Kirloskar Pneumatic Company (KKPC IN) – Q1FY27 Result Update – Near-Term Hiccups, structural story intact – Downgrade to ‘ACCUMULATE’

Kirloskar Pneumatic (KKPC) reported decent revenue growth of ~7.6% YoY, while EBITDA margin expanded by 322bps YoY to ~15.0%, driven by a favourable product mix and higher in-house manufacturing. During Q1FY27, the company witnessed slower conversion of large package orders due to slowdown in capex amid Middle East conflict; however, equipment order inflows remained healthy, supported by strong demand across end-user industries. The Precision Engineering business remained soft due to lower-than-expected dispatches, with management expecting a meaningful recovery from Q2FY27. In the Air Compression segment, Tezcatlipoca continues to witness strong traction, while Hydrino and Zephyros are expected to drive incremental growth. Meanwhile, Refrigeration Compressors continue to benefit from healthy demand across food processing, dairy, chemical and industrial applications. Although export order conversion in Gas Compression has moderated, order enquiries across cross domestic gas infrastructure, biogas, hydrogen and coal gasification remain encouraging. Further, the expanding CGD network and growing installed base are expected to support ~25% growth in the services business, while new products such as A-800 and Tonali are likely to strengthen the product portfolio and support long-term growth. The stock is currently trading at P/E of 35.0x/29.8x on FY27E/FY28E. We downgrade our rating from ‘Buy’ rating to ‘Accumulate’ reflecting a cautious stance on near-term order conversion amid the ongoing Middle East conflict, while maintaining our TP of Rs1,715 (same as earlier) valuing the business at a PE of 32x Mar’28E (same as earlier).