Kirloskar Pneumatic Company Limited — Q3 FY26 earnings call

Call held 23 Jan 2026

Management summary

Kirloskar Pneumatic reported a strong Q3 FY26 with sales up 18.5% YoY to ₹403.5 crores and a robust order book of ₹1,939 crores. Despite missing sales targets due to customer dispatch delays, the company maintained a healthy net cash position and declared an interim dividend. Management expects to achieve FY26 sales of ₹1,800-1,850 crores and PBT of ₹345-360 crores, driven by new product launches and non-traditional orders, while navigating challenges in the process gas segment and managing inventory.

Highlights

  • Q3 FY26 Sales grew 18.5% YoY to ₹403.5 crores, indicating strong quarterly performance.

  • Order book reached ₹1,939 crores as of January 1, 2026, a 19% YoY increase, providing good revenue visibility.

  • Company maintained a debt-free status with a net cash position of ₹395 crores as of January 1, 2026.

  • Interim dividend of ₹3.50 per share (175% on face value) was approved, reflecting confidence in financial performance.

  • Raw material to sales ratio improved by 3.7% in Q3 FY26, contributing to better gross margins.

Concerns

  • Sales target for Q3 was missed as large packages worth over ₹150 crores were not cleared for dispatch by customers, leading to higher inventory.

  • The process gas compression segment remained flat for the year, with installations at a 5-year low, indicating a slowdown in the oil and gas sector.

  • Implementation of the new labor code led to an estimated gratuity provision increase of ₹18.3 crores, pending clearer regulatory guidance.

Key financials

2 periods

Headline

  • YTD FY26 Sales
    ₹1,054 Cr
    YoY +0.76%
  • YTD FY26 Total Income
    ₹1,074.7 Cr
    YoY +1.1%
  • YTD FY26 EBITDA
    ₹196 Cr
    YoY -1%
  • YTD FY26 EBITDA Margin
    18.2%
  • YTD FY26 PBT
    ₹172.7 Cr
    YoY -1.8%
  • YTD FY26 PBT Margin
    16.1%
  • YTD FY26 Net Profit After Tax
    ₹114.5 Cr
    YoY -12.3%
  • YTD FY26 EPS
    ₹17.63
    YoY -12.4%

Q3 FY26

  • Sales
    ₹403.5 Cr
    YoY +18.5%

What they filed

Q1 FY27: revenue up 10.3%, net profit up 21.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue431 340 583 272 378 −12%404 +19%706 +21%300 +10%
EBITDA94 48 110 36 58 −38%81 +69%186 +69%46 +28%
Net profit68 36 81 28 43 −37%43 +19%144 +78%34 +21%
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

  • Compression Segment
    21.6% Profit Margin

Order book

high confidence

Total value

₹1,939 Cr

as of 2026-01-01 quantified

19% YoY

Execution

Sales next year quarter-on-quarter will be far smoother than we ever had.

Composition

  • Large Package Orders (other) ₹0 Cr 0%
  • Non-traditional Areas (other)

Cancellations & deferrals

  • deferred: Larger packages not cleared for dispatch by customers, impacting Q3 sales.
The order book is strong and shifted towards non-traditional areas, which is expected to lead to smoother quarter-on-quarter sales execution next year.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹90 Cr
    • PLI related manufacturing (additional capex) ₹200 Cr
    • PLI related manufacturing (total commitment including past 2 years) ₹300 Cr
    capex spend was INR54 crores. We expect a total capex spend of about INR90 crores for the year. Free cash generation from operations YTD FY '26 was INR45 crores. This is after the capex and the dividend. ... So the PLI application, what we have filed entails that we have to commit a capex of around INR300 crores, but this includes the capex that we have already committed over the last 2 years. So that means for this specific project area, which includes input material, raw material all combined. So we may have to make an additional capex of about INR200 crores, which we will do in the next year, 1.5 years.
  • Debt Net cash ₹395 Cr
    Company has maintained the status as a debt-free company and we, the company still has a net cash position of INR395 crores as on 1st January 2026.
  • Dividend ₹3.5/share (interim)
    In line with our dividend policy, the Board of Directors has approved an interim dividend at the rate of 175% on the face value of INR2 per share, that is INR3.50 per share dividend to be paid as per the regular practice.
  • Liquidity Cash ₹395 Cr
    Company has maintained the status as a debt-free company and we, the company still has a net cash position of INR395 crores as on 1st January 2026.

