Cover Story     

Published: November 15, 2023
Updated: November 15, 2023

Kirloskar Oil Engines 19% sales growth in 1H 2024

Referring to the financial performance, Ms Kirloskar revealed that consolidated net sales increased by 6.25 per cent to Rs 1,304.83 crore. Operating profit margin has jumped from 14.70% to 15.46%, leading to a 11.75% rise in operating profit to Rs 201.76 crore. Raw material cost as a % of total sales (net of stock adjustments) decreased from 46.43% to 45.82%. Purchase of finished goods cost fell from 15.74% to 14.38%.

Employee cost increased from 6.38% to 7.71%. Other expenses rose from 16.80% to 17.01%. Pre-operation capitalised expenses rose from 0.22% to 0.33%. Other income rose 39.01% to Rs 7.84 crore. PBIDT rose 12.58% to Rs 209.6 crore. Provision for interest rose 58.11% to Rs 74.01 crore. PBDT fell 2.71% to Rs 135.59 crore. Provision for depreciation rose 13.69% to Rs 29.89 crore.

Profit before tax was down 6.53% to Rs 105.70 crore. Provision for tax Rs 27.35 crore, compared to Rs 30.62 crore. The effective tax rate was 25.97% compared to 27.06%. Minority interest was nil in both the periods. Net profit attributable to owners of the company decreased 6.96% to Rs 77.97 crore.

Profit before interest, tax and other unallocable items (PBIT) slumped 6.27% to Rs 106.92 crore. PBIT of the B2B segment fell 18.78% to Rs 75.54 crore (accounting for 70.65% of total PBIT). PBIT of B2C reported a profit of Rs 6.33 crore compared to a loss of Rs 1.24 crore. PBIT of the Financial Services segment rose 12.33% to Rs 25.05 crore (accounting for 23.43% of total PBIT).

The PBIT margin of the B2B segment fell from 10.42% to 8.23%. The PBIT margin of the B2C segment rose from negative 0.49% to 2.43%. The overall PBIT margin fell from 9.29% to 8.19%. The PBIT margin of the Financial Services segment fell from 26.79% to 19.75%.

B2C MARGINS UP

“On the B2C front, our efforts to stabilize the business have led to improved segment margins as compared to last year. Seeing progress across all our strategic pillars, I am assured that we are on course to achieve our strategic growth objectives,” Ms Kirloskar said. The company is on track with its 2X-3Y strategy targets; i.e. revenue of Rs 65 billion @ double digit EBITDA in 3 years.

Powergen Q2FY24 is a quarter of transition as demand was weak after strong pre-buy demand in Q1FY24. Powergen sales in Q2FY24 were down 8% yoy to Rs 360 crore. A last-minute notification allowing sales of CPCB 2 engines till June 2024 forced the company/industry to take up a lot of changes in its transition plans (sales, inventory management, etc) for moving to the new CPCB4. The company is now managing multiple product lines complying with multiple emission norms.

The company is seeing demand for CPCB 4 products from specific regions in India, and will continue to sell CPCB 2 products at significant levels. Things will normalize gradually over the period July 2023-June 2024. For this period, initially the CPCB 2 product demand/sales will be higher than CPCB 4 but somewhere in the middle the CPCB 4 product demand and CPCB 2 product demand will be equal and then CPCB4 will keep increasing with a decrease in demand for CPCB2. The higher inventory is expected to normalize, going forward.

According to Ms Kirloskar, in a segment such as Agri, demand is lower than the expectation in H1FY24. Infra and data centres shows strong demand growth. The company has executed orders from 500 kva products for data centres.

SMALL ENGINES

The small engine business has shown more than 20% growth. Full control of the LGM export focus showed good results. There were several new product launches during the quarter, and the company has a comprehensive range of gas gensets. It marked its entry into the HHP segment by launching OptiPrime up,to 3,000 kVA.

A strong order book is led by large railway and defence orders, and the company expects the steady performance to continue in H2FY24. The BS V programme is on track, and field engines clocked 1,000+ hours. TREM Stage-V (BSV) is expected to be introduced in April 2024, although the date is yet to be finalized. The management expects the quarterly staff/employee cost run rate to be around Rs 70 crore. The higher staff cost in Q2FY24 is largely due to lower volume leverage and transition.

The high HP segment is a large market segment with an annual opportunity of about Rs 2,000 crore. We are getting into the white space with a higher kva range of 1,500 kva and above. Increased service penetration and ramp up of the after-market are the three initiatives the company is working on to improve margins, she said.

The LGM Optiqua merger and the LGM Plant consolidation are on track. LGM margins improved to 7.7% against 3.5% last year. Exports from LGM reached about 30% of sales for H1FY24. GOEM was appointed for key international markets such as the GCC. AFHPL revenue from operations in Q2 FY24 stood at Rs 127 crore, a growth of 52% yoy, and PAT stood at Rs 18.5 crore, a growth of 22% yoy. Total debt as on June 30 stood at Rs 3,154 crore. Total AUM as on September 30 was Rs 4,128 crore, of which Rs 932 crore is real estate, Rs 368 crore is for warehousing logistics and Rs 1,500 crore is for SME/ MSMEs etc. The GNPA stands at 0.19% and NPAs are 0.05%.