Recommendation from Capital Goods Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

Kirloskar Oil Engines Ltd : INFRASTRUCTURE-LED GROWTH PLAY

HERE IS WHY
✓ Structural infrastructure demand tailwinds
✓ Diversified industrial and power portfolio
✓ Consistent growth across core segments

As infrastructure spending gathers momentum and energy reliability becomes increasingly critical across sectors, the industry is entering a structurally supportive phase. Rising investments in Railways, Defence, Construction, and industrial activity are driving a steady growth trajectory for industrial engines, supported by stabilisation in emission norms and smoother market adoption. The power generation segment continues to benefit from sustained demand for reliable backup and prime power solutions, while pricing conditions remain largely stable despite competitive intensity.

Kirloskar Oil Engines Limited (KOEL) is a diversified engineering company operating across power generation, industrial engines, water management solutions, distribution and aftermarket services, and financial services through its Arka Group. The company caters to both B2B and B2C markets with a strong domestic presence and a steadily expanding international footprint.

KOEL’s business is structured across engines and gensets, industrial engines, power solutions for large institutional and government clients including defence and marine applications, engine-based and electric pump sets, aftermarket solutions, and financial services. International operations are supported through subsidiaries such as Kirloskar Americas Corporation, Kirloskar International Middle East FZE, and Engines LPG LLC (Wildcat Power Gen), enabling access to markets across the Middle East, Africa, and the Americas.

Kirloskar Oil Engines Limited delivered a strong consolidated financial performance in Q2FY26 and H1FY26, driven by broad-based growth across its B2B, B2C, and Financial Services segments. Consolidated revenue from operations in Q2FY26 stood at ₹1,948.4 crore, registering a robust 30 per cent year-on-year growth over ₹1,498.6 crore in Q2FY25 and a 10 per cent sequential increase from ₹1,763.8 crore in Q1FY26. The performance was largely supported by sustained demand in the Power Generation and Industrial businesses, coupled with steady export momentum and an improving contribution from financial services. Consolidated profit after Tax from continuing operations for the quarter rose 28 per cent year-on-year to ₹159.2 crore, while PAT margins improved sequentially to 8.2 per cent from 7.6 per cent in Q1FY26, reflecting better operating leverage.

For H1FY26, consolidated revenue from operations increased 19 per cent year-on-year to ₹3,712.2 crore compared to ₹3,130.5 crore in H1FY25. Consolidated PAT for the half year stood at ₹293.4 crore, reflecting a modest 4 per cent year-on-year growth, with margins at 7.9 per cent. The comparatively lower growth in half-year profitability was primarily due to the absence of exceptional income and provision reversals that had supported margins in the base period.

Company is currently trading at a P/E of 39x, which is almost at par compared to its industry P/E of 39.9x. However, the PEG ratio of 1x is lower than most of its peers, which makes its attractive. The company's interest coverage ratio is 2.2x.

Over the last three years, the company has achieved compounded revenue growth of about 16 per cent, with compounded profit growth of 39 per cent. ROCE of the company is 13.7 per cent, which is also attractive among the other players.

Considering the recent years' performance and good future growth of the industry, we recommend our subscribers a BUY.

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