Kirloskar Oil Engines Ltd - Generating Returns from Generators

I stumbled across this business as a technical find, however ended up researching about it and thought of sharing my findings.


Kirloskar Oil Emgines Ltd’s business is divided into three segments

  1. B2C
  • Engine based Pump Sets
  • Electric Pumps (KOEL)
  • Electric Pumps (LGM)
  • Farm Equipment
  1. 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
  1. Arka Group - Financial Services

As per the recent Quarterly results; Q1 FY2024, the revenue % breakup for each segment:

  • It’s customers in the B2B business are predominantly from industries like Power, Telecom, Railway, Infra, Railway, Defence and also Data centres

  • B2C customers include ones from Agro and Irrigation

  • 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:

  • It’s part of a legacy conglomerate - Kirloskar Group

  • Not interested in white labelled products

  • Management has shown decent control over fixed costs during volatile times

  • Management is very defensive in terms of its lending business

  • Managements focus on cashing out on the Value added Products

  • OEM’s usually place repeat orders

  • Acquisition of Optiqua (management is keen on water solution segment of its portfolio)

  • Focus on African Continent - delivering good growth in overall exports

  • A growing sales (also focus) in Ultra High Horse power Genset segment

  • The company is benefitted from both power deficit in the country and growing power needs due to infra capex and general population needs

  • Outlook for Q2 FY24 is cautious but optimistic, with potential for growth in new geographies and expanded product portfolio.

  • Commitment to 2X-3Y strategy to double topline in 3 years.

  • EBITDA margin of 12.1% is sustainable, with potential for improvement.

  • Strong performance in the financial services segment with a loan book of Rs. 3,656 crores.

  • Financial services segment experienced a slight decline in AUM, but expected to rebound

  • The company’s Financial arm earns a decent Fee income from Syndication as a third party participant

  • The management is not in a hurry to lend, wants to play a Calibrated move and play defensively for few years before becoming aggressive

  • 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:

  • Decrease in profitability due to

  • Raw material price fluctuations

  • Decrease in order inflow

  • Mess ups in financial segment of the company

  • Decrease in demand for the Gensets

  • Competition from Chinese Players

  • The company also has a compliance burden; which results in the management to update many of its products accordingly

  • this compliance is Due to the Emmissiom Stamdards set by the government from time to time

  • 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)

I hope I added value to this community

1 Like

Decade at a glance

1 Like

In my findings,

  • I also came across the fact that the company is quick in implementing recent Emission and efficiency norms
  • the company is also, if I’m not wrong is at high capacity utilisation; although may not be at full capacity
  • I also found that the company also sells gas based engine generators and working to improve this product portfolio
  • It’s on track with its 2X-3Y strategy and looks like it will achieve it early
  • in case of agri products like Tillers; it’s 2 or 3 largest player, approx 15% market share

Thanks @Subham_Jain for sharing
People who are believing in capital goods cycle/ manufacturing upward trend in coming days… this is good company to play it. Debt free , good ROCE, proven management and reputed brands in B2B
Disc: holding this company from lower level

Can I ask for your investment thesis, like your reason of buy

Kirloskar Oil Engines Q2FY24 Concall Summary

1 Like

Thanks .

  • The levers for margin enhancement are:
    • Entry into higher horsepower segment
    • Growing service and aftermarket business
    • Strategic focus on international business

All of the above look highly plausible which will augur well for continued robustness in growth of KOEL.