November 09, 2024 : Financial Performance: Kirloskar Brothers (KBL) Q2FY25 revenue increased by 13% YoY on the back of strong demand in both domestic and international markets. EBITDA grew by 61% YoY, with margins at 13.7% (vs. 10.7% in Q2FY24). The margin improvement was driven by robust performance in the domestic segment, resulting in operating leverage from higher volumes, cost control initiatives, and softening raw material prices. Going forward, the management expects to sustain current margin levels and sees further scope for achieving additional operating efficiencies.

Outlook : With sustained demand from key end markets and a robust order book, KBL is expected to achieve double-digit revenue growth in FY25. Strategic initiatives taken by the company are likely to support the growth trajectory into FY26 and FY27. Furthermore, the focus on cost optimization and an improved product mix should facilitate additional profitability improvements.

Valuation & Recommendation : We have revised our revenue and operating margin estimates for FY25E and FY26E, reflecting the anticipated improvement in profitability, and have also rolled forward our estimates to FY27E. Our projections incorporate strong visibility from the order book, increased contributions from value-added products, digitization, operational upgrades, softening raw material costs, and efficiencies leading to continued profitability improvements. We value the stock at 25x FY27E EPS (previously 30x FY26E EPS), resulting in a revised target price of Rs 2,100/share, implying an upside of 16% from CMP. Accordingly, we are upgrading our rating from HOLD to BUY.