Powergen, Defence and Data Centre drive the next leg…
About the company- Kirloskar Oil Engines Limited (KOEL), the flagship company of the Kirloskar Group, KOEL is one of India’s largest diesel and gas engine manufacturers, with gensets ranging from 3 kVA to 12,000 kVA and industrial engines spanning 20 hp to 1,100 hp catering to 85+ applications across construction, mining, agriculture, defence, marine, railways and oil & gas. KOEL operates four advanced manufacturing facilities across Pune, Kagal (Kolhapur), Nashik and Rajkot.
• B2B (~73.8% of FY26 consolidated revenue), B2C (~14.8% of FY26 consolidated revenue) & Financial Services (~11.4% of FY26 consolidated revenue)
Investment Rationale
• 2X3Y Execution creates a strong foundation for the next 2B2B Growth strategy: KOEL is entering a new phase of structural growth after delivering strong execution under its 2X3Y strategy, with consolidated revenue increasing 1.6x from ₹4,022 crore in FY22 to ₹6,329 crore in FY25, while EBITDA and PAT grew 2.9x and 2.8x, respectively. The company’s next leg of growth is anchored by its 2B2B strategy, targeting a ₹16,000+ crore business by FY30, supported by higher capacity utilisation, market-share gains in high-horsepower (HHP) engines, international expansion and increasing presence in Defence, Railways and non-ICE businesses. The announced Kagal expansion further strengthens the growth runway, with total engine capacity expected to rise from ~135,000 to ~205,000 units (~48% addition), including specialised HHP capacity. We believe this capacity-led strategy, combined with KOEL’s established manufacturing capabilities and extensive distribution/aftermarket ecosystem, should enable the company to participate meaningfully in the rising demand across industrial, infrastructure, defence and mission-critical power applications. Consequently, we estimate standalone Revenue/EBITDA/PAT to grow at ~23%/~25%/~26% CAGR during FY26–29E, respectively, with EBITDA margin improving towards ~14%, driving healthy operating leverage and earnings compounding.
• HHP Premiumisation and Mission-Critical Power Can Drive a Structural Re- rating: KOEL is progressively moving up the value chain from a conventional engine/genset manufacturer towards an engineered power-solutions provider, with HHP, nuclear and data-centre applications emerging as key growth and premiumisation drivers. The ₹768 crore NPCIL order for 10×6.3MW emergency diesel generator sets, with a 68-month execution period, demonstrates KOEL’s ability to address complex, high-value and mission-critical applications, while its nuclear-grade qualification and application-engineering capabilities create meaningful entry barriers. More importantly, its 192MW hyperscale data-centre order comprising 96×2,500 kVA OptiPrime Dual Core systems provide a marquee reference customer in a segment historically dominated by established players and includes a 5–6-year O&M opportunity, enhancing recurring aftermarket revenue. With India’s data-centre capacity projected to expand from ~1.8GW in FY26 to ~10GW by FY30 (~54% CAGR), we see significant scope for KOEL to scale its HHP franchise, supported by the planned specialised HHP capacity addition. This shift towards higher-value products, coupled with premium product mix, operating leverage and recurring service revenues, should improve earnings quality.
Rating and Target Price: We expect Revenue and PAT to grow at 22.7% and 26.3% CAGR over FY26-FY29E. We initiate BUY on KOEL with a Target Price of ₹2850 (based on SOTP FY29E)
