Kirloskar Oil slips again, down 14% in 4 sessions despite data-centre push; Motilal Oswal reiterates 'Buy'

Shares of Kirloskar Oil Engines Ltd (KOEL) extended losses on Tuesday, falling over 2% to Rs 2,384.90. The stock has declined nearly 14% from its June 23 high of Rs 2,720.35, even as the company's management and brokerage Motilal Oswal Financial Services (MOFSL) remain positive on its long-term growth prospects.

Speaking to CNBC-TV18, the company said its recent order from a hyperscaler marked "a breakthrough" and expects to deliver the project during FY27. It added that the data centre contract also includes a long-term service agreement, while execution will be key given the specialised requirements of hyperscale customers.

Management reiterated its ambition to become a $2 billion company by FY30, with power generation expected to lead growth. It also expects the data centre business to deliver more than 30% growth, while increasing the share of higher-margin businesses through high-horsepower products, exports and the aftermarket segment.

Separately, Motilal Oswal reiterated its 'Buy' rating on the stock and raised its target price to Rs 2,750 after hosting the company's management.

The brokerage said, "We remain positive on the overall demand environment in the segments in which KOEL is currently operating such as powergen, industrial and even exports." It added that the recent hyperscaler order is positive for the company and believes "the successful and timely completion of this order will open up opportunities from other data centre projects."

Motilal Oswal said it has "bake[d] in execution of this order and raise[d] our FY27/FY28 estimates by 3%/10%", while maintaining its 'Buy' recommendation.

The brokerage expects KOEL's power generation business to benefit from rising demand for high-horsepower generator sets from data centres and infrastructure projects, future hyperscaler orders and ongoing capacity expansion. It said it "expect[s] this segment's revenues to clock 35% CAGR over FY26-29E."

On the industrial business, Motilal Oswal noted that execution of the Rs 7.7 billion NPCIL order is expected to begin in FY27, while work on the Rs 2.7 billion Indian Navy Make-I category 6MW Medium Speed Marine Diesel engine order is expected to commence from FY28-29. It added that "the successful delivery of these strategic prototypes could unlock significantly larger opportunities in the nuclear and defense segments."

The brokerage also highlighted the company's export strategy, noting that KOEL is "building a dedicated international business" and expanding its core power generation portfolio across the Middle East, Africa and Southeast Asia.

Motilal Oswal expects revenue/EBITDA/PAT to post a CAGR of 28%/34%/38% over FY26-29E, driven by strong demand, operating leverage and margin expansion, while flagging execution delays, competitive intensity and commodity prices as key risks.