Guidance & targets

Sales

  • FY26 Sales Sales · FY26 · High confidence ₹1,800-1,850 crores
    We expect to close the year with a sales between INR1,800 crores to INR1,850 crores, nearly double-digit growth.

    — K. Srinivasan, Managing Director

  • Q4 FY26 Revenue Sales · Q4 FY26 · High confidence ₹745 crores
    Okay. So, what are your FY '26 guidance? I mean, I know you have talked about INR1,800 crores. So, by that, do you expect the fourth quarter revenue to be around INR745 crores? ... You have the numbers.

    — K. Srinivasan, Managing Director

  • New Products Contribution to Sales Sales · ongoing · Medium confidence 15-25%
    So generally, the new products contribution to sales is kept at about 15% and aspirationally 25%, because after that, it becomes an established product.

    — K. Srinivasan, Managing Director

  • FY26 Export Sales Sales · FY26 · High confidence ₹140 crores
    Export order booking was on plan. We should be doing a sale of about INR140 crores this year compared to INR124 crores in the previous year.

    — K. Srinivasan, Managing Director

Profitability

  • FY26 PBT Profitability · FY26 · High confidence ₹345-360 crores
    We expect to close the year with a sales of about INR1,800 crores to INR1,850 crores and a PBT of about INR345 crores to INR360 crores, a growth of about 12% to 14% on the top line and about 20% plus on the bottom line.

    — K. Srinivasan, Managing Director

  • FY26 PBT Growth Profitability · FY26 · High confidence 20-25% higher than previous year
    PBT for the year should end at least between 20% to 25% higher than the previous year.

    — K. Srinivasan, Managing Director

Growth

  • Top Line Growth Growth · FY27 onwards · High confidence 20%
    we expect that we will get back to our targeted growth rate of 20% on the top line and an EBIT margin of 20% going forward.

    — K. Srinivasan, Managing Director

Margin

  • EBIT Margin Margin · going forward · High confidence 20%
    we expect that we will get back to our targeted growth rate of 20% on the top line and an EBIT margin of 20% going forward.

    — K. Srinivasan, Managing Director

  • EBITDA Margin Margin · FY26 · High confidence 18-20%
    And the EBITDA margin will be stable at 18% to 20%, the guidance?

    — K. Srinivasan, Managing Director

Efficiency

  • Raw Material to Sales Ratio Efficiency · going forward · Medium confidence reduce 1-2%
    So both put together, roughly we are expecting to reduce 1% to 2% further going forward.

    — Ramesh Birajdar, Chief Financial Officer

R&D

  • R&D Spend as % of Revenue R&D · ongoing · High confidence 3-5%
    And I think that we are about 3% to 5%.

    — K. Srinivasan, Managing Director

Revenue

  • Service Revenue as % of Top Line Revenue · ongoing · High confidence 15%
    We generally keep it at 15% of our top line sales because if you get detail without get into a quarter-by-quarter too much of variation. We bundle it up and give a number of 15%.

    — K. Srinivasan, Managing Director

Product Mix

  • Full Year Product Mix Product Mix · Full Year · Medium confidence Refrigeration/AC 40%, Process Gas 30-35%, Air Compressor 20%, Others 5-8%
    I'll give you the full year. I'll say for the full year, it will be that the top business will be the refrigeration, air conditioning business, passing about 40%; processed gas business between 30% to 35%. The air compressor business is about 20%. The rest is about 5%, 7%, 8%.

