Kirloskar Pneumatic Ltd – Weak Q2 Execution, Hopes on H2 Recovery | Research Company Update

We maintain Buy on Kirloskar Pneumatic (KPCL) but lower target price to Rs 1400 (Rs 1600 previously). KPCL reported weak performance in Q2FY26, with execution challenges across CNG, gas, and refrigeration packages impacting revenue and order booking. Margins were under pressure due to delay in offtake and high fixed cost. The management has moderated their growth guidance in FY26 to ~15% and we remain cautious in our estimates at ~11%. 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). A sharp recovery in H2FY26 and attractive valuation at 27.3x/22.5x FY26e/27e PE drives our Buy Rating.

Execution challenges drive revenue miss:

KPCL reported 10% yoy decline in revenue at Rs3.9bn impacted by delayed inspections, finalization and clearances to dispatch. New offerings such as Tezcatlipoca (now 100+ units sold) and Tyche have begun contributing, with increasing substitution opportunity from European imports.

Poor sales and high opex continue to dent margins:

KPCL reported margins at 15.1%; -658bps yoy; dragged by delayed despatches, competent pricing and high employee cost (includes new hires). This translated into a 37.5% yoy degrowth in EBITDA at Rs585mn for 2QFY26. KPCL reported 35.6% decline in PAT at Rs435mn. However, on a sequential basis margins appear to be recovering.

Near-term headwinds, but strong product pipeline:

KPCL continues to face execution challenges in CNG, refrigeration (delay in deliveries by client), and gas compression segments, with order booking in Q2FY26 significantly lower YoY and sequentially, impacted by loss of market share in the process gas, delayed finalizations, and global uncertainties. KPCL is actively mitigating these challenges: large orders are expected to be finalized and booked in Q3FY26. KPCL has replaced Howden compressors with the Khione product for the small packages. 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 are expected to drive growth in FY28 and beyond. However, weaker than expected order bookings (Order book: Rs16.7bn, as of 1st Oct’25) and headwinds in the supply chain has led to lower revenue growth (4%/7% cut in FY26/FY27 earnings) and a cut in multiple. The management has moderated their growth guidance in FY26 to ~15% and we remain cautious in our estimates at ~11%.

Valuation:

We expect KPCL’s Revenue/ EBITDA/ PAT to grow at a CAGR of 15%/ 16%/ 16% over FY25-28E. We arrive at a TP of Rs1400 (Rs1600 previously), valuing the stock at 30x Sept’27E PER (previously 34x). The cut in earnings and multiple is to account for the weakness in execution and order booking. Key risks: Supply chain headwinds and pickup of new products.

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

Click to download the full Kirloskar Pneumatic Company Ltd. 2Q FY26 Company Update

Analyst:

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

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