Kirloskar Oil Engines Limited — Q1 FY26 earnings call

Call held 7 Aug 2025

Management summary

Kirloskar Oil Engines reported a record-breaking Q1 FY26, with both standalone and consolidated net sales achieving their highest ever for the quarter, driven by strong demand and sharper execution. The Power Generation segment saw a significant revival, growing 15% YoY. While consolidated net profit growth was modest at 1%, the company highlighted strategic progress in high horsepower segments, defence projects, and the financial services arm, ARKA, despite some analyst concerns regarding ARKA's returns.

Highlights

  • Standalone Net Sales reached a record ₹1,434 crores, up 8% YoY.

  • Consolidated Net Sales reached a record ₹1,751 crores, up 8% YoY.

  • Standalone EBITDA grew 9% YoY to ₹190 crores, with a margin of 13.2%.

  • Standalone Net Profit increased 5% YoY to ₹123 crores.

  • Consolidated Net Profit from continuing operations was ₹134 crores, up 1% YoY.

  • Power Generation segment sales were ₹609 crores, a 15% YoY increase, marking its highest ever Q1.

  • ARKA's Asset Under Management (AUM) stood at ₹7,231 crores as of June 30, 2025.

  • International B2C business grew strongly by 76% YoY to ₹18 crores.

Key financials

  1. Standalone Net Sales ₹1,434 Cr +8%YoY
  2. Standalone EBITDA ₹190 Cr +9%YoY
  3. Standalone EBITDA Margin 13.2%
  4. Standalone Net Profit ₹123 Cr +5%YoY
  5. Consolidated Revenue ₹1,764 Cr +8%YoY
  6. Consolidated Net Profit (Continuing Ops) ₹134 Cr +1%YoY

What they filed

Q1 FY27: revenue up 13.5%, net profit down 20.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,505 1,454 1,749 1,762 1,948 +29%1,873 +29%2,116 +21%2,000 +14%
EBITDA298 255 312 327 382 +28%331 +30%376 +21%300 −8%
Net profit125 68 127 139 159 +27%109 +60%155 +22%111 −20%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentGrowthSales
Standalone B2B8%₹1,262 Cr
Standalone Powergen15%₹609 Cr
Standalone Industrial-8%₹310 Cr
Standalone Distribution & Aftermarket12%₹223 Cr
Standalone International B2B13%₹120 Cr
Standalone B2C4%₹172 Cr
Standalone WMS0%₹154 Cr
Standalone International B2C76%₹18 Cr
Consolidated B2B Segment9%—
Consolidated B2C Segment0%—
Consolidated Financial Services (ARKA)18%—

Guidance & targets

Market Share

  • HHP Segment Market Share Market Share · quarter-on-quarter · Medium confidence increase node-by-node
    what we do as a management team is that node-by-node, we do track that we are making that progress quarter-on-quarter in terms of market share improvement on a node-by-node basis.

    — Gauri Kirloskar, Managing Director

Business Strategy

  • ARKA Retail Book Business Strategy · ongoing · Medium confidence build out a granular retail book
    At ARKA, we had outlined a strategy to build out a granular retail book to complement the stable wholesale book that we currently have.

    — Gauri Kirloskar, Managing Director

Expansion

  • ARKA Branch Network Expansion · ongoing · Medium confidence more presence in many Tier-2 and Tier-3 cities
    You will see more presence of ARKA in many Tier-2 and Tier-3 cities across the country.

    — Gauri Kirloskar, Managing Director

Profitability

  • ARKA Return on Capital Profitability · certain period of time · Medium confidence earn the return that we would expect even in our core business
    I think that we have clearly a certain return happening on the core business and that is what we will aim for in terms of return on capital over a certain period of time from the ARKA business as well in terms of the capital that we have invested.

    — Gauri Kirloskar, Managing Director

Risks & concerns

  • Geopolitical uncertainties, global markets, and tariffs impacting business

    medium

    Management noted these as challenges but emphasized the Indian economy's resilience and strong domestic tailwinds.

    Management acknowledged

  • Underwhelming returns and unclear strategic fit of ARKA financial services

    medium

    An analyst questioned ARKA's low returns (0.7% ROA in Q1) and strategic alignment, which management attributed to a pivot phase and expressed confidence in the new team without further strategic clarification.

