Kirloskar Oil Engines Limited — Q4 FY25 earnings call

Call held 16 May 2025

Management summary

Kirloskar Oil Engines Limited reported a strong Q4 and FY25, achieving record sales and significant margin expansion across its businesses. The company successfully completed its 2X-3Y growth journey, growing 1.6 times overall, driven by a revamped product portfolio and strategic initiatives. With Arka Fincap pivoting to a retail-focused strategy and substantial capital allocation plans, the company is set on an ambitious path towards a $2 billion revenue target by FY30.

Highlights

  • Q4 FY25 sales crossed ₹1,400 crores, marking a 21% QoQ and 2% YoY growth.

  • Q4 FY25 EBITDA margin stood at 12.1%, expanding by 200 basis points QoQ.

  • Full Year FY25 sales surpassed ₹5,000 crores, a 6% YoY increase.

  • Full Year FY25 EBITDA margin improved to 12.8%, an expansion of 110 basis points YoY.

  • High Horsepower (HHP) segment in powergen achieved ₹110 crores in sales for FY25, growing 20% YoY.

  • B2C business rebounded strongly in Q4 FY25, with sales of ₹317 crores (up 42% QoQ) and profitability growing 269% QoQ.

  • Working capital management improved significantly, reducing inventory by over ₹200 crores and achieving a cash conversion cycle of 22 days.

  • Arka Fincap's AUM reached over ₹7,200 crores with GNPAs below 0.7%.

Key financials

2 periods

Q4

  • Sales
    ₹1,400 Cr
    YoY +2% QoQ +21%
  • EBITDA Margin
    12.1%
  • PAT Margin
    7.5%

FY25

  • Sales
    ₹5,000 Cr
    YoY +6%
  • EBITDA Margin
    12.8%
  • PAT Margin
    8.1%

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 Business (KOEL Stand-alone)
    6% Growth
  • Industrial Business
    12% Growth
  • Distribution and Aftermarket
    13% Growth
  • Powergen Side
    3% Growth
  • HHP Powergen Sales (FY25)
    ₹110 Cr Sales20% Growth
  • B2C Side (KOEL Stand-alone)
    2% Growth
  • Water Management Solution (WMS) Business
    7% Growth
  • International Exports (B2C)
    67% Growth

Guidance & targets

Revenue

  • Company Revenue Revenue · by FY30 · High confidence $2 billion
    So with all of this, we believe that we have the right ingredients in place for our next phase of growth, which we call the 2B, 2 billion strategy. We had announced it already in quarter 3 that the aspiration is to grow to a $2 billion organization by fiscal year '30.

    — Gauri Kirloskar

Market Cap

  • Arka Market Cap Market Cap · next phase · High confidence $1 billion
    So I just want to clarify that the 2 billion is a revenue target and the 1 billion goal that Arka has is a market cap target.

    — Gauri Kirloskar

AUM Growth

  • Arka AUM Growth AUM Growth · next phase · Medium confidence 3 times
    The team is committed to delivering 3 times AUM growth, enhancing ROA to 3%, while maintaining GNPAs below 3%.

    — Gauri Kirloskar

Profitability

  • Arka ROA Profitability · next phase · Medium confidence 3%
    The team is committed to delivering 3 times AUM growth, enhancing ROA to 3%, while maintaining GNPAs below 3%.

    — Gauri Kirloskar

Asset Quality

  • Arka GNPAs Asset Quality · next phase · Medium confidence below 3%
    The team is committed to delivering 3 times AUM growth, enhancing ROA to 3%, while maintaining GNPAs below 3%.

    — Gauri Kirloskar

Loan Book

  • Arka Loan Book Loan Book · next 6-9 months · High confidence ₹1,000 crores
    Once that mass reaches INR1,000 crores, I'm expecting it to reach about INR1,000 crores in the next 6 to 9 months. I think that will be a very good time to look at capital actually.

    — Management

Capital Expenditure

  • Total Investment Capital Expenditure · next couple of years · High confidence ₹1,000 crores
    So in a Nutshell, we are planning to invest around INR1,000 crores in the next couple of years in this business.

    — Sachin Kejriwal

Market context

  • B2C Profitability Growth Profitability · coming years · Medium confidence double-digit
    So in terms of profitability growth and the EBITDA growth for the B2C business, we aspire to grow both in double-digit in coming years.

    — Sachin Kejriwal

Risks & concerns

  • Market volatility post emission norm changes in Genset and industrial segments.

    medium

    Management noted a volatile market post emission norm changes, impacting the entire product portfolio.

    Management acknowledged

  • Intense competition in the high horsepower (HHP) market.

    medium

    The HHP market is described as 'very, very well entrenched' with competition, requiring focused efforts to build awareness and market share.

    Management acknowledged

  • Challenges and required investments for international business expansion due to lack of brand equity abroad and partner transitions.

    medium

    Management admitted that international expansion was the 'biggest miss' in the 2X-3Y journey, requiring more time, patience, and investment due to lower brand recognition abroad.

