Motilal Oswal has issued a buy rating on Kirloskar Oil Engines with a target price of ₹2,800 in its research report dated August 07, 2026. According to the brokerage's report, the recommendation is based on a sum-of-the-parts (SoTP) valuation methodology, with the core business valued at 35x on two-year forward earnings. The target price represents an increase from the previous recommendation of ₹2,750, reflecting the brokerage's confidence in the company's prospects.
The company's first quarter FY27 results came below estimates due to a miss on EBITDA margin, as reported by Motilal Oswal. Despite this margin pressure, overall revenue growth stood healthy at 16% year-on-year, driven by strong performance across power generation, industrial, and distribution segments. However, exports remained weak due to the impact of the West Asia crisis affecting Middle East markets. The company managed gross margins well compared to industry peers through strategic price hikes across product ranges, with these improvements expected to reflect in upcoming quarters.
Employee costs increased during the quarter due to salary increments, employee stock option plan costs, and new hiring activities, according to Motilal Oswal's assessment. The brokerage expects these costs to be better absorbed as revenue scales up in coming quarters. The company gained market share during the quarter and continues to invest across segments to capture opportunities in power generation, industrial applications, and export markets. As reported by Motilal Oswal, the company is strategically positioned to benefit from growing demand across these key segments.
Looking ahead, Motilal Oswal will keenly monitor three key factors: growth across segments, delivery schedule of the HyperNext order, and operating leverage benefits for margin recovery. The brokerage has cut estimates by 7%/4%/2% for FY27/28/29 respectively to reflect the Q1FY27 performance on margins. Despite these adjustments, the company's valuation remains at a significant discount to the market leader, supporting the positive investment thesis. The revised target price of ₹2,800 reflects the brokerage's confidence in the company's ability to deliver improved performance across its core business segments.
