Kirloskar Oil zooms 11% in trade; Motilal sees favourable valuations

Kirloskar Oil Engines shares zoomed 11.5 per cent in trade on BSE, logging an intraday high at Rs 744.6 per share. The stock extended rally for the fourth consecutive session and gained over 14 per cent.

 

On Wednesday, around 11:48 AM, Kirloskar Oil Engines share price was up 10.07 per cent at Rs 735.05 per share on BSE. In comparison, the BSE Sensex was up 1.19 per cent at 75,049.01. The market capitalisation of the company stood at Rs 10,670.12 crore. The 52-week high of the stock was at Rs 1,450 per share and the 52-week low was at Rs 544.15 per share.

 

As per Motilal Oswal, Kirloskar Oil Engines has favourable valuations and is close to bottoming out. Despite near-term volatility that may exist in the powergen market due to high base of last year and increased competition, the brokerage expects the company to benefit from a shift in focus towards mid to high kVA segments in powergen, increased focus towards new areas in the industrial segment, improved touchpoints in the distribution segment, and better profitability of business-to-consumer (B2C) division over next few years.

 

The brokerage reckons that the current stock price is factoring in extreme pessimism related to growth and margins, which is unwarranted.

 

"The stock is currently trading at 23.2x/19.2x/15.6x FY25/26/27E earnings. Adjusted with subsidiary valuation, Kirloskar Oil Engines is trading at 19.3x/16.0x/13.0x FY25/26/27E earnings per share (EPS), which is still at a significant discount to the market leader," the report read. 

 

The brokerage slightly trimmed its revenue growth and margin estimates in line with the industry’s growth trend. It expects 12 per cent/17 per cent/19 per cent compound annual growth rate (CAGR) in revenue/Ebitda/PAT, driven by 11 per cent/14 per cent/14 per cent/12 per cent CAGR in powergen/industrial/distribution/export revenues in the B2B segment.

 

Analysts at Motilal Oswal see demand slowdown, competitive intensity, higher costs for the B2C division, the risk of further fund infusion in Arka Fincap, and technology risks as key risks for the company.

 

In the past one year, Kirloskar Oil Engines shares have lost 19.8 per cent against Sensex's rise of nearly 2 per cent.