KIRLOSKAR OIL ENGINES LTD. Analyst & Investor...

KIRLOSKAR OIL ENGINES LIMITEDKIRLOSKAR OIL ENGINES LIMITED20-Aug-18 1

KIRLOSKAR OIL ENGINES LTD.

Analyst & Investor Meet

August 20, 2018

KIRLOSKAR OIL ENGINES LIMITEDKIRLOSKAR OIL ENGINES LIMITED

Disclaimer

This presentation may contain statements which reflect Management’s

current views and estimates and could be construed as forward looking

statements. The future involves uncertainties and risks that could cause

actual results to differ materially from the current views being expressed.

Potential uncertainties and risks include factors such as general

economic conditions, commodities and currency fluctuations, competitive

product and pricing pressures, industrial relations and regulatory

developments.

20-Aug-1820-Aug-18

20-Aug-18 2

KIRLOSKAR OIL ENGINES LIMITED

Contents

• Introduction

• Financial Highlights

• Strategic Objectives and Growth Drivers

• Research & Development

• Future Outlook

20-Aug-18 3


KOEL : A BRIEF INTRODUCTION

20-Aug-18 4


Our Leadership Team

Nihal G. Kulkarni

Managing Director

R. R. Deshpande

Joint Managing Director

T Parthasarathy

V.P. - QA-Corporate, ME & Projects

M.N Kumar

V.P. - Corporate Research Engineering

Shrikant Pataskar

Head - International Business

Sheetal K. Kothari V.P - Large Engines

Business

Antony Cherukara

V.P. - Agri & Allied-Domestic

. Sanjeev Nimkar

V.P. – PG, Ind & CSBG

T Vinodkumar

CFO & CHRO

20-Aug-18 5


Hived off valve division ~Rs 15 Cr

HHP DV launch

Exit fuel oil+Power products

~Rs 100 cr

2008-09

2007-08

2009-11

Hive off bearing division ~Rs

100 Cr

De-emphasize cellular

business ~Rs 300+ Cr

2012-15

Closure of NPCIL order ~Rs

400 Cr

Closure Pielstick tie up

Launched Varsha ~Rs 30 Cr 2015-16

Launched KGT business ~Rs

250+ Cr

Entry in End use product –Mega T

~Rs 80 Cr

Entry in HHP 750+ kVA segment

~Rs 50 Cr

2000+

3,000+

Revenue growth

• For exit business avg revenue in past few yrs considered

• * For new business, Est future revenue considered

Growth has not been linear : efforts relentless

2016-18

Acquisition of LGM ~ 400 Cr

Re-entry into telecom market

Entry in Railways segment

20-Aug-18 6


Legal Entities

• Kirloskar Oil Engines Ltd

• KOEL Americas Corp, USA (incorporated in 2015)

• La-Gajjar Machineries Pvt Ltd (LGM) (acquired in 2017)

20-Aug-18 7

KIRLOSKAR OIL ENGINES LIMITED20-Aug-18 8

KOEL GREEN Gensets - 2kVA to 1010kVA

Integrated Efficiency – the key driver

KIRLOSKAR OIL ENGINES LIMITED 9

Power Tiller – Mega T

Agri & Allied

Engines & Pumps

20-Aug-18


Industrial Engines

20-Aug-18

Used in over 80 Applications spread over 9 segments


Engines for Fishing Trawlers. Present market size is around INR 210 Crs and expected to grow at 5% Y-o-Y. KOEL recently

entered in this market and expected to gain market share of 25% in next four years by increasing

market reach and product offerings.

20-Aug-18 11


KOEL Manufacturing Plants, Sales & Service Network

Manufacturing Plants• Kolhapur, Kagal [IMS, ISO 9001, ISO 14001, OHSAS 18001]

• Bhare [IMS, ISO 9001, ISO 14001, OHSAS 18001]

• Nashik [IMS, ISO 9001, ISO 14001, OHSAS 18001]

Sales & Service Network:POWER GENERATION:

• 171 – GOEMs and Kirloskar Green Dealers

INDUSTRIAL:

• 35 – OEMs

CUSTOMER SUPPORT:

• 422 – Service Outlets

• 125 – Service Dealers

AGRI & ALLIED:

