This company engaged in manufacturing and servicing diesel engines and diesel generator sets, diesel, petrol, kerosene-based pump sets, and many more has received a “buy rating from Motilal Oswal, indicating a 57.5 percent upside potential with a target price of Rs 1,150 per share.
Stock Price Movement:
Kirloskar Oil Engines Ltd.’s shares, which had a market capitalization of Rs 10,610 crore on Wednesday, were trading at Rs 730 per equity share. The shares had reached a day high of Rs 734.15, up 1.6 percent from the close price of Rs 718.10 the previous day.
Target:
With a target price of Rs 1,150 per equity share, Motilal Oswal reaffirmed a “buy” rating for Kirloskar Oil Engines Ltd. This represents a 57.5 percent upside potential from the current price of Rs 730.
Rationale for Target:
Motilal Oswal maintains a positive long-term outlook on Kirloskar Oil Engines (KOEL). Because of the growing demand in both its B2B and B2C segments. The firm noted that demand in the Powergen segment has improved sequentially and operations have stabilized at the B2C division.
With industry, volumes are predicted to increase from 32,000 units in Q3 FY25 to 36,000–38,000 units in Q4 FY25. The company is focusing on increasing share of volumes in mid to high-kVa ranges and also increasing its High Horse Power (HHP) sales contribution by 400–500 basis points over the next one to two years.
The brokerage noted it expects a 14 percent annual growth in revenue for the industrial segment for KOEL over FY24-27, driven by new launches and a focus on construction and infrastructure sectors. Although the brokerage firm expects short-term weakness in KOEL’s export business, the company remains focused on sustainable expansion.
The brokerage firm has made slight downward revisions to its revenue growth and profit margin estimates due to the industry’s overall growth trend. It now expects that KOEL’s sales will increase at a CAGR of 12 percent, while EBITDA and profit will increase at CAGRs of 17 percent and 19 percent, respectively. Additionally, it expects the EBITDA margin to improve, reaching 13.0 percent in FY26 and 13.5 percent in FY27.
The stock is currently trading at 19.2x FY26E earnings and 15.6x FY27E earnings. Further, based on firm projections for March 2027, this results in a price target of Rs 1,150. The firm added a base case scenario and assumed a target valuation multiple of 25 times for the core business, which is 40 percent lower than that of the market leader. It is anticipated that KOEL will see favorable outcomes in the medium to long term due to a rebounding power generation market and an improving business mix.
Financials:
Revenue increased by 4.5 percent to Rs 1,454 crore in Q3 FY25 from Rs 1,391 crore in Q3 FY24. From Rs 89 crores to Rs 68 crores, the net profit decreased by 23.5 percent. Revenue from the B2B segment increased 3.5 percent to Rs 1,018.33 crores from Rs 983.95 crores in the third quarter of FY24.
Income from the financial services category rose 43 percent to Rs 211.61 crore from Rs 148.22 crore, while income from the B2C segment fell 13.6 percent to Rs 223.76 crore from Rs 259 crore. The return on capital employed was 13 percent, while the return on equity was 18.02 percent. Overall, Kirloskar Oil Engines Ltd.’s Q3 FY25 performance has been mixed.
About the company:
Kirloskar Oil Engines Limited (KOEL), a prominent producer of gas and diesel engines, generating sets, and power solutions, was founded in 1978 and serves a variety of sectors, including railroads, construction, agriculture, military, and power production. The company owns gensets with capacities of 3 kVA to 3,000 kVA.
The business sells 6.3 MW gensets for specific industrial power systems. With its emphasis on growth in areas including the Middle East, Africa, and the Americas, KOEL is well-established in both home and foreign markets. In addition, the business is also committed to long-term expansion, to hit a $2 billion sales milestone by FY30.
Written by Shashi Kumar
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