Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable/Crisil A1+’ ratings on the bank facilities and commercial paper programme of Kirloskar Oil Engines Limited (KOEL).

 

The ratings continue to reflect the company’s strong financial risk profile, established market position in the small and medium-sized diesel engine segment across key end-user industries and wide product portfolio with the electric pump business of La-Gajjar Machineries Pvt Ltd (LGMPL; ‘Crisil AA-/Stable/Crisil A1+’). These strengths are partially offset by susceptibility to cyclicality in end-user segments, volatility in raw material prices and intense competition in the diesel engine market.

 

KOEL has achieved revenue growth of 1.6 times and growth in earnings before interest, tax, depreciation and amortisation (Ebitda) of 2.4 times at standalone level in fiscal 2025 over fiscal 2022, under its 2X3Y strategy, which aimed to double revenue in three years from fiscal 2022 at double-digit margins. The key factors that led this growth include successful transition to Central Pollution Control Board (CPCB) IV+ and BS V, expansion into the high horsepower (HHP) genset market, as well as the introduction of fuel-efficient and compact products. In addition to product development, KOEL has also expanded its international presence through the appointment of an international generator original equipment manufacturer (GOEM) for the Middle East and North Africa, and the acquisition of Engines LPG LLC dba Wildcat Power Gen for market development in the North American markets. Based on this momentum, KOEL is now pursuing its 2B2B strategy, which aims to achieve $2 billion in consolidated revenue by fiscal 2030. To support this objective, the company plans to undertake large-scale capacity additions at its Kagal plants, expand its presence in the HHP segment and increase capacity utilisation in the B2C segment. The company also intends to improve its market share in the B2C segment, focus on the industrial segment and explore opportunities in non-internal combustion engine solutions.

 

Despite transitional volatility in the B2B segment due to the implementation of CPCB IV+ and BS V norms, as well as plant consolidation in the B2C business, consolidated revenue grew ~4.4% on-year to Rs 5,569 crore in fiscal 2025, with improvement in the Ebitda margin to ~11.6% in fiscal 2025, compared to 11.3% in fiscal 2024. In fiscal 2025, the B2B business saw volume in the powergen segment impacted due to pre-buy activities in the previous fiscal ahead of the transition to CPCB IV+. Furthermore, the postponement of BS V implementation to January 2025 enabled smoother OEM engagement and customer retention in the industrial segment, driving revenue and better margin. The B2C segment underwent major plant restructuring, with the consolidation of five smaller plants of LGMPL into a single state-of-the-art facility at Sanand, affecting revenue and margins in fiscal 2025.

 

Revenue is expected to grow at double digit compound annual growth rate (CAGR) over the medium term, driven by improvement in the B2B business owing to volume recovery in the powergen segment and increased focus on the HHP segment (which has crossed Rs 100 crore in fiscal 2025). Additionally, the industrial segment will continue to support revenue and margin with execution of large institutional orders over the medium term. In the B2C segment, the consolidation of plants at Sanand has led to additional capacity compared to the combined output of the earlier units. Accordingly, LGMPL (the B2C subsidiary of KOEL for pumps) is positioned to benefit from cost efficiency, improved output and faster delivery timelines.

 

KOEL’s operating profitability is also expected to sustain at ~11-12% over the medium term, leading to strong annual cash generation. This will also enable the company to meet its capex requirements leading to minimal reliance on debt and the continuation of a strong financial risk profile. Debt protection metrics are expected to continue at healthy levels. Liquidity profile is strong with liquid surplus of Rs 620 crore as on March 31, 2025, and should remain strong over the next two fiscals supported by healthy cash accrual. Term debt obligation is expected to be low at Rs 50 crore annually over the next two fiscals. Planned capex of Rs 1,000 crore, over the medium term, will be funded largely through accrual. 

 

As of March 2025, KOEL has investment of Rs 1,053 crore (including Rs 53 crore of reinvested profits) in ARKA (ARKA Financial Holdings Pvt Ltd, ARKA Fincap Ltd and ARKA Investment Advisory Services Pvt Ltd, together referred to as ARKA), its subsidiary in the non-banking financial company (NBFC) segment. Material additional support to ARKA is not envisaged but will remain a monitorable.

