I stumbled across this business as a technical find, however ended up researching about it and thought of sharing my findings.
OVERVIEW:
Kirloskar Oil Emgines Ltd’s business is divided into three segments
- B2C
- Engine based Pump Sets
- Electric Pumps (KOEL)
- Electric Pumps (LGM)
- Farm Equipment
- B2B
- Engines and Gensets
- Industrial Engines
- Power Solutions for Large / Institutional Project Clients (Marine, Defence etc)
- After Sales Support
- Retail Channel - Tractor spares, Oil, Batteries
- Arka Group - Financial Services
As per the recent Quarterly results; Q1 FY2024, the revenue % breakup for each segment:
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It’s customers in the B2B business are predominantly from industries like Power, Telecom, Railway, Infra, Railway, Defence and also Data centres
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B2C customers include ones from Agro and Irrigation
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Arka Group is a NBFC with focused lending in sectors like real estate, Coporate lending and SME lending (initially started with 500 crores, to diversify business; had very strong and robust balance sheet, and maintained healthy cash positions)
The management had planned for 2X-3Y Strategy; Double the topline in course of three years(indicating an avg revenue CAGR of 24%)
Concall Learnings:
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It’s part of a legacy conglomerate - Kirloskar Group
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Not interested in white labelled products
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Management has shown decent control over fixed costs during volatile times
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Management is very defensive in terms of its lending business
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Managements focus on cashing out on the Value added Products
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OEM’s usually place repeat orders
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Acquisition of Optiqua (management is keen on water solution segment of its portfolio)
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Focus on African Continent - delivering good growth in overall exports
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A growing sales (also focus) in Ultra High Horse power Genset segment
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The company is benefitted from both power deficit in the country and growing power needs due to infra capex and general population needs
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Outlook for Q2 FY24 is cautious but optimistic, with potential for growth in new geographies and expanded product portfolio.
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Commitment to 2X-3Y strategy to double topline in 3 years.
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EBITDA margin of 12.1% is sustainable, with potential for improvement.
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Strong performance in the financial services segment with a loan book of Rs. 3,656 crores.
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Financial services segment experienced a slight decline in AUM, but expected to rebound
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The company’s Financial arm earns a decent Fee income from Syndication as a third party participant
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The management is not in a hurry to lend, wants to play a Calibrated move and play defensively for few years before becoming aggressive
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the management has divided itself into parts, as in the case of different heads for each division
I’ll add a few more interesting concall excerpts below:
Challenges and Risks:
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Decrease in profitability due to
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Raw material price fluctuations
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Decrease in order inflow
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Mess ups in financial segment of the company
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Decrease in demand for the Gensets
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Competition from Chinese Players
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The company also has a compliance burden; which results in the management to update many of its products accordingly
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this compliance is Due to the Emmissiom Stamdards set by the government from time to time
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Also in case of Fuel efficiency standards
Personal take:
Valuations are reasonable, although P/B is high. Personally invested in it. I’ll hold until there’s a constant tailwind environment
- This is my first time preparing a note like this, and I could have made mistakes(will correct if I find any)
- I hope to see some critical suggestions on the timeline
- My observations are not so redundant amd sought after as other professionals
- I’ve not not gone in detail for each product category (as in case of various Categories of engines like Low to Untra High Horsepower ones)
