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Anand Rathi
Kirloskar Brothers (Buy)
CMP: ₹282.45
Target: ₹389
Sales growth of Kirloskar Brothers (standalone) is expected to be healthy due to its solar pumps business and orders in oil & gas. Higher crude oil prices are expected to bring strong orders to its subsidiaries in CY18 and margins improved because of the favourable sales mix. Oil & gas industry orders are expected to provide consistent growth in the next five years.
Lower provisioning would lead to greater profitability in the next two years. A pick-up in subsidiary performances would lead to strong earnings growth. A pick-up in oil & gas industry orders may lead to a further re-rating in valuations. However, slower order inflows may keep valuations capped in the next 6-9 months. We believe that current valuations factor in a modest pick up in the domestic business; a revival in subsidiary performance may lead to a surprise.
Risks: More-than-expected provisioning, curtailed demand for pump-sets.
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