• 30,000 – Agri Retailers

• 550 – Agri Distributors

• 300 – Farm Mechanization dealers

20-Aug-18


FINANCIAL HIGHLIGHTS

20-Aug-18 13


Business : the shift in last 4-5 years

Power Gen

41%

Industrial

18%

Cust Sup

13%

Agri

16%

Exports

7%

Large

Eng

5%

FY 17-18

Power Gen Industrial Cust Sup

Agri Exports Large Eng

Power Gen

33%

Industrial

15%Cust Sup

14%

Agri

16%

Exports

9%

Large Eng

13%

FY 13-14

Power Gen Industrial Cust Sup

Agri Exports Large Eng

20-Aug-18 14


Major Players holding onto Market Share

22%23%

25%23%

25% 24%

8% 8%9%

8% 8%9%

43%41%

39%41%

43%41%

5%6%

7%6%

5% 5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

FY13 FY14 FY15 FY16 FY17 FY18

KOEL Mahindra Cummins Ashok Leyland

Value Market Share excluding Telecom

Source : Frost & Sullivan Report

20-Aug-18 15


Winning in the Marketplace

KOEL Pumpsets

Market size & KOEL Agri Crop Irrigation (CI) sales, both Indexed FY13 = 100

10088

83 8074

100

86

76

86 85

0

10

20

30

40

50

60

70

80

90

100

FY13 FY14 FY15 FY16 FY17

Agri CI Market KOEL Agri CI sales

Note: FY 18 numbers for all market participants are not yet published in annual reports, hence updated till FY17.

20-Aug-18 16


Sales have accelerated in recent past..

22192364

2276 2320 22872473 2406

26142804

812

0

500

1000

1500

2000

2500

3000

2009-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 Q1 18-19

CAGR <1%

*1) Including Revenues from subsidiaries 238 Crs for 2017-18, CAGR would be 7.4% in last 4 years.

2) Competition revenue growth CAGR is 6% in 2013-14 to 2017-18.

CAGR 5.2%*

Net Sales

Rs Cr

Highest

quarter sales

20-Aug-18 17


Maintaining Profitability in a highly competitive market…

263244

281271

243

205 205

252

222

74

0

50

100

150

200

250

300

2009-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 Q1 18-19

* Kagal incentive ended in March 2017. ( ~ 36 Crs pa)

PBT,

Rs Cr

20-Aug-18 18


Operating RoCE

32.40% 33.30%

24.70%

29.70%

23.80%

39.40%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

2013-14 2014-15 2015-16 2016-17 2017-18 Q1 2018-19

Annualized, % operating RoCE

20-Aug-18 19


Reserves have shown healthy growth..

651

860

10041125

12381313

1415

1588 1608

0

200

400

600

800

1000

1200

1400

1600

1800

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Reserves

& Surplus,

Rs Cr

20-Aug-18 20


Consistent returns to shareholders : Dividend %

200 200 200

250 250 250 250 250 250

0

50

100

150

200

250

300

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Dividend %

20-Aug-18 21


Investing in world class R&D capability..

1.2 1.3

2.5

2.9

4.3

3.8

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

R&D expenses as % of sales

20-Aug-18 22


Market Capitalization

2884

3960

3061

5640

4688

0

1000

2000

3000

4000

5000

6000

2013-14 2014-15 2015-16 2016-17 2017-18

Market

cap, Rs Cr

20-Aug-18 23


Share price has outperformed BSE Sensex

FY 2014 to FY 2018

KOEL share Price (End of FY) trend for last five years relative to BSE Sensex – Index March 2014=100

100

135

108

199

168

100

126

113

132

148

100

120

140

160

180

200

220

March '14 March '15 March '16 March '17 March '18

KOEL BSE Sensex

20-Aug-18 24


STRATEGIC OBJECTIVES & GROWTH DRIVERS

20-Aug-18 25


Three Drivers of Value Creation …

Using Theory of Constraints for releasing

working capital

Value Engineering & Cost

Optimization

Using Critical Chain Project Management

(CCPM) for New Product Development

Growth segments aligned with India story

Capitalizing on megatrends of urbanization

and farm mechanization

Foothold in International markets with right

product platforms

Strong

Backend

Superior Products

Best in class service

Competitive pricing

20-Aug-18

Customer

Value

Smart

Market

Choices

26


Theory of Constraints :

Focussing on secondary sales & creating demand pull

THE OPPORTUNITY

• Enhancing efficiencies across the value chain

• Unlocking working capital across the value chain

THE OUTCOME

• Supply Chain (Manufacturing, Procurement, Logistics) replenishes to

actual consumption in market.