Analytical Approach

For arriving at the ratings, Crisil Ratings has combined the business and financial risk profiles of KOEL and its manufacturing subsidiaries, including Kirloskar Americas Corporation (100% subsidiary) and its 51% subsidiary, Engines LPG LLC dba WildCat Power Gen (ELL), as well as LGMPL, its 100% subsidiary, which also includes 100% step-down subsidiary, Optiqua Electricals Pvt Ltd, which was amalgamated with LGMPL with effect from March 26, 2024, and Kirloskar International ME FZE, UAE (100% subsidiary w.e.f January 7,2025) collectively referred to herein as KOEL, as the entities have common management and operational linkages. Crisil Ratings also includes share of profits from LGMPL’s 49% joint venture (JV) ESVA Pumps India Pvt Ltd (ESVA) till September 2024. The investment in the JV ESVA was disposed of by September 28, 2024, and the Cables, Wires & Pipe business of LGMPL has been sold on slump sale basis as a going concern on June 30, 2025.

 

Crisil Ratings has amortised Rs 185.76 crore and Rs 5.67 crore of goodwill recognised in August 2017 and November 2023, respectively, for subsidiary (LGMPL) and step-down subsidiary, ELL’s acquisition over five years.

 

For ARKA, Crisil Ratings has used the capital allocation method for capital invested.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Established market position in the small and medium-range diesel engine segments, enhanced product profile and improving operating capabilities: The company has strong presence in diverse sectors, such as power generation, agriculture and industrial. Its market position is well established, particularly in the small and medium horsepower genset segment, where it holds healthy market share in India and is growing its penetration in the HHP segment with launch of new products. It also supplies engines to construction and industrial sectors, machines supporting farming and agriculture activities, and electric and diesel power water management solutions. Acquisition of 100% stake in LGMPL has provided KOEL with a significant footprint in the electric agri-pump market.

 

KOEL has an established research and development (R&D) team, which has developed and launched new products under HHP segment, products complying with new emission norms and multi-fuel type, among others. This has enabled KOEL to adapt to evolving market conditions in response to regulatory changes such as CPCB IV+ and BS V norms. Furthermore, to improve operational efficiency, KOEL has undertaken plant restructuring in its B2C segment by consolidating smaller plants of LGMPL into a single state-of-the-art facility at Sanand. This has led to an increase in capacity compared to the combined output of the earlier units. 

 

KOEL has achieved revenue growth of 1.6 times and Ebitda growth of 2.4 times at standalone level in fiscal 2025 over fiscal 2022, under its 2X3Y strategy and is now pursuing its 2B2B strategy, wherein it aims to achieve $2 billion in consolidated revenue by fiscal 2030. Consolidated revenue grew ~4.4% year-on-year to Rs 5,569 crore in fiscal 2025, with improvement in Ebitda margin to ~11.6% in fiscal 2025, compared to 11.3% in fiscal 2024 driven by better product mix and increased pricing in the B2B segment. Revenue is expected to grow at double digit CAGR with margin sustaining between ~11% and 12% over the medium term, led by expansion in HHP segment, increased focus on industrial segment, higher contribution from after-market services and improvement in capacity utilisation and market share in the B2C segment.

 

Strong financial risk profile: While registering strong business growth, KOEL has also enhanced its profitability, which has led to strong annual cash generation and supported its financial risk profile. Adjusted gearing remained low at 0.18 time as on March 31, 2025, improving from 0.26 time a year earlier. Interest coverage ratio remained robust at around 31 times in fiscal 2025 and will remain strong over the medium term.

 

KOEL is likely to undertake capex of ~Rs 1,000 crore, over the medium term, for capacity and capability enhancements. Accrual will suffice to meet capex needs obviating the need for material debt addition. Larger-than-expected capex or acquisition, or significant investments in ARKA, affecting the liquidity or debt protection metrics of KOEL, will be monitorable.

 

Weaknesses:

Susceptibility to cyclicality in end-user industries: The prospects of KOEL remain linked to capex by end-user industries. Susceptibility to cyclicality in demand will persist, reducing revenue contribution from the impacted segment, as witnessed in the industrial and power generation segments in the past few fiscals.

 

Exposure to volatility in raw material prices and intense competition: Raw material cost accounts for 65-66% of operating income. Operating profitability, therefore, is susceptible to volatility in the prices of raw materials, particularly in the intensely competitive small- and medium-range diesel engine segment. KOEL faces competition from unorganised players in the small diesel engine segment, and from established and organised entities such as Cummins India Ltd, Ashok Leyland Ltd and Mahindra & Mahindra Ltd (‘Crisil AAA/Stable/Crisil A1+’) in the medium and large diesel engine segments.

