JMFL
Kirloskar Oil (Hold)
CMP: ₹296.70
Target: ₹345
Fourth quarter results of Kirloskar Oil Engines (KOEL) were operationally in line with our estimates. However, sharp cost increases (R&D and doubtful debts) and lower financial income (decline in MF investments and RoI) led to flat growth in net profit, 5 per cent below our estimates.
Net sales saw healthy growth of 13 per cent y-o-y, led by industrial (off-highway and tractors) and exports (new markets) segments, while EBITDA margins improved by 30bps to 9.9 per cent, in line with JMFL estimates. Consolidated numbers include eight-month results of La-Gajjar Machineries (LGM), which reported a loss of ₹11 crore at the PBT level, due to one-time integration costs and a rise in interest expenses.
We forecast moderate sales growth (11 per cent CAGR over FY18-20) as order weakness in low kVA and pump sets is likely to offset high-growth segments such as high kVA, industrial and electric pumps. Net profit may see strong 20 per cent CAGR in the absence of one-time costs and an increase in other income. However, we believe the current PE multiple of 21x FY20E aptly captures this growth, restricting any positive surprise from our estimates. We maintain ‘hold’ with a revised TP of ₹345, based on 24x FY20E consolidated EPS.