This Small Cap Kirloskar Group Stock Grew 83.18% In 3 Months, Buy For 12% Returns, Says Anand Rathi

Anand Rathi, a leading brokerage firm, in its recent report on Kirloskar Oil Engines Limited (KOEL) has placed a buy call for a target price of Rs 374 per share. According to the brokerage's given target price, the stock is likely to gain 12% from its current level if the shares are purchased at the current market price.

KOEL is a small cap Kirloskar Group company. The company manufactures and services diesel engines and diesel generator sets. The company also makes petrol, diesel, and kerosene-based pump sets. It has manufacturing units in Kagal, Pune, and Nashik.

KOEL carried on with its promising performance in Q2. Focusing on new products and expanding its reach have paid off. Consolidated revenue (excl. financial services) grew ~20% y/y to Rs11.4bn from a mix of volume and price hikes. Exports were also good, revenue growing ~88% y/y. Further, good price realisation and segmental mix have enabled it to post superior profitability.

Stock Outlook & Returns

The KOEL's current share price is Rs 335.60 per share on NSE, trading 4.26% above the previous close of Rs 321.90 per share. Today, it opened at Rs 322 per share.

The stock recorded its 52-week high level at Rs 339.85 on 17 November 2022 and the 52 week low at Rs 122.55 on 7 March 2022, respectively. It has a market cap of Rs 4,836.51 crore.

It has given 11.65% positive returns in a week, whereas, in a month, it gave 17.33% positive returns. It has given a massive 83.18% positive returns in the past 3 months. Over a year, it gave 70.77% positive returns. Whereas, in the past 3 years, it has given 103.15% positive return. However, in the past 5 years, the stock fell by 2.97%, giving negative returns on investments.

Strong all-round performance

With good export demand, new products and greater contribution from the Mobility category, power generation revenue rose ~24% y/y. Industrial revenue, too, clocked strong, 40% y/y, growth. In Farm Mechanization, power-tiller sales fell 39% y/y on an unprecedented monsoon, while power weeder sales rose 78% y/y. LGM revenue grew only 2% y/y as demand was hit by prolonged rains and a higher GST rate (18% vs 12% earlier).

 

Better-than-expected margin

The consolidated EBITDA margin expanded 500bps y/y to 14.7%. The stronger margin reflects better-than-expected profits of the core business bolstered by price hikes and better exports and customer support segment. Overall profitability was aided by favourable financial services EBIT margin of 78.7%. Electric pumps and other (farm mechanisation and water-management solutions) saw losses due to lower cost absorption.

Valuations

Considering the good demand outlook and profitability, we raise FY23e/F24e. Also, we introduce FY25e: 13%/23% revenue/PAT growth, a 13.8% EBITDA margin. Thus, we expect ~16%/~38% revenue/PAT CAGRs over FY22-25," the brokerage has said.

The brokerage recommends buy for an upgraded target price of Rs 374 per share. According to the brokerage, the key risk is Less demand than expected; negative margin surprise.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.