• Assured 7 day delivery (established industry standard is 4 - 6 weeks)

• Working capital significantly reduced

20-Aug-18


Value Analysis & Value Engineering (VAVE)

THE OUTCOME

• ~ 400 feasible ideas generated

• Strengthened supplier partnerships

• Cost reduction

• Capability building across functions

THE OPPORTUNITY

• Creating enhanced value for our customers

• Sustainability in the competitive market

20-Aug-18 28


Critical Chain Project Management for

New Product Development

THE OUTCOME

• Improved speed of execution of short & long term projects

• Ongoing process improvement

THE OPPORTUNITY

• Reduce time to market

• Improve prioritisation & resource allocation

• Functional alignment

20-Aug-18


Building on our Core Strengths

• Indigenous Technology backed by strong R&D

• Ability to customize products as per customer requirement

• State of the art manufacturing Facility at Kagal

• Strong Supplier Partnerships

• Enduring Customer Relationships

• Wide Distribution Network backed by best in class service network

20-Aug-18 30


Our Strategy for Growth (1/4)

Strategy Key Initiatives Growth Drivers & Platforms

Focus on

High Horse Power

• Consolidating market share in

320-625 KVA

• Establishing 750, 900 and 1010

KVA in market- footprint, fuel

economy, service – gain 15%

market share over next 3 years

• Platform development 1250, 1500

& 2000 KVA

• Infra push by Government

• Datacenters to cater to data explosion

• Railways modernization

• Make in India

• Growth in services & real estate

regulations

20-Aug-18 31



Strategy Key Initiatives Growth Drivers

International Business • EPA certification paving way for American

market

• FM/UL approved portfolio – only four

companies in the world – entry into high

margin fire fighting engines

• Targeting double digit market share in ten

focus markets such as Americas, Middle East

and South East Asia

• Global economy on recovery path,

including US

• Preference for listed Firefighting

equipment increasing

• De-risking from traditional Middle

East markets

20-Aug-18 32




End Products • Acquisition of LGM (Varuna Pumps) with a strong

foothold in pumps , while continuing to increase

reach and range in conventional diesel pumpsets

• Power Tiller and its variants – established in

market

• Marine gensets and propulsion engines

• Entry into telecom & new Slimpower range

• Need of the hour to mechanize

farms

• Rural electrification

• Push for Energy Efficient Pumps

by replacing old pumps

• Govt. initiatives for port

development, river integration and

Sagarmala project

• Construction & tractor segments

• Telecom consolidation & 4G/5G

20-Aug-18 33




Go Digital • Leveraging technology to drive spares and

services business

• Improving customer retention through innovative

offerings like Bandhan

• Electronic Field Service Report - service requests

tracking end to end- helping improve productivity

of service network

• Agrifast – rural network coverage for faster

deliveries

• 500K Gensets and 200K industrial

engines in market as installed base

• Cross selling opportunities of AMC

contracts, apart from customer ‘top

of the mind’ positioning for new

requirements

20-Aug-18 34


Powering Modern India : Chennai Metro

Offering unique proposition

Unique offering of 910 kVA

High reliability

Remote monitoring system

Service commitment – 4 hr.

resolution

20-Aug-18 35


International Business : Penetrate in focus markets

20-Aug-18 36


Varuna Pumps : Strategic Case for KOEL

• Natural extension to KOEL’s Agri sector

• De-risking Agri portfolio

• Robust industry growth on back of rising urbanization, land under irrigation and

replacement demand by efficient pumps

• Established capacity with quick ramp-up possibility

20-Aug-18 37


Estimated Market & LGM (Volume)

Pump seg. Market

FY16

Market

FY17

Market

FY18

Market

FY19

LGM Capacity

Annual

LGM

FY 18 vol

Bore well 28,37,160 31,20,876 34,32,963 37,76,259

735,000 356,256

Open Well 522,751 533,206 543,870 554,748

Mono block 938,568 891,640 847,058 804,705 390,000 138,879

Total 42,98,479 45,45,722 48,23,891 51,35,712 11,25,000 495,135

20-Aug-18 38


Varuna : Amongst the top 10 brands in

submersible pumps

20-Aug-18 39


LGM : Going Forward

STRATEGIC THRUSTS

• Strengthen backend to yield better efficiencies: supply chain, ERP, continuous

improvement projects….

• Quantum leap in exports : value added products

• Plant consolidation : enhancing efficiencies

• Ensure profitable growth

CORE STRENGTH

• Strong brand & market leader in UP & among top 5 in 12 states

• Established capacity @ 45% utilization - 400+ 5 star rated models; top 3 stainless

steel pumps in India

• Established distribution setup in focus markets - 180 distributors, 1300 dealers, 100+

service centres

20-Aug-18 40


• In India more than 85% farmers are small & marginal farmers

• Average land holding is reduced from 1.23 Ha to 1.15 Ha per farmer

• Average Farm Power is expected to increase 1.5 HP /KW to 2 HP /KW

• Farm Food grain Production is directly proportional to Farm Power

Farm Mechanization :

