Target: ₹1,000

CMP: ₹935.30

Kirloskar Brothers Ltd (KBL) order book in Q3-FY24 stood strong at ₹3,111 crore, up 9 per cent y-o-y. Domestic business witnessed muted growth at 8 per cent y-o-y whereas its international business grew by 2 per cent y-o-y. KBL is continuously introducing new products in the US and UK markets and focusing on increasing its revenue contribution from the service segment for its UK entity.

Nonetheless, we have decreased our revenue guidance to account for the higher base of the last year and lower-than-expected 9M-FY24.

We model Revenue/Operating Profit/PAT CAGR of 13/20/25 per cent over FY23/26. We have marginally reduced our revenue and operating margin estimates. However, strong visibility from the value-added products, softening of raw material costs, and operational leverage generated at the international subsidiaries will result in YoY improvement in profitability.

We currently have a BUY rating on the stock with a revised TP at ₹₹1,000/share. Our recommendation is supported by Robust improvement in the company’s order book, Increasing revenue contribution from the Services segment, Restructuring of business activities resulting in improving ROE and ROCE (to 20 per cent and 26 per cent respectively) and operating margins (by 220bps to 12.9 per cent ) by FY26.