Kirloskar Oil Engines Limited — Q3 FY26 earnings call

Call held 12 Feb 2026

Management summary

Kirloskar Oil Engines delivered a strong Q3 FY26, achieving its highest ever third-quarter sales with 35% YoY growth and significant EBITDA margin expansion. Performance was broad-based across segments, notably in High Horsepower and Industrial, though Construction & Mining was temporarily slow. The company reiterated its $2 billion revenue target by FY30 and outlined strategic focus areas for continued growth and margin improvement.

Highlights

  • Highest ever third quarter sales and year-to-date sales in company history, with 35% YoY and 25% YTD sales growth.

  • Robust operational efficiency led to a 190 bps YoY expansion in standalone EBITDA margin to 12.2%.

  • Standalone net profit (excluding exceptional items) surged 80% YoY to ₹102 crores.

  • High Horsepower (HHP) segment demonstrated exceptional growth of 235% YoY, driven by infrastructure demand.

  • B2B consolidated revenue grew 36% YoY to ₹1,396 crores, with Power Gen up 44% and Industrial up 41%.

Concerns

  • Construction & Mining segment was 'a bit slow' this quarter due to OEMs correcting inventory, though considered temporary.

  • Power Gen volume saw a 15% Q-o-Q decline, attributed to seasonal factors and capex flows.

  • Gross margin experienced a slight 50 bps Q-o-Q dip, primarily due to product mix.

Key financials

  1. Standalone Revenue ₹1,371 Cr +35%YoY
  2. Standalone EBITDA ₹169 Cr +59%YoY
  3. Standalone EBITDA Margin 12.2%
  4. Standalone Net Profit (excl. exceptional) ₹102 Cr +80%YoY
  5. Consolidated Revenue ₹1,873 Cr +29%YoY
  6. Consolidated Net Profit (excl. exceptional) ₹126 Cr +90%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

  • B2B Segment (Consolidated)
    ₹1,396 Cr Revenue₹137 Cr PBIT
  • B2C Segment (Fluid Dynamics)
    ₹249 Cr Revenue₹18 Cr PBIT
  • Financial Services (Arka)
    ₹227 Cr Revenue₹17 Cr PBT₹107 Cr Net Interest Margin
  • Power Generation (Standalone)
    ₹603 Cr Sales0.25 yoy_pct Volume Growth
  • Industrial (Standalone)
    ₹390 Cr Sales
  • Distribution & Aftermarket (Standalone)
    ₹238 Cr Sales
  • International (B2B Standalone)
    ₹140 Cr Sales

Order book

high confidence

Total value

₹798 Cr

as of 2025-12-31 quantified

Execution

2-year timeline for execution

Composition

  • NPCIL and Marine (client type)
The company has secured large orders, particularly in the Nuclear segment, with a 2-year execution timeline.

Source: Q&A

Capital allocation

high confidence
  • Capex ₹700 Cr
    • Ramping up operations ₹700 Cr
    As we have mentioned earlier, there is INR700 crores of capex that we are deploying into ramping up our operations.
  • M&A South African entity (via Middle East entity) Acquisition · Announced · Consideration ₹[object Object] (undisclosed)

    Strategic rationale to structure and operate in the South African market, building people capability in-house.

    I just wanted to ask about this notification on the BSE where you have invested close to INR8 crores in the Middle East entity, which in turn is going for basically acquisition of the South African entity again.
  • Liquidity Cash ₹348 Cr Cash position is net of debt and includes treasury investments.
    Cash position, net of debt and including treasury investments stood at INR348 crores.

Guidance & targets

Revenue

  • Company Revenue Revenue · by fiscal year '30 · High confidence $2 billion
    We stated a 5-year strategy, which is to be a $2 billion company by fiscal year '30.

    — Gauri Kirloskar

Margin

  • Overall Margins Margin · over that time (by FY30) · Medium confidence improve
    And we've also said that we hope to continue to improve margins over that time because our focus areas continue to be Advanced products, Aftermarket and Exports where these typically are the margin levers in our industry.

    — Gauri Kirloskar

What to watch in Q4 FY26

Construction & Mining segment recovery

next quarter
Current Slow this quarter due to OEM inventory correction
Target Pickup in segment performance

Why it matters

Recovery in this segment is crucial for overall industrial business growth, as management expects a correction.

Construction & Mining segment was a bit slow this quarter, but we see it as a temporary phenomenon. ... And we expect that going forward, things will correct for themselves because the correction, the inventory correction seem to have happened.

Risks & concerns

  • Commodity price pressure

    medium

    Management stated they are keeping a close watch and taking appropriate action, implying potential for impact on margins.

    Analyst acknowledged

Q&A highlights

6 direct
Power Gen volume growth (YoY and QoQ) Direct
So, for Power Gen, our volume growth has been 25% compared to the last year. ... Yes, it's yes, 15% decline.

Clarifies the underlying volume trends for the largest segment, showing strong YoY growth but a sequential decline.

Asked by Jason

HHP segment growth drivers and end-use applications Direct
So it's pretty broad-based, but essentially, the main end application is infrastructure. What we mean by infrastructure is any of these large developments that you see being built, whether it's commercial or residential. And of course, it includes some data centre customers as well.

Provides insight into the specific market segments fueling the significant growth in the HHP category.

