- KOEL’s revenue beat expectations for Q3 FY26 after stripping out its B2C unit.
- Margin upside expected from a cleaner revenue mix and higher‑value HHP sales.
- Core‑business EV/EBITDA multiple lifted to 28x, narrowing the discount to the market leader.
- Target price raised to INR 1,600 on FY28 earnings – a 20% upside from current levels.
- Strategic exposure to nuclear, defense, and export markets adds defensive depth.
You’ve missed the quiet surge in Kirloskar Oil Engines – and it could boost your portfolio.
Related Reads:
Motilal Oswal Keeps BUY on Cholamandalam: 20% AUM Growth, INR 2,000 Target
Motilal Oswal rates Canara HSBC Life Insurance: BUY rating, target INR 180
Why Kirloskar Oil Engines’ Margin Outlook Beats Sector Trends
Motilal Oswal’s latest note flags a potential margin improvement once the B2C division is fully carved out. Historically, KOEL’s overall margin has been dragged down by the lower‑margin consumer segment, which carries higher distribution costs and price‑sensitive sales. By transferring B2C to a subsidiary, the remaining core business now reflects a higher‑margin mix dominated by low‑pressure (LHP) and high‑pressure (HHP) engines serving power generation and industrial customers.
The shift is not just accounting – it translates into operational leverage. Higher‑margin HHP units command premium pricing because they are used in critical applications such as nuclear and defense projects, where reliability is non‑negotiable. As the share of HHP sales rises, gross margins are expected to inch up from the current low‑mid‑teens toward the high‑teens, aligning KOEL more closely with its peers.
How Powergen, Industrial, and Export Growth Stack Up for KOEL
Three growth pillars underpin the revenue outlook:
- Powergen segment: Incremental sales from HHP engines are set to accelerate, driven by new thermal‑plant retrofits and renewable‑integration projects that still rely on diesel generators for backup.
- Industrial segment: Large orders booked in nuclear and defense backlogs are now entering the production pipeline. These contracts are multi‑year and often include after‑sales service, boosting recurring revenue.
- Export markets: KOEL’s foothold in the Middle East and Africa is expanding, thanks to competitive pricing and a reputation for ruggedness. Export sales grew 14% YoY in Q3 FY26, and the company is targeting a 20% CAGR over the next three years.
Combined, these streams are expected to lift the top line by double digits annually, while the revenue mix shift improves profitability.
Competitive Landscape: KOEL vs Tata Power & Adani Power
Within India’s engine manufacturing space, the two obvious rivals are Tata Power’s engine subsidiary and Adani’s emerging power‑gen equipment arm. Both have broader conglomerate backings but have yet to match KOEL’s specialized focus on diesel‑engine solutions for niche sectors.
Tata’s engine division enjoys scale but is spread across multiple product families, diluting margin focus. Adani, while aggressive in renewable infrastructure, is still building its diesel‑engine capabilities. KOEL’s market‑share gains, as highlighted by Motilal Oswal, suggest it is out‑pacing these peers in winning defense and nuclear contracts – a segment where switching costs are high and relationships matter.
Historical Parallel: KOEL’s 2020 Turnaround and What It Means Today
In FY20, KOEL faced a steep revenue dip after the pandemic curtailed export shipments. The company responded by cutting low‑margin B2C SKUs, re‑orienting R&D toward HHP platforms, and securing a landmark defense order worth INR 3,500 crore. Within 12 months, earnings per share (EPS) rebounded, and the stock outperformed the Nifty‑50 by 25%.
The current cycle mirrors that playbook: a deliberate pruning of the consumer arm, coupled with a pipeline of high‑margin contracts. History suggests that once KOEL clears the transition hurdle, earnings trajectory can be steep, rewarding early investors.
Technical Snapshot: Valuation Multiples and EPS Adjustments
Motilal Oswal now applies a 28x EV/EBITDA multiple to KOEL’s core business, up from 25x. The lift reflects a narrowing discount to the market leader, which trades around 31x. The analyst also trimmed EPS forecasts by 6% for FY26, 9% for FY27, and 3% for FY28 to reflect the B2C carve‑out, but the higher multiple more than compensates for the modest earnings dip.
Using the revised FY28 EPS estimate of INR 57.14, the target price of INR 1,600 translates into a forward P/E of roughly 28x, comfortably below the sector average of 32x. This suggests a valuation cushion even if macro‑headwinds linger.
Investor Playbook: Bull and Bear Scenarios
Bull Case: The B2C spin‑off proceeds smoothly, margins climb to 18% by FY28, export sales exceed INR 1,200 crore, and defense contracts roll over with minimal delay. In this environment, the stock could rally 30‑40% above the INR 1,600 target, delivering a multi‑year total return above 60%.
Bear Case: Execution delays in the defense pipeline, coupled with a slowdown in export demand due to geopolitical tensions, keep revenue growth tepid. If margins stagnate below 15% and the multiple reverts to 24x, the target price could fall to INR 1,200, eroding upside potential.
Investors should monitor three leading indicators: (1) quarterly B2C carve‑out progress, (2) order book additions in the nuclear/defense segment, and (3) export order flow from the Middle East. A positive trend on all three fronts justifies a BUY stance, while setbacks may warrant a wait‑and‑see approach.