, which will benefit them in the long run as demand for spares and services begins to pick up for CPCB 4+ products. KOEL had organized various customer and dealer connect events in the last quarter to increase awareness about its product range across the mid kVA to HHP segments. Cummins is the preferred choice where brand, quality, and distribution reach are key considerations—even for HHP. Mahindra Powerol is typically preferred in L1-based contracts due to its pricing. Other players up to the 500kVA range are working to increase their distribution reach, though this will take time. Tata and Eicher Motors are also expanding their presence across various nodes. Baudouin is partnering with other players in the high kVA ranges to increase market penetration and is cheaper in pricing for HHP nodes.

Engineering exports for Apr’25-May’25 up YoY

India’s engineering exports have been on the rise since Jul’24 (Exhibit 9). KKC’s export revenue growth has historically mirrored overall engineering exports, and we expect this trend to continue going forward. In FY25, Middle East and Latin America exports contributed 20%/32% of overall KKC’s exports. KOEL is still at a nascent stage as far as export markets are concerned and is currently focusing on the Middle East and US markets. Any geopolitical tensions in the Middle East could impact exports for these companies in the near term.

Key monitorables over next few months

We believe that the high base impact of volumes due to pre-buying will continue to play until 1QFY26, and following that it will be a like-to-like comparison. KKC’s revenue for 1QFY25 had normalized to some extent, while KOEL’s 1QFY25 revenue continued to reflect the pre-buying impact. In the forthcoming quarters, we will continue to monitor: 1) demand improvement from current levels, 2) product mix of various players across kVA ranges, 3) stability of price points, 4) continuity of HHP demand from the data center market, and 5) recovery in the export markets.

Valuation and recommendation

KKC at INR3,395 is currently trading at 34.1 P/E, and KOEL at INR850 is trading at 17.7x P/E on Mar’27E EPS. We value KKC at 41x P/E on two-year forward estimates and KOEL at 25x P/E on two-year forward estimates for core businesses. We maintain our estimates and reiterate a BUY rating on both KKC (TP: INR4,100) and KOEL (TP: INR1,150).

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