Key takeaways of the call

Sales for Q1FY20 was lower by 7% to Rs 756 crore (from Rs 812 crore in corresponding previous period) hit by lower sales in PowerGen (PG) , Industrial and Large Engine (LEBG). The EBITDA Margin for the period declined to 9.7% (from 10.1% in Q1FY19) and thus the EBITDA declined by 10% to Rs 73 crore. Eventually the PAT was down by 11% to Rs 44 crore.

PG business revenue was down by 9% to Rs 340 crore hit by reduced revenue telecom business/orders and lower high horse power (HHP) volumes.

Special segments like defence & telecom have seen a larger slow-down. The contribution of telecom to PG sales was down to Rs 3 crore in Q1FY20 from about Rs 39 crore in Q1FY19.

In PG retail segment iGreen helped the company to retain the numbers despite higher base of corresponding previous quarter which had the benefit of pre buy impact before July 2018 price increase. In HHP, there has been good order booking but off-take is affected due to liquidity issues.

Industrial engines (Off– Highway) sales reduced by 12% due to weak demand in construction equipment with market impacted by lower infra momentum and liquidity crunch. However the Tractor business with in Industrial engines segment registered a growth of 10%.

LEBG reported 49% fall in revenue as general elections impacted orders. However within LEBG, the Fisheries boat engines sales improved in Q1FY20. The LEBG expected two big orders and it was very sure of getting these orders during the quarter. But due to typical delay at Government especially fund allocation the awarding of its got deferred. The company expects one of those large orders to come in by end of current month and anther by end of this quarter.

In LEBG, the Navy officially cleared ‘KOEL-ABC' in place of ‘KOEL-Pielstick' under license cooperation for manufacture and supply Main Propulsion and Aux. Gensets in 1 to 4 MW range for Aux. class of ships such as Tugs, Barges.

CSBG revenue grew on the back of enhanced Bandhan subscription and AMC & Extended Warranty.

Agri segment witnessed good momentum with revenue increase by 10% in Q1FY20. The growth in Electric pumps more than offset the de-growth in engine based pumps.

The company sold 1523 numbers of MegaT in Q1FY20 up from 1368 nos in corresponding previous period. First bulk order Supply to Assam Govt. for 806 MEGA T12 LW billed to Assam in Q1FY20. Electric pumps grew 93% over LY same period. Good sales growth from existing regions coupled with contribution improvement from new regions. Service set up for electric pump functioning well.

In Industrial engines, KOEL has received Proto orders for BS IV Engines [covering -90% of 74.5HP power node business and 65% of 110 HP power node business]. These 2 nodes cover key business of wheeled equipment transitioning to BS IV emission norms.

KOEL during Q1FY20 has made further investment of in Q1FY20 Rs 500 crore in ARKA Fincap (formerly known as Kirloskar Capital) and with this investment the total equity contribution in ARKA Fincap by KOEL stand increased to Rs 527 crore. Kirloskar Capital has changed its name to ARKA Fincap effective Aug 1, 2019, subsequent to all approvals. ARKA Fincap started business operations in Q1FY20.

The company has launched 6 products catering to marine and fisheries and the company is fast gaining market share in this segment. Fisheries trawlers business could touch a revenue of Rs 30-40 crore a year.

ARKA Fincap is an independently run company. The company will be conservative in lending. The company sees the current trouble in NBFC sector is an opportunity.

In tillers the company has 15 HP tillers and it has now launched product in biggest market segment i.e. 12 HP. The company's 12 HP tillers will be available in the market from second half of current fiscal. With 12 HP in the product portfolio the company expects a market share of 20% in tillers. The company with this new product expects to narrow down the huge gap between number one and number two(KOEL). About 90% of tillers market in the country is subsidy driven and this puts entry barriers for imports.

Sharp slowdown in construction equipment business, which registered a fall of 17% in revenue in Q1FY20. However PG is not that big slowdown. There is good order book but off take is bit slowly due to liquidity crunch after customer made advances etc.

LGM and Kirloskar electric pumps are seeing good off-take.

Expect the PG business to register a growth in the range of 5-6% for FY20.

La-Gajjar Machineries (LGM) Q1FY20 was an aberration. The company dispatched material to OEM Crompton and Usha and since that could not reach them, the inventory was stuck in the books of the company as inventory with no revenue booking. So LGM is expected to report a double digit EBITDA margin for H1FY20 as a whole. LGM propose to consolidate entire manufacturing operation in one place from current 3 places in Ahmedabad.

Electric Pumps market in west and south is growing at a stable rate of CAGR of 8-10% but there is strong traction in growth in East and Some part of North immensely helped by electrification. LGM the company is maintaining 14-15% growth and the KOEL electric almost doubled its revenue albeit on a low base.

KOEL Amercia, working out few models for EPA approvals first production batch left Indian shores. The company established its network. So next few quarter will be establishing for the company in Amercia.