    — K. Srinivasan, Managing Director

What to watch in Q4 FY26

Resolution of large package dispatch delays

February (Q4 FY26)
Current Some larger packages not cleared for dispatch, leading to higher inventory.
Target Packages cleared and translated into sales.

Why it matters

Directly impacts Q4 revenue and inventory levels, crucial for meeting FY26 sales guidance.

While we internally met most of our manufacturing targets, we could not get this to translate into sales as some of the larger packages were not cleared for dispatch. The customers have promised to look these packages in Q4, and we are in active discussion with them as we speak. And hopefully, they should all go by February.

Risks & concerns

  • Global economic uncertainty and slowdown in capital expenditure

    medium

    The global economy is in a precarious state, making planning challenging and impacting project finalization.

    Management acknowledged

  • Delays in large package dispatches and high inventory

    medium

    Large packages were manufactured but not cleared by customers for dispatch, leading to sales deferrals and increased inventory.

    Management acknowledged

  • Somnolence in oil and gas / petrochemical sector and low installations

    medium

    The process gas compression system segment is flat, with installations at a 5-year low due to lack of major project finalizations in these sectors.

    Management acknowledged

  • Impact of new labor code on gratuity provision

    low

    An estimated gratuity provision increase of ₹18.3 crores is expected due to the new labor code, with clearer regulatory guidance awaited.

    Management acknowledged

Q&A highlights

8 direct
Zephyros (ammonia-based refrigeration) technology and market share Direct
Zephyro uses ammonia as a refrigerant. As you all know, there are only two natural refrigerants, which has got zero ozone depleting potential and 0 carbon warming global warming. So, we are using ammonia as a refrigerant. This is quite different from what most other companies use.

Explains the company's patented zero-GWP refrigerant technology, its environmental and economic advantages, and market potential (up to INR 5,000 crores).

Asked by Balasubramanian

Impact of customer site delays on installations and current situation Direct
if we had dispatched the packages that are ready, it is primarily to 2 customers really... the sale in the quarter would have gone up by more than INR150 crores. So to that extent, I'm not going to make it in the last quarter.

Clarifies that sales targets were missed due to customer readiness issues, not lack of execution, and quantifies the potential impact on Q3 sales.

Asked by Balasubramanian

Order inflow growth and target for FY26 Direct
The bulk of our orders that we have taken this time are not bulk, a significant part of the orders that we have taken this time are from non-traditional areas, which utilize our manufacturing capacities and capabilities. And that would probably drive growth during the first 2, 3 quarters.

Highlights a shift in order composition towards non-traditional areas, which will drive growth in the near term, and confirms strong order inflow.

Asked by Sameer

MD succession and leadership transition Direct
My tenure here was primarily to ensure a smooth succession. And as you know, I came out of retirement... it was only for a period of 3 years, and I actually stayed on for 2 more years. So it's been near 5 years.

Provides context on the planned leadership transition, emphasizing its structured nature and the new MD's involvement in the company's recent initiatives.

Asked by Kunal Sheth

Impact of new labor code on employee expenses and future margins Direct
Our measure of both on a forward basis will be about 0.8% to 1% of the total. So it's not very big. In terms of value, we are talking of less than INR2 crores a year. So that's not going to be significant.

Quantifies the estimated impact of the new labor code on gratuity and leave encashment, reassuring that it's not material to profitability.

Asked by Khush

Gross margin improvement and sustainability Direct
what I am saying that it is again the developing the manufacturing capability that is giving the benefit plus selection of the orders and getting the business only when we are able to maintain the profitability between 18% to 20%.

Explains the drivers behind the improved gross margin (manufacturing capability, order selection) and indicates a target range for profitability.

Asked by Khush

Non-traditional order inflows and their impact on margins/working capital Direct
The current way we manufacture is we do almost everything entirely within the factory... So in this kind of a complete manufacturing capability is not available with too many people in India. That's the advantage which we have picked up a much significantly different volumes of products.

