Kirloskar Oil Engines surges over 970% in 2 years, more than 1200% in 4 years

In the past year, the Indian stock market has experienced significant growth, delivering substantial returns for investors across various sectors. Notably, stocks within the capital goods sector have garnered significant attention from investors. This sector, encompassing industries that manufacture machinery and equipment used for industrial production, construction, and infrastructure, has shown remarkable performance.

The government’s increasing focus on infrastructure development has played a pivotal role in this trend. Massive investments in building roads, highways, bridges, and ports have created a robust demand for capital goods, driving up stock prices in this sector. 

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Additionally, the push for affordable housing has led to increased construction activities, further boosting the demand for construction equipment and machinery. Rural electrification initiatives have also contributed to the sector’s growth. The complete electrification of the railway network by 2025 is another key factor driving investor confidence in the capital goods space. 

One of the standout performers in the capital goods space in recent years was Kirloskar Oil Engines (KOEL), a leading manufacturer of diesel engines and diesel generator sets. In the current year so far, the stock has climbed from around 662 apiece to the current position of 1,402, producing a staggering return of 114%.

Over the last 2 years, the shares have gained 978% while they jumped 1210% over the last four years.

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Kirloskar Oil Engines has been dominating the power generator market for the last three decades. It offers the widest range of petrol and diesel power generating sets used for power backup in industrial, residential, and commercial establishments, as well as in special applications such as telecom.

More rally ahead

Despite the sharp increase in share value, domestic brokerage firm Motilal Oswal in its latest report maintained its ‘buy’ rating on the stock, setting a target price of 1,500 per share.

The brokerage’s channel checks with genset players indicate that demand has been strong in the first quarter of FY25, primarily driven by pre-buying. While there was a minor impact on demand from the elections in May 2024, demand remained robust in June 2024 due to faster decision-making by customers, it said. 

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Motilal Oswal noted that the channel inventory for CPCB 2 is now largely depleted, and players may see a higher share of CPCB 4+ sales in June 2024. Although some of the pre-buying demand from residential and commercial segments may moderate in July-August 2024, some end users are expected to wait for price rationalisation in the initial months following the norm change.

The brokerage expects Kirloskar Oil Engines to be ready with its CPCB 4+ product portfolio and have products in other segments to hedge against any temporary demand slowdown after the new norms are implemented.

The company’s exports grew by 32% year-on-year in FY24, and the brokerage said that the company is carefully evaluating new markets with a key focus on the Middle East and the US.  It has appointed GOEM in both regions and plans to export CPCB 4+ products along with Opti-Prime gensets. KOEL has already applied for certification for CPCB 4+ products in the US.

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In the domestic market, KOEL is focusing on improving its overall product mix and targeting export growth, which is expected to drive margin improvement for the company, the brokerage noted.


Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 25 Jun 2024, 12:57 PM IST

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