Kirloskar Oil Engines Limited — Q2 FY26 earnings call

Call held 12 Nov 2025

Management summary

Kirloskar Oil Engines reported a strong Q2 FY26, achieving record stand-alone net sales and robust consolidated revenue and profit growth. Performance was driven by broad-based demand across Power Generation and Industrial segments, with significant contributions from exports. The company also made strategic progress in its NBFC arm, Arka, and initiated a restructuring of its B2C business for enhanced efficiency and focus.

Highlights

  • Stand-alone Net Sales crossed INR 1,500 crores for the first time, reaching INR 1,593 crores, up 35% YoY and 11% QoQ.

  • Consolidated Revenue from continuing operations stood at INR 1,948 crores, a 30% YoY increase.

  • Stand-alone EBITDA grew 45% YoY to INR 214 crores, with margin expanding to 13.4% from 12.4% in Q2 FY25.

  • Consolidated Net Profit from continuing operations increased 51% YoY to INR 159 crores.

  • Power Generation business achieved its highest ever quarterly revenue of INR 678 crores, growing 41% YoY.

  • Arka's granular retail AUM reached INR 140 crores with monthly disbursements of INR 60 crores, and incremental cost of borrowing reduced to 8.3% in Q2 FY26 from 9.76% in FY25.

  • The B2C business is being restructured and transferred to a wholly-owned subsidiary, LGM, via slump sale, effective from Q3 FY26.

Key financials

  1. Stand-alone Net Sales ₹1,593 Cr +35%YoY
  2. Stand-alone EBITDA ₹214 Cr +45%YoY
  3. Stand-alone EBITDA Margin 13.4%
  4. Stand-alone Net Profit ₹141 Cr +44%YoY
  5. Consolidated Revenue ₹1,948 Cr +30%YoY
  6. Consolidated Net Profit ₹159 Cr +51%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

SegmentRevenueGrowthPBIT
Consolidated B2B Segment₹1,457 Cr34%₹163 Cr
Consolidated B2C Segment₹258 Cr23%₹18 Cr
Financial Service Segment₹233 Cr17%₹34 Cr
Arka (NBFC)———

Guidance & targets

Product Launch

  • New Product Rollout Product Launch · Q3 FY26 · High confidence Planned rollout
    Looking ahead, we remain focused on the planned rollout of our products in Q3 FY '26, which we expect will further enhance our competitive position across the domestic power generation business.

    — Gauri Kirloskar, Managing Director

Revenue Recognition

  • NPCL Order Revenue Revenue Recognition · next financial year · High confidence Start getting recognized
    Yes. So, Teena we are in the execution of that NPCL orders. So, the revenue for those NPCL orders will start getting recognized from the next financial year.

    — Sachin Kejriwal, Chief Financial Officer

Growth

  • Overall Business Growth Growth · long term · Medium confidence Steady and sustainable growth
    These initiatives are expected to position the company for steady and sustainable growth over the long term.

    — Sachin Kejriwal, Chief Financial Officer

Margin

  • Margin Improvement Margin · going forward · Medium confidence Headroom for margin and can improve thereon
    And going forward also with the product mix changes we are aiming for as well as the export growth we are aiming for, we do think there's a headroom for margin and we can improve thereon.

    — Sachin Kejriwal, Chief Financial Officer

Aftermarket Growth

  • Aftermarket Business Growth Aftermarket Growth · continuing · High confidence Stable double-digit growth
    The Distribution and the Aftermarket business has been a stable double-digit growth performer, and we continue to have that expectation of consistency from our Aftermarket business.

    — Rahul Sahai, Chief Executive Officer

Risks & concerns

  • Geopolitical volatility impacting demand

    medium

    Rahul Sahai identified geopolitical volatility as the biggest risk to the ongoing power gen upcycle demand, though expressed optimism from a domestic standpoint.

    Management acknowledged

  • Sequential decline in Fluid Dynamics (B2C) segment

    medium

    Gauri Kirloskar noted that the Fluid Dynamics segment experienced a sequential decline, impacting fixed cost absorption, and addressing these factors is a priority.

    Management acknowledged

  • Delayed uptick in North American market

    medium

    Gauri Kirloskar stated that the North American market, despite being the largest genset market, will take medium to long term to show significant volume and value uptick due to certification and distribution building.

    Management acknowledged

Areas of evasion (3)

  • HHP sales quantification
  • Power Generation volume growth
  • Q3 market demand traction

Q&A highlights

0 direct, 2 evasive
HHP sales contribution and quantification Evasive
We are not giving that breakup, sorry.

Management declined to provide specific sales figures for the high horsepower (HHP) segment, a key growth area, limiting investor insight into its actual contribution.

Asked by Mohit

Power Generation volume growth and pre-buy impact Partial
No. So, all I can tell you is that volumes have come back and have normalized. It's difficult for me to tell you what to adjust that number for you.

Management did not provide specific volume growth numbers for the Power Generation segment, making it difficult to assess the true underlying demand growth versus base effects or pricing.

Asked by Parikshit Kandpal

Q3 market demand traction Evasive
Yes, Teena. So, you know that the focus we will have for this conversation will be Q2. I can't really give out anything on Q3 at this point.

Management avoided commenting on current (Q3) market demand trends, which could provide crucial forward-looking insights for investors.

Asked by Teena Virmani

2 min read 6 chapters

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.

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