Business Update

  • Domestic revenue were up 68% YoY of which power gen revenue came in at INR6.4b (+148% YoY), industrials revenue came in at INR2.3b (+34% YoY) and distribution revenue up 15% YoY at INR3.7b.
  • Exports were up 10% YoY to INR4.4b.
  • One large one-time domestic order of USD20m from data-center helped growth in revenues.
  • Demand environment looks good across end markets.

Demand outlook

  • Construction activity is coming back, especially the road construction.
  • Mining continues to be strong, especially given the increase in commodity costs.
  • Rail is still sluggish while marine should start picking up end of this fiscal.
  • On export market – Middle East has started recovering on account of oil prices and APAC looks better relatively. LATAM and Europe are lagging behind and should recover in next two quarters.

Margin outlook

  • Company has managed to keep other expenses in control. Operating leverage aided margins in 2QYF22.
  • With rising sales, KKC has started providing for warranty as a part of other expenses.
  • Price hikes: Commodity costs have been elevated, with KKC undertaking price hikes covering only ~60% of the cost inflation.
  • The management perceives commodity inflation to be a bigger challenge as of now. Generally, price hikes lag commodity prices by a quarter as it is difficult to pass on such higher quantum of price hikes to customers immediately.

Other key takeaways

  • On the draft note from the ministry with regard to Diesel Gensets, the management views it to be more of guidance than a rule. KKC is working closely with all stakeholders in developing better technology, which will help in lowering emissions. The management said that Diesel Gensets continue to be used as a backup power option even in advanced countries.
  • Management believes newer technologies like batteries may replace diesel gensets by 2035 and beyond. However, KKC believes the utility of diesel gensets to be intact at least for next 10-15 years.
  • On KKC v/s CTIL business opportunity: Data center opportunity is catered by KKC. Overall, if the investments are to be done in KKC or CTIL, it depends on end markets and the best RoE from the parent’s (Cummins) perspective.
  • On KKC and CTIL merger: KKC continues to evaluate all options in the best interest of the stakeholders.

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