The brokerage house recently interacted with the management of Kirloskar Oil Engines to gain insights into the growth drivers for both business-to-business (B2B) and business-to-consumer (B2C) divisions.
It noted that the demand in the powergen segment has now started improving sequentially and operations have stabilised at the B2C division as well.Industry volumes are expected to improve to 36,000-38,000 units for Q4FY25 from 32,000 units in Q3FY25.
Kirloskar Oil Engines is focusing on increasing share of volumes in mid to high-kVa ranges. It is planning to increase share of High Horse Power (HHP) sales in powergen revenues by 400-500 basis points in the next 1-2 years.
Motilal expects KOEL volumes to start reflecting an improvement over next few quarters first from 250-750 kva nodes and later from HHP nodes. It also expects powergen revenues to get impacted in FY25 and expect it to recover from FY26 as powergen market stabilises.
The brokerage wrote in its note that it expects a 14% annual growth rate in revenue for the industrial segment for KOEL over FY24-27, driven by new launches and focus on construction and infrastructure sectors.The distribution reach of KOEL is much better than other players in the industry, Motilal said.
The export segment of KOEL has not grown as expected compared to the company’s original vision. Although the brokerage firm expects short-term weakness in KOEL’s export business, the company remains focused on sustainable expansion. It has already established a strong foundation to support future growth.
Due to the industry’s overall growth trend, the brokerage firm has made slight downward revisions to its revenue growth and profit margin estimates. It now expects a compound annual growth rate (CAGR) of 12% in revenue, 17% in EBITDA, and 19% in profit. Additionally, it expects the EBITDA margin to improve, reaching 13.0% in FY26 and 13.5% in FY27.
Currently, KOEL’s stock is trading at 19.2 times its estimated earnings for FY26 and 15.6 times for FY27. According to Motilal, the market is pricing the stock based on a pessimistic outlook, assuming low growth and low valuation multiples for the core business.
Motilal’s base case scenario assumes a target valuation multiple of 25 times for the core business, which is 40% lower than that of the market leader. Based on its projections for March 2027, this results in a price target of ₹1,150.
The brokerage expects KOEL to benefit from its evolving business mix, with positive results becoming evident in the medium to long term.
The Kirloskar Oil Engines stock is currently trading 2.23% higher on Thursday at ₹666.90. The stock is down 35% so far this year.
