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Anand Rathi
Kirloskar Oil (Buy)
Target: ₹297
CMP: ₹209.60
Driven by healthy performance in all divisions (except Large Engines), Kirloskar Oil Engines reported the best revenue of Rs 910 crore in Q4 FY21. This was on the back of recovery in Powergen, the highest-ever sales in the Industrials division (partially led by pre-buying of BS-III engines) and strong growth in Agricultural and Product Support.
With the government’s focus on infrastructure development, Atmanirbhar and a strong pick-up of end-user demand, management expects a double-digit revenue growth in the next few years.
Except for Railways, all PG’s major segments recovered notably (better than expected). Continued growth momentum is expected in Industrials, led by higher engine volumes, while agriculture growth would be driven by product launches and deeper penetration.
On cost efficiencies and better cost control, EBITDAM jumped 313 bps to 12.8 per cent. Some costs (travel, A&P, etc.) are expected to return with normality, leading to a slight dip in the margin. Also, higher commodity prices could dent near-term margins, addressed through price hikes and greater cost efficiencies due to higher volumes.
We maintain our Buy rating, with a higher target price of ₹297 (15x FY23), earlier ₹193
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