Kirloskar Pneumatic Company Ltd: H2 rebound elusive; focus moves to new products - Company Update

 We maintain BUY rating on Kirloskar Pneumatic (KPCL) but increase TP to Rs1470 (Rs1400 previously) largely due to valuation roll forward. KPCL reported another weak quarter in Q3FY26, with revenue missing expectations despite a sharp pickup in order inflows, indicating that execution and delivery challenges continue to persist. However, margins recovered sharply on a YoY and QoQ basis, supported by favourable product mix and higher service contribution. The management has yet again moderated their growth guidance in FY26 to 10-12%. While near-term execution remains challenged, KPCL continues to focus on introducing new products like Tyche semi-hermetic compressors, scaling up sales of indigenous offerings like Tezcatlipoca and Khione and working on new patented technology like the compressor for commercial AC (Zephros C – approved under PLI scheme), which can all accelerate growth from FY28E. Price correction leading to attractive 25x/21x FY27E/28E PE drives our BUY Rating.

Execution challenges continue:

KPCL reported 19% yoy increase in revenue at Rs 4.1bn impacted by delayed inspections, finalization and clearances to dispatch, particularly in petrochemicals and process gas industry. New offerings such as Tezcatlipoca and Tyche have begun contributing, with increasing substitution opportunity from European imports.

Margins recover sharply on mix and cost actions:

KPCL reported margins at 19.5%; +509bps yoy; driven by favourable product mix (higher share of refrigeration equipment, Khione and Tyche), improved service and O&M contribution (~15% of revenue), and cost rationalisation initiatives. This translated into a 61% yoy growth in EBITDA at Rs794mn for 3QFY26. KPCL reported 65% increase in PAT at Rs605mn.

Near-term headwinds, but strong product pipeline:

KPCL continues to face execution challenges and delayed finalization of orders in CNG, refrigeration (delay by client), and gas compression segment (loss of market share). The large package order for private companies is now expected to be delivered in February’26 ensuring a massive revenue in 4QFY26 if execution happens as expected. New order booking has improved meaningfully to Rs6.75bn in 3QFY26 vs a run rate of ~Rs3bn before due to improving demand from refrigeration. There are several new products which will help in augmenting this growth for next 3years i.e.: i) Tezcatlipoca is expected to hit record Rs1bn order booking mark with new variants ii) semi-hermetic refrigeration compressor Tyche for import substitution where KPCL will have inhouse casting and motor iii) commercial AC (Zephros C system) compressors having a huge domestic market (capex approved under PLI scheme), are expected to drive growth in FY28 and beyond. While we remain positive on the long-term prospect at KPCL, we remain cautious on near term growth in FY26/ FY27E.

Valuation:

We expect KPCL’s Revenue/ EBITDA/ PAT to grow at a CAGR of 14%/ 15%/ 16% over FY25-28E. We arrive at a TP of Rs1470 (Rs1400 previously), valuing the stock at 30x (unchanged) Dec’27E PER. Change in TP is mainly due to valuation roll forward. Key Risks: supply chain headwinds and acceptance of new products.

Company website: hhttps://www.kirloskarpneumatic.com/

*CMP is as per report published date

Click to download the full Kirloskar Pneumatic Company Ltd. Q3FY26 Company Update

Analyst:

• Sahil Sanghvi - Research Analyst, Institutional Equities (NISM-201900004744)
• Uvais Khatri - Research Associate, Institutional Equities (NISM-202300049054)

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FAQs on Kirloskar Pneumatic Company Ltd. Q3FY26 Company Update

Overview: Kirloskar Pneumatic is an established engineering company specializing in industrial refrigeration and gas compression systems. While near-term execution challenges have impacted revenue realization, the company’s strong order inflows and new product pipeline support long-term growth potential.

1. Why did Kirloskar Pneumatic’s revenue miss expectations?

The revenue shortfall was mainly due to delays in inspections, order finalization and dispatch approvals in sectors such as petrochemicals and process gas projects.

2. What led to the sharp improvement in margins?

Margins improved due to a favourable product mix, higher contribution from refrigeration equipment and growing service revenue, along with cost rationalization initiatives.

3. What are the key new products driving future growth?

Important upcoming products include the Tezcatlipoca compressor series, Tyche semi-hermetic refrigeration compressors and Zephros C compressors designed for commercial air-conditioning systems.

4. How strong is the company’s order inflow?

Order inflows improved significantly in Q3FY26 to ₹6.75 billion, reflecting strong demand particularly in refrigeration equipment.

5. What risks should investors monitor?

Key risks include supply chain disruptions, execution delays in large industrial projects and slower adoption of new compressor technologies.

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