Details the company's integrated manufacturing approach for non-traditional orders, which leads to higher volumes and potentially better margins, despite longer working capital cycles.

Asked by Sourabh

R&D spending as a percentage of revenue Direct
what I talk of as there is a reportable R&D spend, which most Indian companies will talk of 1%, and we can keep margin being low or high, but as a company, KPCL, I look at my design, development, new product, application and R&D combined as what I do towards what is traditionally seen as a research and development activity. And I think that we are about 3% to 5%.

Clarifies the company's actual R&D investment (3-5% of revenue) which is higher than the typically reported 1% by Indian companies, highlighting their focus on innovation and IP.

Asked by Niraj

3 min read 7 chapters

Detailed narrative

Q3 FY26 Performance and Inventory Challenges

Kirloskar Pneumatic reported Q3 FY26 sales of INR 403.5 crores, an 18.5% increase year-over-year. However, the company internally met most manufacturing targets but could not translate them into sales due to large packages not being cleared for dispatch by customers, leading to higher inventory. Management expects these packages to be cleared in Q4 FY26, specifically by February, which would have added over INR 150 crores to Q3 sales.

Robust Order Book and Shift in Composition

As of January 1, 2026, the company's order book stood at INR 1,939 crores, marking a 19% growth compared to INR 1,624 crores at the beginning of the previous year. Notably, the current order book has no large package orders, unlike the previous year which included INR 600 crores of such orders. This shift towards non-traditional, smaller orders is expected to result in smoother quarter-on-quarter sales execution in the next fiscal year.

Product Line Developments and Capacity Expansion

The air compressor business had a steady quarter, with the Tezcatlipoca centrifugal compressor continuing to perform well. The company invested in new CNC machines from Japan and Germany to double capacity in this line, with additional capacity available from Q1 FY27. In refrigeration, two Zephyros plants were commissioned as technology demonstrators, and the company expects PLI program clearance this quarter for bulk manufacturing. Sales of the Khione package and Tyche semi-hermetic compressor are scaling up.

Strategic Focus on Ammonia-Based Refrigeration (Zephyros)

Kirloskar Pneumatic is developing Zephyros, an ammonia-based refrigeration system utilizing patented zero-GWP refrigerant technologies. This system is positioned as environmentally friendly, economically cheaper, and more efficient than standard refrigerants. The company aims to capture significant market share in the commercial chilled water segment, potentially worth up to INR 5,000 crores, and is pursuing PLI approval to scale up volumes.

Capital Allocation and Financial Health

The company maintained its debt-free status with a net cash position of INR 395 crores as of January 1, 2026. YTD FY26 capex spend was INR 54 crores, with a full-year expectation of INR 90 crores. An interim dividend of INR 3.50 per share (175% on face value of INR 2) was approved. The company also anticipates an additional capex of INR 200 crores over the next 1-1.5 years for PLI-related manufacturing, which is expected to generate sales five times the investment.

Outlook and Margin Management

For FY26, the company projects sales between INR 1,800-1,850 crores and PBT between INR 345-360 crores, representing a 12-14% top-line growth and over 20% bottom-line growth. Management targets a 20% EBIT margin and expects to return to a 20% top-line growth rate from FY27 onwards. The raw material to sales ratio improved by 3.7% in Q3 FY26, and the company aims to further reduce it by 1-2% through enhanced manufacturing capabilities and strategic order selection.

Leadership Transition and Employee Engagement

The company is undergoing a planned leadership transition with Mr. Aman appointed as the new MD, following Mr. K. Srinivasan's 5-year tenure focused on succession planning. Management highlighted strong employee engagement scores (86, above industry average of 82-83) and low attrition rates (below 10%), alongside a high rate of IP filing (over 40 per year), indicating a robust internal environment for future growth.

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