Kirloskar Oil Engines Powers Ahead with Record Q2 FY26 Performance

Kirloskar Oil Engines Limited (KOEL) has reported a stellar performance for the second quarter and first half of the financial year ending March 31, 2026. The company achieved its best-ever Q2, crossing the INR 1,500 crore revenue mark for the first time, and its H1 sales surpassed INR 3,000 crore. This robust growth underscores KOEL's strong market position and operational excellence, driven by double-digit growth across all standalone business segments.

For Q2 FY26, KOEL's consolidated revenue from continuing operations stood at INR 1,948 crores, marking a significant 30% year-on-year increase. The net profit from continuing operations surged by 51% year-on-year to INR 159 crores. This impressive financial outcome reflects the company's strategic initiatives and strong market demand, despite a relatively muted Q2 performance in the previous year. The management expressed satisfaction with the double-digit quarter-on-quarter growth, highlighting the sustained momentum.

Segmental Performance: A Deep Dive

The B2B segment, encompassing Power Generation, Industrial Engines, and Distribution & Aftermarket, was a primary growth driver. It recorded a revenue of INR 1,456.6 crores in Q2 FY26, a 34% year-on-year increase. The Power Generation Business Unit (PGBU) alone achieved a remarkable 41% year-on-year growth, reaching its highest-ever quarterly revenue of INR 678 crores. This performance was bolstered by the OptiPrime initiative, which secured multiple high-value orders (1,500 kVA, 2,000 kVA, and 2,500 kVA), reflecting strong customer confidence.

The Industrial Business Unit also delivered a strong performance, with 40% year-on-year sales growth, fueled by healthy traction in both the Defence and Railway segments. Notably, KOEL completed and submitted the detailed design for the Indian Navy's prestigious 'Make 1' initiative and launched a new 400HP engine for rail maintenance applications. The Distribution and Aftermarket business unit reported a 13% year-on-year growth, benefiting from organizational strengthening and an expanded service network handling approximately 92,000 service requests.

In the B2C segment, revenue stood at INR 258.4 crores, a 23% year-on-year growth. However, the segment experienced a quarter-on-quarter degrowth due to lower sales volumes, impacting fixed cost absorption. To address this, KOEL announced a strategic restructuring of its B2C operations on October 10, transferring the business to its wholly-owned subsidiary, La-Gajjar Machineries Pvt. Ltd., through a slump sale. This move aims to enhance focus and drive greater efficiency from Q3 FY26 onwards.

Financial Services and International Expansion

KOEL's financial services arm, Arka, also demonstrated robust growth. Consolidated revenue from financial services reached INR 233.3 crores in Q2 FY26, a 17% year-on-year increase. Arka is strategically pivoting its business model from wholesale to a granular retail book. This initiative has seen significant traction, with granular retail AUM touching INR 140 crores and monthly disbursements of INR 60 crores in the last four months. The company has opened 85 branches and increased its employee base by 900 in the last six months, establishing a strong on-ground presence.

Internationally, KOEL's business continues to diversify and progress strategically. International B2B sales grew by 39% year-on-year, while B2C sales registered an impressive 77% year-on-year increase. The Middle East and North Africa (MENA) region remains the largest international contributor, accounting for approximately 60% of the international sales mix. The company is also investing in the North American market, anticipating returns over the medium to long term.

Outlook and Strategic Focus

Kirloskar Oil Engines Limited is optimistic about its future trajectory. The company maintains a strong focus on the planned rollout of new products in Q3 FY26, which is expected to further enhance its competitive position. Management is also exploring emerging areas, particularly in non-internal combustion engine technologies, taking measured and deliberate steps in this journey. The company's healthy working capital levels, with payables at 71 days and receivables around 40 days, coupled with a net cash position of INR 475 crores, provide a strong foundation for future growth.

While acknowledging potential challenges such as rising raw material prices and geopolitical volatility, KOEL's management remains confident in sustaining its growth momentum. The strategic restructuring of the B2C business and the continued focus on high-growth segments like Power Generation and Industrial applications underscore the company's commitment to disciplined execution and long-term value creation for its stakeholders.