Kirloskar Oil Engines Q1 Results Review - An All-Round Beat: Motilal Oswal

Motilal Oswal Report

Kirloskar Oil Engines Ltd. Q1 FY25 results beat our estimates, with 6%/28%/31% YoY growth in revenue/Ebitda/profit after tax. business-to-business segment growth was aided by industrial, distribution and exports, while powergen segment remained weak due to a high base of large prebuying in Q1 FY24.

Business-to-consumer segment growth was led by water management system. An overall decline in powergen revenue was lower than our estimate as demand remained strong in Q1. With Central Pollution Control Board 4+ norms in place from July 2024, we expect Kirloskar Oil Engines to continue to benefit from strong demand across user segments. We raise our FY25/FY26 earning per share estimates by 4.7% each to factor in healthy revenue across B2B and business-to-consumer and improving margin trends in B2C.

We continue to value Kirloskar Oil Engines at 29 times price to earning on two-year forward estimates and revise our SOTP-based target price to Rs 1,540 (from Rs 1,500). Adjusted with subsidiary valuation, Kirloskar Oil Engines is trading at 29 times/23 times/18 times FY25/26/27E earning per share, which is still at a 45% discount to the market leader.

We maintain 'Buy' on Kirloskar Oil Engines as we expect it to benefit from improved sales from higher HP segments, exports and improving trajectory of B2C.

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