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Kirloskar Oil Engines Ltd Research Report - 21st Jan 2016

Capital Goods | Published on Nov 17th 2015


For 2QFY2016, Kirloskar Oil Engines (KOEL) reported a disappointing set of numbers. Its top-line for the quarter declined by 6.0% yoy to Rs590cr. The raw material cost declined by 286bp yoy to 62.3% of sales while employee expense increased by 79bp yoy to 8.5% of sales, and other expenses increased by 405bp yoy to 21.0% of sales. This resulted in the EBITDA margin contracting by 198bp yoy to 8.2%. Other income increased by 61.1% yoy to Rs20cr and consequently, the net profit remained flat at Rs36cr. Outlook to remain subdued in the near term: In the near term, we expect the company to witness some pressure on account of overall slowdown in the Genset industry. In addition, the absence of large engines orders has been impacting the top-line and profitability. KOEL has expanded its capacity in the past and is positioned to successfully cater to improvement in demand once the operating environment changes in the longer run. KOEL also has taken measures to increase its focus on exports which should aid growth. Cash rich position: KOEL is a debt free company with cash and cash equivalents of approximately Rs835cr. With ample capacity in place, there is no major capex expected in the near future. Consequently depreciation expense is also expected to remain low which will add to the bottom-line. We expect KOELs cash and cash equivalents to be at ~Rs982cr in FY2017E which is approximately 26% of the current market cap. Outlook and Valuation: We expect KOELs revenue to recover post FY2016, ie to Rs2,826cr in FY2017E. With recovery in the top-line, we expect the EBITDA margin to recover to 10.4% in FY2017E. Consequently the profit is expected to grow to Rs193cr in FY2017E. We have scaled down our numbers for FY2016E and have accounted for improvement in the top-line for FY2017E. At the current market price, the stock trades at 19.7x its FY2017E earnings (vs its 3-year median of 21.7x). At the current juncture, we have a Neutral rating on the stock as the infrastructure scenario in the country is expected to remain dampened in the near term.

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CMP 262
Target Price
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)5,065.34
MCAP NSE (Rs in Cr)5,073.29
P/E (x)26.36
EPS (Rs.)13.29
BV (Rs.)99.57
Div Yield (%)1.43
FV (Rs.)2.00
P/BV (x)3.52
EV/Sales (x)2.07
EV/EBITDA (x)25.83

Shareholding Pattern (%)

Public & Others18.0
Grand Total100.0

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