Liquidity: Strong

Liquidity is expected to remain strong over the next two fiscals, supported by healthy cash accrual. Term debt obligation is expected to be low at Rs 50 crore annually over the next two fiscals. Capex of Rs 1,000 crore, over the medium term, will be funded largely through accrual. KOEL had liquid surplus of Rs 620 crore as on March 31, 2025. Utilisation of the fund-based limit of Rs 313 crore was low at ~25%. The company has completed Rs 1,000 crore investment in ARKA. Larger-than-expected capex or acquisition, or material investment in ARKA could constrain build-up in liquid surplus.

 

Environment, social and governance (ESG) profile

Crisil Ratings believes KOEL’s ESG profile supports its strong credit risk profile. The industrial machinery and consumables sector has a moderate environmental and social impact, driven by raw material sourcing strategies and energy-intensive processes.

 

Key ESG highlights

 

• The company has achieved a 13.04% reduction in energy intensity per rupee of turnover, indicating improved energy efficiency and reduced energy consumption relative to revenue.
• Scope 1 and 2 emission intensity has decreased by 4.55%, reflecting progress in decarbonization efforts through cleaner energy sources, process improvements, or efficiency measures.
• Water intensity per rupee of turnover has decreased by 18.37%, demonstrating significant reductions in water consumption per unit of economic output and strong water stewardship practices.
• Although waste intensity per crore of turnover has increased slightly by 3.57%, this may indicate areas for improvement in waste management or changes in product/process mix.
• The company has made significant progress in its energy transition efforts, with renewable electricity usage increasing from 43% to 51% (+18.9%) and non-renewable electricity usage decreasing from 57% to 49% (-14.42%).
• The company's social outreach and sustainability programs have expanded, with a 1495% increase in the number of beneficiaries impacted.
• The company has maintained a heathy safety record, with a Lost Time Injury Rate (LTIR) of 0.00.
• The company's attrition rate has decreased to 8.76% in fiscal 2025, and gender diversity has increased to 6.26%.
• The governance structure is characterized by a strong presence of independent directors (60% of the board), high attendance at meetings, and a 100% redressal rate of investor complaints, demonstrating a commitment to transparency and accountability.

Outlook: Stable

KOEL is expected to continue consolidating its strong market position in domestic and export markets, driven by pick up in sales of CPCB IV+, HHP and spares, and sustain double-digit operating profitability. The company is also expected to sustain its strong balance sheet and liquidity given steady cash generating ability and prudently funded capex.

Rating sensitivity factors

Upward factors

• Sustained double-digit revenue growth, supported by increasing share of HHP engines in domestic and export markets, and operating profitability of 12-13% over the medium-to-long term, ensuring strong cash generation
• Efficient working capital management and maintenance of healthy financial risk profile and debt protection metrics
• Sustained strong liquidity profile

 

Downward factors

• Weaker business performance owing to downturns in end-user industries, constraining revenue growth and leading to lower operating profitability sustaining below 8%
• Large, debt-funded capex or acquisition, or stretched working capital cycle, leading to higher debt levels, impacting key debt metrics
• Material reduction in liquid surpluses due to high dividend payout, share buy-back or capital reduction or additional investment in ARKA

About the Company

KOEL, one of the flagship companies of the Kirloskar group, manufactures and services diesel engines (ranging from 2.5HP to1,650 HP) and diesel generator sets (with power output between 3 kVA to 12,000 kVA). The company also makes diesel and electric pump sets. It has manufacturing units in Pune, Kagal, Rajkot, Sanand and Nashik. It caters to the agriculture, power generation and industrial sectors.

 

 As of March 31, 2025 Promoter and Promoter Group holds 41.15% stake and remaining 58.85% stake is held by Public, mutual funds, Banks, FII, Foreign Portfolio Investors etc. in the Company

Key Financial Indicators*

Particulars	Unit	2025	2024
Operating income	Rs crore	5569	5334
PAT	Rs crore	403	372
PAT margin	%	7.2	7.0
Adjusted debt / adjusted networth	Times	0.18	0.26
Adjusted interest coverage	Times	30.7	46.6

*Crisil Ratings-adjusted consolidated numbers

Any other information: Not Applicable