Asked by Mihir Manohar

Gross margin trajectory with increasing HHP proportion Partial
Yes, that's right. But right now, our gross margin is flat at 35% margin. But in future, as you see more sales from HHP, definitely, the gross margin should improve.

Addresses the expectation of margin improvement from a higher-margin product mix, indicating future potential despite current flatness.

Asked by Mihir Manohar

Outlook for Industrial segment (Defence, Nuclear, Marine) and Construction & Mining Direct
So we saw a quarter where a lot of our OEMs were correcting their inventory. So the Construction & Mining segment was a little subdued because of that. ... And we expect that going forward, things will correct for themselves because the correction, the inventory correction seem to have happened.

Explains the temporary slowdown in Construction & Mining and provides a positive outlook for its recovery.

Asked by Harsh Shah

Kirloskar Advanced Systems (KAS) entity and unmanned systems Partial
So there is a lot of specialized work that we are doing with our government customers, such as Defence and Railways. Now that work is slightly different from our core engines business. It has a lot to do with system integration and in case of Defence, there's Defence contracting kind of work. We felt it best to carve that work into a separate business entity, and that entity is called Kirloskar Advanced Systems Limited. ... So we are not at a point where we can disclose that because that information is still proprietary.

Reveals the strategic intent behind the new subsidiary for specialized government projects and highlights proprietary nature of unmanned systems plans.

Asked by Saif Sohrab Gujar

Employee cost increase in standalone results Direct
So it was a mix of both headcount and gratuity.

Provides a direct explanation for the increase in employee costs, clarifying it's not solely due to headcount.

Asked by Saif Sohrab Gujar

Strategy for the US market and export growth drivers Direct
Now coming specifically to U.S., we have been investing in the U.S. market for a while. We have a subsidiary called Kirloskar Americas, and there is work that's going on, but it is not at a mature stage that we can discuss about it right now.

Outlines the company's ongoing efforts and investment in the US market, indicating future growth potential from this region.

Asked by Rahulkumar Mishra

Capex required to achieve $2 billion revenue target Direct
Yes. So there is, we have a capex plan. As we have mentioned earlier, there is INR700 crores of capex that we are deploying into ramping up our operations. A lot of that work is currently ongoing.

Connects the long-term revenue target to current capex plans, providing visibility on investment for growth.

Asked by Suraj Malu

3 min read 6 chapters

Detailed narrative

Strong Q3 FY26 Performance Driven by Broad-Based Growth

Kirloskar Oil Engines reported its highest ever third-quarter sales, with standalone revenue reaching ₹1,371 crores, marking a 35% year-on-year growth. Year-to-date sales also grew by 25%. This robust performance was supported by strong growth across all business units, including Power Generation (up 44% YoY to ₹603 crores), Industrial (up 41% YoY to ₹390 crores), and International B2B (up 26% YoY to ₹140 crores). Consolidated revenue from operations increased by 29% YoY to ₹1,873 crores, with net profit (excluding exceptional items) surging 90% YoY to ₹126 crores.

EBITDA Margin Expansion and Improved Cash Conversion

The company demonstrated robust operational efficiency, leading to a significant improvement in profitability. Standalone EBITDA for Q3 FY26 stood at ₹169 crores, a 59% increase year-on-year, with the EBITDA margin expanding by 190 basis points to 12.2% from 10.3% in Q3 FY25. Furthermore, disciplined working capital management, characterized by payables at approximately 59 days, receivables at 44 days, and inventory at 66 days, contributed to a strengthened cash conversion cycle compared to the prior year.

High Horsepower (HHP) Segment and Infrastructure Focus

The High Horsepower (HHP) segment was a standout performer, recording substantial growth of 235% year-on-year for the quarter and 132% on a nine-month basis. This growth is primarily driven by demand from infrastructure projects, including commercial and residential developments, and data centers. While the gross margin for HHP is currently flat at 35%, management anticipates future improvements as the proportion of HHP sales increases, leveraging its higher-margin profile.

Strategic Integration and New Entity for Government Projects

Kirloskar Oil Engines completed the integration of its B2C Fluid Dynamics business into LGM, aiming for focused growth and unlocking synergies. Additionally, the company announced the incorporation of Kirloskar Advanced Systems Limited, a new entity dedicated to specialized work with government customers, particularly in Defence and Railways. This move allows for focused system integration and contracting work, distinct from the core engines business, with plans for potential expansion into areas like unmanned systems, though details remain proprietary.

Capital Allocation and International Expansion

The company has a planned capital expenditure of ₹700 crores for FY26, primarily aimed at ramping up operations. In terms of international strategy, Kirloskar Oil Engines continues to focus on the Middle East and African markets, while also investing in the US market through its subsidiary, Kirloskar Americas. The company also invested approximately ₹8 crores in a Middle East entity for the acquisition of a South African entity, aligning with its strategy to build in-house capabilities and structure operations in key international markets.

Financial Services (Arka) Granularization and Asset Quality

The financial services arm, Arka, reported a 7% year-on-year growth in revenue to ₹227 crores, with Net Interest Margin growing 28% YoY to ₹107 crores. Arka is actively granularizing its book by building a retail portfolio focused on used wheels and small ticket loans against property. The company reported a healthy asset quality with a Gross Non-Performing Asset (GNPA) of approximately 1.2% and Net Non-Performing Asset (NNPA) of 0.3% as of December 31, 2025, indicating effective risk management.

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