Detailed Narrative
Robust Q2 FY26 Performance Driven by Core Segments
Kirloskar Oil Engines delivered a strong Q2 FY26, with stand-alone net sales reaching a record INR 1,593 crores, marking a 35% YoY and 11% QoQ growth. Consolidated revenue from continuing operations also grew by 30% YoY to INR 1,948 crores. This performance was primarily anchored by the Power Generation business unit, which achieved its highest ever quarterly revenue of INR 678 crores, growing 41% YoY, and the Industrial business unit, which saw 40% YoY sales growth.
Margin Expansion and Profitability Growth
The company demonstrated healthy profitability, with stand-alone EBITDA increasing 45% YoY to INR 214 crores, and the EBITDA margin expanding to 13.4% from 12.4% in Q2 FY25. Consolidated net profit from continuing operations saw an even more significant increase of 51% YoY, reaching INR 159 crores. Management indicated a 'headroom for margin' improvement going forward⏳, driven by product mix changes and export growth.
Strategic Restructuring of B2C Business
Kirloskar Oil Engines announced the restructuring of its B2C business, now referred to as Fluid Dynamics, through a slump sale to its wholly-owned subsidiary, LGM, effective from Q3 FY26. This move aims to maintain dedicated focus on each segment and drive greater efficiency. While the B2C segment grew 28% YoY in Q2 FY26 to INR 144 crores, it experienced a sequential decline, which management is actively addressing.
Strong Export Performance and Arka's Retail Pivot
International business showed strong diversification, with B2B sales growing 39% YoY and B2C sales increasing 77% YoY. Exports for the first half of the year exceeded INR 320 crores, with the Middle East and North Africa region contributing approximately 60% of the international sales mix. The NBFC arm, Arka, successfully pivoted to a granular retail book, achieving INR 140 crores in AUM and INR 60 crores in monthly disbursements, while reducing its incremental cost of borrowing to 8.3%.
Focus on High Horsepower (HHP) and Data Centers
The company highlighted encouraging momentum in its Optiprime initiative, securing multiple high horsepower (HHP) orders (1,500 kVA, 2,000 kVA, and 2,500 kVA). Growth in HHP is broad-based, primarily driven by infrastructure and large real estate projects. Kirloskar Oil Engines is also targeting the data center market, acknowledging it as a specification-driven and technical market, and has secured 'a few wins' in this segment.
Industrial and Defence Segment Momentum
The Industrial business unit delivered a strong 40% YoY sales growth, fueled by healthy traction in both defense and railways. The defense business progressed on key strategic programs, including the submission of detailed design for the Indian Navy's Make 1 initiative. New product launches, such as a 400-horsepower engine for rail maintenance, are expected to further support growth in the railway segment, with NPCL order revenues starting from the next financial year.