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Kirloskar Brothers Ltd

| Q4 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤20th May 26

Summary : Kirloskar Brothers Limited reports strong order book growth and positive outlook, driven by diversification into data centers and nuclear power, despite past operational and funding challenges.

Management Perspective positive : Looking ahead, we are optimistic about the company's growth trajectory backed by a healthy mix of domestic and international business, a robust order pipeline and continued focus on operational excellence. The company is well positioned to deliver sustainable growth in the periods ahead.

Concall Report Analysis & Insights

Business Overview

  1. Q4 FY26 consolidated revenue grew 10% YoY to Rs. 14.151 billion.
  2. Full year FY26 consolidated revenue grew 1% to Rs. 45.380 billion.
  3. International business revenue grew 25% in Q4 and 7% for the full year.
  4. Consolidated EBITDA for Q4 was Rs. 2.093 billion with 14.8% margin.
  5. Full year PAT was Rs. 3.772 billion, Q4 PAT was Rs. 1.121 billion.

Future Growth Prospects

  1. Optimistic about growth with healthy domestic and international order pipelines.
  2. Continued focus on operational excellence to drive sustainable growth.
  3. Strong product portfolio, especially efficient pumps, drives customer preference.
  4. Diversifying into new sectors like data centers and nuclear power.
  5. Expanding distribution network in India and internationally.

Management Insights

  1. Domestic order book grew 30% to Rs. 24.680 billion, international 21% to Rs. 14.808 billion.
  2. Company maintains strict commercial policies, insisting on advance payments or LCs.
  3. New products meet European Minimum Efficiency Index norms, appreciated by customers.
  4. Expect to realign international margins back to target levels by Q3.
  5. Board recommended a final dividend of Rs. 7 per equity share for FY26.

Signs of Skepticism

  1. JJM issues persist, despite being a small revenue percentage.
  2. Difficulty in quantifying after-sales service contribution to order book.
  3. International profitability was lower across entities in Q1 due to mix.

Risk Factors

  1. One-time expense of Rs. 389 million in FY26 due to new Labour Codes.
  2. Adverse seasonal trends impacted small pump segment demand.
  3. Delays in Jal Jeevan Mission funding affected dispatches and production.
  4. Temporary operational disruptions from SAP-based ERP implementation in foundry.
  5. Geopolitical scenarios and supply chain issues impact costs and operations.

Good To Know

  1. SAP-based ERP implementation at foundry operations is now largely stabilized.
  2. Company is developing pumps for Bharat Small Modular Reactor program.
  3. US business has diversified from fire pumps to water and municipal sectors.
  4. Data centers now account for 25% of US business revenue.
  5. Working with private equities for financing data center projects.

Key Drivers

  1. Strong domestic and international order books.
  2. Diversification into high-growth data centers.
  3. Significant opportunities in nuclear power sector.
  4. Enhanced operational efficiency from ERP.

Key Analyst Discussions

Competitive Environment

  1. Discussed competition in US liquid cooling for data centers (Amstel, Taco, Grundfos, Xylem).
  2. Management highlighted modular, plug-and-play solutions as a competitive advantage.
  3. Company's products offer better value and simpler installation than competitors.

Market Trends & Consumer Behavior

  1. Growth areas include building, construction, marine, defense, oil & gas, power, and water.
  2. Customers increasingly understand lowest lifecycle cost for efficient pumps.
  3. Data center demand in India is smaller than US, but growing.
  4. US infrastructure is aging, creating municipal market growth opportunities.
  5. Nuclear power sector offers significant long-term growth potential.

Financial Highlights

  1. Analysts questioned the reasons for lower growth despite strong order inflow.
  2. Management explained Q4 growth was indicative of future recovery.
  3. Discussed impact of product mix on international business margins.
  4. Addressed profitability improvement post ERP implementation and hedging.

Product Composition

  1. US business diversified from fire pumps to municipal and data center applications.
  2. International business mix needs to shift back to higher-margin services.
  3. Power product profile is wide, with strength in nuclear and thermal.
  4. Company is developing pumps for small modular reactors.

Strategic Considerations

  1. Strategy to leverage JJM 2.0 for business opportunities.
  2. Plans for nuclear sector, including Fast Breeder and Small Modular Reactors.
  3. Strategy to expand in data center HVAC and municipal markets in US.
  4. Deepening US footprint by expanding distributor network to county level.
  5. Ensuring management mitigates geopolitical and supply chain impacts.