    Management acknowledged

Areas of evasion (2)

  • Exact breakups for long-term revenue targets by segment
  • Specific distributor numbers for export markets

Q&A highlights

3 direct
Arka Fincap's Q4 accounting adjustments and future capital raising plans. Direct
There has not been any write down. We are just preparing ourselves to build a secured retail Journey and that's more granular in nature... So direct assignment the true up will be close to about 12 crores to 13 crores and the provision which we increased will be close to about 15 crores which actually helps us to build a very Strong balance sheet into the future... Capital raise is something, which we will look at somewhere around January.

Clarified that specific accounting adjustments, not a write-down, impacted consolidated PAT and detailed the strategy and timeline for Arka's future capital raise.

Genset market demand, pricing stabilization, and competition in the high horsepower (HHP) segment. Direct
After an emission norms change it does take some time. And I'd say over several quarters that the market is quite dynamic And pricing and demand plays out on a node by node basis... we're really focused on going to customers and talking about what we have and bringing in that awareness around our product portfolio. Because of course the competition is very, very well entrenched in the high horsepower market.

Provided insight into the post-emission norm market dynamics, confirming stabilization and strong demand, while highlighting the company's strategy to penetrate the competitive HHP segment with its superior product portfolio.

Asked by Teena

Capital allocation strategy for the $2 billion revenue target by FY30, including manufacturing and technology investments. Direct
So in FY '25, we have invested around INR520 crores. So out of this INR380 crores was invested in KOEL and INR140 crores got invested in our B2C business... we announced that we are going to invest another INR700 crores for capacity enhancement in our existing plant at Kagal... And another INR200 crores will be allocating towards the acquisition in line with our technology track and to the $2 billion growth strategy. So in a Nutshell, we are planning to invest around INR1,000 crores in the next couple of years in this business.

Provided a detailed breakdown of past and future capital expenditure plans, outlining significant investments in product development, capacity enhancement, IT digitization, and strategic acquisitions to support the ambitious long-term growth target.

2 min read 6 chapters

Detailed narrative

Strong Q4 and FY25 Financial Performance

Kirloskar Oil Engines Limited delivered a robust financial performance in Q4 FY25, with sales crossing ₹1,400 crores, representing a 21% QoQ and 2% YoY growth. The EBITDA margin for the quarter stood at 12.1%, expanding by 200 basis points QoQ. For the full fiscal year 2025, the company achieved sales exceeding ₹5,000 crores, a 6% YoY increase, and an EBITDA margin of 12.8%, up 110 basis points YoY. The PAT margin for FY25 also improved to 8.1%.

Completion of 2X-3Y Growth Journey and Product Portfolio Expansion

The company successfully concluded its ambitious 2X-3Y growth journey, achieving a 1.6 times overall growth despite market volatility. A significant achievement was the expansion of its product portfolio, now covering a range from 3 kVA to 6 megawatts, including a strong presence in the high horsepower (HHP) segment. HHP sales in powergen for FY25 reached ₹110 crores, growing 20% YoY. The company also effectively managed the transitions to CPCB IV+ and BS V emission norms.

Arka Fincap's Strategic Pivot and Growth Outlook

Arka Fincap is embarking on 'Arka 2.0,' focusing on building a diversified, retail-focused, high-return portfolio. The strategy targets a 3x AUM growth, a 3% Return on Assets (ROA), and maintaining GNPAs below 3%. Arka aims to build a loan book of ₹1,000 crores in small ticket loans against property and pre-owned vehicle financing within the next 6-9 months, with plans for a capital raise around January to support this growth.

Ambitious $2 Billion Revenue Target by FY30

Kirloskar Oil Engines has set an aggressive '2B, 2 billion strategy' to achieve $2 billion in revenue by fiscal year 2030. This growth will be propelled by continued focus on high-growth segments such as data centers and infrastructure, international expansion, and strategic inorganic opportunities in new technology tracks beyond traditional engines, including batteries and microgrids. The company's vision is to become a global technology leader in power solutions.

Significant Capital Allocation for Future Expansion

In FY25, the company invested approximately ₹520 crores, with ₹380 crores allocated to KOEL and ₹140 crores to its B2C business (LGM) for plant consolidation. Looking ahead, Kirloskar Oil Engines plans to invest around ₹1,000 crores in the next couple of years. This includes ₹700 crores for capacity enhancement at the Kagal plant, ₹80-90 crores for the Navy project, and ₹200 crores for acquisitions aligned with its technology roadmap and $2 billion growth strategy.

Improved Working Capital Management and B2C Rebound

The company demonstrated strong working capital management, reducing inventory by over ₹200 crores from ₹716 crores at the end of Q3 to ₹493 crores at FY25 end. Days Inventory Outstanding (DIO) improved by approximately 30 days, and receivables improved from 43 to 39 days, resulting in a healthy cash conversion cycle of just 22 days and a net cash position of ₹448 crores. The B2C segment also saw a solid rebound in Q4 FY25, with sales growing 42% QoQ to ₹317 crores and profitability increasing by 269% QoQ, driven by plant consolidation efforts.

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