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REGISTER NOW OR LOGIN“ The mood swings of the securities markets resemble the movement of a pendulum. Although the midpoint of its arc best describes the location of the pendulum “on average,” it actually spends very little of its time there. Instead, it is almost always swinging toward or away from the extremes of its arc. But whenever the pendulum is near either extreme, it is inevitable that it will move back toward the midpoint sooner or later. In fact, it is the movement toward an extreme itself that supplies the energy for the swing back” – Howard Marks.
His words has made more sense for us in the past few weeks for all of the investing world and few days the markets were raising with a 100 points gap for continuous four day and the fall started when Nifty touched 18,600 and it corrected 500 points in just two days and now people have mimicked the fall as the correction of the bull run where the Index falls for 15 percentage and several stocks fall more than 40 to 50%. Now, we are not going to debate whether there will be a fall or not but now we could understand that only quality will sustain for the next few years and not all stocks are going to rally like what we have witnessed in the past two years.
Today, we will see about a quality stock which is a part of a heritage business group which has set the record of being the fastest growing company in India before speaking about the stock, let me provide an Introduction of the group.Kirloskar Group is an Indian conglomerate, headquartered in Pune, Maharashtra, India. The company exports to over 70 countries over most of Africa, Southeast Asia and Europe. The flagship and holding company, Kirloskar Brothers Ltd established in 1888, is India's largest maker of pumps and valves. One of the Kirloskar companies is one of the major component supplier for the indigenous Arihant Nuclear Submarine program.The Kirloskar group of companies was one of the earliest industrial groups in the engineering industry in India. The group produces centrifugal pumps, engines, compressors, screw & centrifugal chillers, lathes and electrical equipments like electric motors, transformers and generators. While Laxmanrao Kirloskar, established the group in 1888, his son Shantanurao Laxmanrao Kirloskar played a role in the leadership of the company. The company under Shantanurao Laxmanrao Kirloskar achieved one of the highest growth rates in Indian history, with 32,401% growth of assets from 1950–1991.In 1988, Rajiv Gandhi, the then Prime Minister of India released a commemorative stamp marking the Kirloskar Group's 100th anniversary. In 1974, in cooperation with Deutz-Fahr of Germany, Kirloskar began manufacturing tractors.They have since ceased tractor production.The Kirloskar Group also set up India's second oldest township Kirloskarwadi in Maharashtra, which celebrated its centennial in 2010.
About the company:
KOEL manufactures air-cooled and liquid-cooled diesel engines and power generating sets ranging from a power output of 2.1 kVA to 1010 kVA and solutions ranging up to 5200 kVA. KOEL manufacturing facilities are located in Kagal, Nashik and Rajkot. They also offer engines operating on alternative fuels such as biodiesel, and natural gas. Their generating sets are branded as KOEL Green Gensets in India and Kirloskar Green for exports. KOEL also has significant presence outside India, with local offices set up in Dubai, South Africa, Kenya and Texas.
Market Position
India’s largest Industrial Engine manufacturer with over 40,000 engines manufactured annually[1]
India’s largest diesel Agri engines and pump sets manufacturer with over 1,45,000 units manufactured annually
Products and Brands
Petrol and Diesel Power Generating sets (between 2-1010 kilovolt ampere)
Diesel engines (primarily between 2.5-740 horsepower) and pumpsets
Electric pump sets and related oil & spares
Marine propulsion engines and auxiliary DG Sets in the range 800 hp to 3500 hp under license from Daihatsu Diesel Mfg Co Ltd, Japan
The Co. sells its power generators and diesel engines though its brand KOEL Green
It caters the Agricultural industry through the brands Varsha and KMW
New Products
The Co. Launched KOEL Fire Fighting Pump sets in Dec’20
It introduced two new products aiming the agricultural market: 1 HP Shallow Well Jet Pump –X9M, New XL 50 Light weight Engines
The Co. introduced a new product range,to address the market requirements in 12HP lightweight segment and Power Weeder segment. The products include LWS 12HP Power Tiller, 8 HP Power Weeder, Ultra Light 5HP
The Co. has developed multiple power nodes of the BS IV engine models for the Construction Equipment Vehicles. These include power nodes in the range from 74 hp to 130 hp.
Entry into Financial Service
The Co. had commenced financial service business through its subsidiary company viz. Arka Fincap Limited (previously known as Kirloskar Capital Limited) with effect from 24th April 2019. It also invested Rs. 499.5 Crs in Arka Fincap Limited during FY 20.
Revenue for FY 20
Segment Wise:
Engines - 79%
Electric Pumps - 16%
Financial Services - 1%
Other Segments - 4%
Other Segments include revenue from sales/business operations of farm equipment and spares.
Business Wise
Power Generating Business - 35%
Agriculture & Allied Business - 27%
Industrial Engine Business- 13%
Customer Support - 12%
International Business - 7%
Large Engine Business - 5%
Financial Services Business - 1%
Geographical Wise:
Domestic -90%
Export - 10%
R&D
Total R&D expenditure as % to sales - 3%
The major focus areas of R&D:
Cost effective emission solution for Tier 4 Final / BS IV CEV norms
Development of new engine platforms namely K4300 and R550.
Development of special marine, railways and defense applications.
New Orders in FY 21
Repeat bulk order from Assam Govt. for 12HP power tillers.
New orders of AMC from Railway.
Repeat orders from East Asian countries in Telecom and HHP segments.
New order from Pune Metro
New defense orders worth Rs. 80 Cr
Financial performance of the Divisions:
The company has a low Compounded sales growth of 4% in the last three years and the profit has been growing at a CAGR of 11% for the same period. The financial service segment and the electric pumps segment have been witnessing better growth than other divisions. They posted sales of Rs. 2,663.62 Crores in FY21, a decrease of 6% as compared to the previous year's sales of Rs. 2,840.57 Crores. Profit from operations was Rs. 231.40 Crores as against Rs. 225.22 Crores in the previous year. The Profit After Tax was Rs. 169.74 Crores as against Rs. 170.38 Crores in the previous year
The company has neglibile debts and has a high Interest coverage ratio which signifies that the company can easily make the payment to its debt. The company has a healthy price to Cash Flow as well. The ROCE of the company stood at 10.5% . The valuation of the company remains cheap and is trading at a Price multiples of 13x which offers a good cushion for value investors. The company has been maintaining a dividend payout of more than 30% for the last three years.
Conclusion:
The company is one of the leading player in the segment and it’s diversification efforts are yielding a good results and given the track record of the group in establishing its position in new segments is nothing less than phenomenal and given that the company is available at a better valuation gives an opportunity to invest in the best company at a better price and I would all the reader who wants an exposure on the mid-cap segment to accumulate the stock on every dip.
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