| Kirloskar Pneumatic Company Limited | ||||||
| Rating outlook revised to ‘Positive’; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has revised its outlook on the long-term bank facilities of Kirloskar Pneumatic Company Ltd (KPCL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘Crisil AA-’. The short term rating has been reaffirmed at ‘Crisil A1+’.
The revision in outlook reflects the expectation of continued improvement in the business risk profile of KPCL over the medium term, with sustained strong financial risk profile.
The business risk profile is projected to improve with stronger-than-expected revenue and improvement in the operating profitability levels. For the first nine months of fiscal 2025, the company registered revenue of Rs.1,046 crore, achieving on-year growth of 26%, with full year revenues expected at ~Rs.1,500-1600 crore. The revenue growth was achieved through higher revenue from the refrigeration business and increased offtake from end-user industries (pharmaceutical, food processing and gas distribution among others) supporting growth for refrigeration and air compressors.
CRISIL Ratings expect the growth momentum to continue over the medium term with revenues expected to reach ~Rs 2000 crore in fiscal 2026. The growth in revenue will also get a leg-up from new launches including those competing with imports, replacement demand, stable growth of end-user industries and higher focus on exports. Healthy orderbook across various compressor segments also provides revenue visibility over the medium term.
Amidst this, earnings before interest, tax, depreciation and amortisation (EBITDA) margin improved to 17% during the first nine months of fiscal 2025 as compared to 13% during the corresponding period of the previous fiscal, led by economies of scale, favourable raw material prices and cost benefits accrued from KPCL’s castings and forgings plant. Sustenance of revenue growth while maintaining healthy EBITDA margin over the medium term remains a key monitorable.
The ratings also factor in the company’s moderate financial risk profile supported by healthy capital structure with nil gearing and established market position. These strengths are partially offset by susceptibility to cyclicality in demand from end-use sectors, strong competition and volatile input prices. |
Analytical Approach Crisil Ratings has evaluated the standalone business and financial risk profile of KPCL. |
Key Rating Drivers & Detailed Description Strengths: Established market position: KPCL has an established market position in each product segment (air compressors, refrigeration and gas compressors, and transmission products) through technological collaboration and strong after-sales support services deriving 94% share of revenue from compression systems. The company has three state-of-the-art manufacturing facilities in India producing for diverse industries, such as oil and gas, power, cement, steel, automobiles, textiles, refinery, petrochemicals, city gas distribution, cold storage and food, besides the defence and railway departments of the Government of India. It has also launched new products in the air and refrigeration compressor space to compete with low-cost imports to cater to replacement demand. KPCL holds 50% market share in the compressed natural gas (CNG) gas station market and is the first company in India being approved for hydrocarbon refrigeration systems, which are currently imported.
The revenues for the company have grown at a CAGR of 17% over the last 3 years, supported by the refrigeration and air compressor segments. CRISIL Ratings expect the growth momentum to continue over the medium term, supported by new launches including those competing with imports, replacement demand, stable growth of end-user industries and higher focus on exports. Healthy orderbook across various compressor segments (Rs.1,880 crore as on 31st December 2024) also provides revenue visibility over the medium term.
Strong financial risk profile: The financial risk profile is supported by healthy capital structure with nil gearing as on December 31, 2024, prudent working capital management, comfortable cash accrual, and moderate capital expenditure (capex) needs. Total outside liabilities to tangible networth (TOL/TNW) ratio remained healthy and stood at 90 times as on March 31, 2024 with interest coverage continuing strong above 90 times. As on September 30, 2024, liquid surplus (comprising marketable securities and cash and bank balance) was healthy at Rs 252 crore.
Weaknesses: Vulnerability to inherent cyclicality in demand from end-user industries: KPCL's customers are mainly from engineering and other capital-intensive industries, wherein demand is cyclical. Addition of new facilities or expansion of current facilities by the industries is dependent on the country’s economic performance as evident during fiscal 2021 when low demand impacted KPCL’s revenue. KPCL's fortunes are, therefore, tied to the capex cycle in end-user industries.
Susceptibility to volatile input prices and competitive pressure: Operating margin is susceptible to volatile input prices. The gestation period of projects in the compressor systems segment is 3-18 months, rendering profitability susceptible to volatile input prices. Also, in the air compressor segment, KPCL faces competition from domestic and major international players and their Indian subsidiaries, with players having access to strong technological and managerial support from their parents. |
Liquidity: Strong Cash accrual is expected to be more than Rs 150 crore annually, which should be adequate to fund yearly capex of Rs 50 crore over the medium term, and support working capital requirement in the absence of any long-term debt obligation, beefing up cash and equivalent levels over the medium term. KPCL also has access to fund-based limit of Rs 40 crore, which remains unutilised thus far. |
Outlook: Positive Crisil Ratings believes KPCL's business risk profile will continue to improve over the medium term, driven by healthy orders, increased demand from end-user industries, and established market position in the compressor segment. The financial risk profile should remain strong, supported by moderate capital structure with nil gearing and healthy liquidity. |
Rating Sensitivity Factors
Downward factors
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About the Company Incorporated in 1958, KPCL is a part of the Pune-based Kirloskar group. It has three divisions: air compressors, refrigeration and gas compressors, and transmission products. The manufacturing facilities of all divisions are integrated and the three locations are situated in and around Pune. End users include oil and gas, pharmaceuticals, steel, power, railways and the defence sectors.
For the first nine months of fiscal 2025, revenue was Rs 1,046 crore and profit after tax (PAT) was Rs 130 crore, against Rs 833 crore and Rs 73 crore, respectively, in the corresponding period of the previous fiscal. |
Key Financial Indicators*
*Above numbers reflect analytical adjustments made by CRISIL Ratings |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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