    Analyst downplayed

  • Agri cyclicality affecting water management solutions demand

    low

    Management acknowledged agri cyclicality but stated they aim to mitigate its impact by improving market share and diversifying the product portfolio.

    Analyst acknowledged

Areas of evasion (1)

  • Strategic fit and specific numerical targets for ARKA's long-term returns relative to capital invested.

Q&A highlights

2 direct, 1 evasive
ARKA's strategic fit and underwhelming returns on capital Evasive
Yes, I respect your opinion, but there's not much further comment I can make besides what I've already said. Thank you.

This highlights a significant investor concern about the capital allocation and strategic rationale for the financial services business, which management did not fully address, leading to an evasive response.

Asked by Bharat Shah

Widening loss in Kirloskar Americas Corporation (KAC) subsidiary Direct
So, the US business and the US market is the largest genset market in the world. And it is a market where which is new for us and we have to continue to invest in building out what we want to build up there to have a significant presence.

Provides clarity on the rationale behind losses in a key international subsidiary, indicating a long-term strategic investment rather than operational issues.

Asked by Jason Soans

Reclassification of farm mechanization business to B2B Industrial segment Direct
Yes. So overall, we look at it as one Company. Now in the B2B, basically the industrial business, we already had an agri segment and we saw a lot of operational synergy with the industrial business within B2B. And hence, we decided to consolidate and so the farm business and the agri business are parts of the industrial business now.

Clarifies a segment reclassification that impacts how investors interpret historical and future segment performance, ensuring consistency in reporting.

Asked by Sourabh Arya

2 min read 6 chapters

Detailed narrative

Q1 FY26 Record Performance Overview

Kirloskar Oil Engines achieved a record-breaking Q1 FY26, with standalone net sales reaching ₹1,434 crores, an 8% YoY increase, and consolidated net sales at ₹1,751 crores, also up 8% YoY. Standalone EBITDA grew 9% YoY to ₹190 crores, maintaining a healthy margin of 13.2%. Consolidated net profit from continuing operations saw a modest 1% YoY increase to ₹134 crores, reflecting a strong start to the fiscal year.

Power Generation Segment Revival and HHP Growth

The power generation business demonstrated a strong revival, recording its highest ever Q1 sales at ₹609 crores, a 15% YoY increase. This growth was fueled by renewed demand and significant traction in the high horsepower (HHP) segment, where the company is rapidly gaining market share. New products like the Sentinel and Optiprime ranges have received positive customer acceptance, and all products up to 800 kilowatt are now CPCB IV+ compliant.

Industrial and Defence Business Strategic Focus

The industrial business reported sales of ₹310 crores, an 8% YoY decrease, primarily due to a pre-buy phase in railways in the previous year. However, the company is strategically focused on indigenization programs, progressing on projects for NPCIL and a 6-megawatt marine engine prototype development for the Indian Navy. These initiatives are deeply aligned with long-term ambitions and are expected to open up significant opportunities in the defence sector.

International Business Expansion and B2C Restructuring

International B2B sales grew 13% YoY to ₹120 crores, driven by strong demand in the Middle East and North Africa regions following a successful business model change. The B2C segment, which now includes the reclassified farm mechanization business, saw sales of ₹172 crores, a 4% YoY increase, with international B2C growing robustly by 76% to ₹18 crores. The divestiture of the Optiqua tables and pipes business was completed, streamlining the portfolio to core strategic areas.

ARKA Financial Services Update and Strategic Pivot

ARKA, the financial services arm, reported ₹196 crores in revenue, an 18% YoY growth, but its PBT declined 28% to ₹14 crores. The Asset Under Management (AUM) stood at ₹7,231 crores as of June 30, 2025, with Gross NPAs at 0.9% and Net NPAs at 0.3%, and Q1 ROAs at 0.7%. Management is executing a strategy to build a granular retail book, expanding its presence in 32 branches across Tier-2 and Tier-3 cities, aiming for improved returns on capital over time.

CPCB IV+ Transition and Aftermarket Consolidation

The complete transition to CPCB IV+ emission norms for products up to 800 kilowatt has made engine service proprietary, leading to consolidation in the aftermarket and distribution channels. This change has enhanced the company's service capabilities and coverage, leveraging a composite model of in-house and certified dealership engineers to meet customer expectations for the new electronic engines.

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