Focus on small & Marginal farmers

Source : Ministry of Agriculture Annual Report 2016-17

20-Aug-18 41


Kirloskar Mechanisation Works (KMW) :

Product Portfolio

MegaT 15 – Over 50% market

share in the the > 12 HP segment

12 HP launched July 2018 8 HP weeder launch Aug 2018

Kubix: Brush Cutter

• R& D established for small farm mechanisation

• Products from 5 HP to 15 HP

• Focus on small and marginal farmer segment

MINT 8 deluxe power weeder

4220-Aug-18


Unique Customer Relationship

Management Platform “”

THE OPPORTUNITY

• Create end to end control of enquiry pipeline

• Agility to respond to market dynamics

• Improving conversion and customer retention

• Enhancing customer experience at each touch point

THE OUTCOME

• Complete front ending processes (sales/service) on single platform

• Data driven market interventions – product/price/promotion

• Enabling & controlling processes dovetailed on basic business platform

• Participating in market place despite indirect selling model

20-Aug-18


Product-Market position matrix..

Low

High

Current Medium Term Future

Ma

rke

t S

ha

re

Fire Fighting

Fire Fighting

HHP

HHP

LHP

LHP

MHP

MHP

Tiller

Tiller

Pumps

PumpsFocus Geographies

Focus

Geographies

Agri diesel

Agri diesel

Transit MixerTransit Mixer

Fluid Handling Fluid Handling

Construction

Equipment

Construction

Equipment

20-Aug-18 44


RESEARCH & DEVELOPMENT

20-Aug-18 45


R&D Capability

• Proven track record of indigenously developed products at competitive cost

e.g. CPCB II transition by cost efficient mechanical solutions over CRDi; 910

KVA genset for metro rail application

• Strong application engineering capability to provide customizations for highly

advanced applications in power generation, industrial and strategic sectors

• Around 100 member strong & committed team backed by increasing

investment in R&D

20-Aug-18 46


Seeder

Potato Digger

Potato Planter

Sprayer Non - Tipping trailer

Tipping trailer

Ridger

Puddling

Stone Cutter

Hopper Power Plough

Design Prowess : Faster time to market

1st time in industry – multi application suitability

MegaT 15 : Files claims for 4 patents & 3

design registrations

20-Aug-18


KMW MEGA T 15 : Innovation awards..

20-Aug-18

KMW MEGA T 15 Wins the Good Design Award

2016 held by Japan Institute for Design Promotion

(JDP) at Tokyo, Japan


Order received for 24 nos. DG sets

from M/s BEL for Army’s

Communication Project

69 % volume reduction

56 % weight reduction

Order received & executed for 6 nos. DG

sets from M/s ICOMM for Army’s Radio

Relay Project. Proto is CQAL 640A

qualified





5 KVA 10 KVA 40 KVAOrder received & executed for 2 nos.

DG sets from M/s BEL for Army’s BSS

Project. CQAL640A qualification is in

progress

Customer focused products

Innovative compact & lightweight gensets

20-Aug-18 49


DV16 1010 kVA Engine : A unique proposition

Global Benchmark

Latest Technology CRDI

• Gallery cooled pistons

• Sputter bearingsUnique Features• Ultra low vibrations

• Lowest weight in the class

• Smallest foot print

Latest Manufacturing Technologies

1st V16 Engine designed and developed in INDIA

Latest Simulation Technologies

20-Aug-18


FUTURE OUTLOOK

20-Aug-18 51


Future Outlook (1/2)

• PG growth aligned to potentially healthy economic growth

• Readiness to address regulatory changes driven by revised

emission norms (BS IV in industrial segment and CPCB III in

Powergen segment)

• KOEL’s pumps and farm mechanization products poised to

address Government’s agenda of doubling farm income

20-Aug-18 52


Future Outlook (2/2)

• KOEL’s strategic positioning in marine, railways and telecom segments, where

Govt’s focus offers significant opportunities

• KOEL has consciously decided to penetrate international markets beyond its

traditional strongholds. This is likely to pay rich dividends in medium & long term.

• Inflationary pressures to continue. KOEL has created differentiators beyond price

through product, delivery speed & service, whilst simultaneously working on cost

optimization internally

• Financial services business will potentially yield higher returns as compared to

current investments -Improved RoE

20-Aug-18 53


“Don’t worry about the future, create it”

- Mr Shantanurao Laxmanrao Kirloskar

20-Aug-18 54

KIRLOSKAR OIL ENGINES LTD. Analyst & Investor...

Documents

Transcript of KIRLOSKAR OIL ENGINES LTD. Analyst & Investor...