- Shares of Kirloskar Oil Engines Ltd opened 3% higher after Jefferies initiated Buy rating
- Jefferies set price target of Rs 2,815, implying 21% upside from last close price
- KOEL expanding in high horsepower genset segment with higher margin potential
Shares of Kirloskar Oil Engines Ltd. opened 3% higher and rallied further on Monday after Jefferies initiated coverage on the stock with a 'Buy' rating and a price target of Rs2,815, implying a 21% upside from Friday's closing price of Rs 2,321.20.
The brokerage said KOEL, the second-largest player in India's power backup genset market, is climbing the value chain by expanding its footprint in the high horsepower (HHP) segment, which carries fatter margins than the company's traditional low and medium horsepower offerings.
Jefferies expects KOEL's earnings per share to grow at a 22% compound annual rate between FY26 and FY30, with return on equity improving to more than 20% from 18% currently. The brokerage's price target is based on a multiple of 45 times its FY28 earnings estimate, a level it believes current valuations already reflect.
"Data Centres could add material upside," Jefferies noted, pointing to the company's June 2026 order win from HyperNext for 96 OptiPrime 2,500 kVA gensets as a breakthrough into the hyperscale data centre market.
Kirloskar Oil share price rallied after Jefferies initiated coverage on the stock.
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The brokerage expects KOEL's HHP market share to rise to 6-7% by FY30 from 4% in FY26, as the company builds on its 2023 foray into the segment. It has pegged the broader genset industry to grow at a 16% CAGR through FY30, with the HHP category alone expanding faster at 22%, driven largely by data centre capacity additions.
Jefferies forecasts KOEL's consolidated revenue rising at a 16% CAGR to Rs1.41 lakh crore by FY30, with EBITDA margins improving by 136 basis points to 19.7% over the same period, aided by a richer product mix, higher aftermarket revenue and growing export contribution.
The brokerage flagged two key risks to its thesis: execution issues on the data centre order, and a failure to gain further market share in the HHP segment. It also noted that KOEL's valuation premium to peer Cummins India has narrowed sharply following the recent data centre win, from a historical average discount of 40% to about 15%.
KOEL, part of the Kirloskar Group, has interests spanning gensets, industrial engines, water management equipment and financial services through its Arka Fincap arm.
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