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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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 10
Industrial Engines
20-Aug-18
Used in over 80 Applications spread over 9 segments
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED 12
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED 27
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED 29
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
Our Strategy for Growth (2/4)
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
KIRLOSKAR OIL ENGINES LIMITED
Our Strategy for Growth (3/4)
Strategy Key Initiatives Growth Drivers
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
KIRLOSKAR OIL ENGINES LIMITED
Our Strategy for Growth (4/4)
Strategy Key Initiatives Growth Drivers
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
• 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 OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED 43
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED 47
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
KIRLOSKAR OIL ENGINES LIMITED 48
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
KIRLOSKAR OIL ENGINES LIMITED
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
38 % volume reduction
20 % weight reduction
51 % volume reduction
30 % weight reduction
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
KIRLOSKAR OIL ENGINES LIMITED 50
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
KIRLOSKAR OIL ENGINES LIMITED
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
KIRLOSKAR OIL ENGINES LIMITED
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