Kilburn Engineering Reports Strong PAT and Revenue Growth

1. Market leader in the manufacture of solid, liquid and gas drying systems

kilburnengg.com | BOM : 522101

The Company is a market leader in solid, liquid and gas drying systems and provides a comprehensive package of solutions for tea, fertiliser, carbon black, soda ash, pharmaceuticals, dyes and pigments and specialty chemicals among other industries.

2. FY21-23: Recovery in FY23, not a great recent past

• Losses in FY21

• Break even in FY22

• Profitability in FY23

3. Strong FY23: 19x FY22 PAT & Revenue up 80% YoY

• Consistent growth in top-line and bottom-line with healthy order inflows

• Revenue growth of 80.45% over the previous year

• Operating EBITDA margins at 15.65%

• Order booking of Rs. 354 cr during the year resulting in a higher Order Backlog of Rs. 246 Crore as on 31.03.2023 , which will be executed during the next fiscal.

• Net Debt position of Rs. 49 crs, a reduction of Rs.23 crs

5. Strong H1-24: PAT up 66% and Revenue up 34% YoY

5. Strong Q3-24: PAT up 37% and Revenue up 35% YoY

PAT up 3% and Revenue up 6% QoQ

6. Strong 9M-24: PAT up 54% and Revenue up 34% YoY

7. Business metrics: Return ratios improved significantly in FY23

The growth in turnover, EBITDA and PBT should continue resulting in higher free cashflows which should enable the company to become net debt free in the next 12 to 18 months

8. Outlook: 30% revenue CAGR in FY24

i. FY24: 30%+ revenue growth in FY24

Revenue of Rs 222 cr in FY23 to Rs 290-300 cr in FY24 implies a growth of 30%+ growth on a standalone basis

The revenue expected for Kilburn in the current financial year is expected to be in the range of ₹290 crores to ₹300 crores by the end of Q4 on a standalone basis. The revenue for M.E., which would be added to the KEL share post acquisition would be in the range of ₹30 crores.

ii. FY23-25: Revenue CAGR of 50%

From a revenue of Rs 222 cr in FY23 to Rs 500 cr in FY25 implies a revenue CAGR of 50%

With the integration in place, we expect to achieve a turnover of ₹500 crores plus in the next financial year at the group level.

iii. Margins to be maintained in FY24 & FY25

EBITDA margin of 18-20% for Kilburn in FY24 is lower than the 22% EBITDA margin achieved in 9M-24

FY24: The EBITDA levels for KEL for the current financial year are expected to be in the range of 18% to 20%, and for M.E. Energy in the range of 15% to 20%.

FY25: We expect the margins to be in the range of 18% to 20% for Kilburn and around 15% to 20% for M.E. Energy. A lot more clarity will come when we close the year

iv. Order-book providing revenue visibility

An order book of Rs 330 cr expected at the start of Q1-25 to support a revenue guidance of Rs 500 cr.

Order book for Kilburn as on 31st March 2024 is expected to be in the range of ₹260 crores to ₹280 crores, and for M.E. Energy is expected to be in the range of ₹70 crores to ₹80 crores. This would translate into an open order book of ₹330 crores plus on 1st April 2024.

9. PAT growth of 54% & revenue growth of 34% in 9M-24 at a PE of 27

10. So Wait and Watch

If I hold the stock then one may continue holding on to Kilburn

• Coverage of Kilburn was initiated after Q1-24 results. The investment thesis has not changed after a strong 9M-24. The only changes are the delivery of a strong Q3-24 and the increased confidence in the management to deliver a stronger FY24 as compared to FY23

• The outlook is strong for both FY24 and FY25 and one can wait and see the execution play out.

• Kilburn has grown both revenue and PAT sequentially on a QoQ basis for all the 3 quarters of 9M-24 and one needs to ride the business momentum.

• Before FY23, Kilburn does not have a consistent track record of solid execution. One needs to monitor execution on its guidance quite closely.

11. Or, join the ride

If I am looking to enter the stock then

• Kilburn has delivered PAT growth of 54% & Revenue growth of 34% in 9M-24 at a PE of 27 which makes valuations reasonable.

• Kilburn is guiding for revenue CAGR of 50%+ for FY23-25 to reach a revenue of Rs 500 cr at a PE of 27 which makes the valuations reasonable.

• The expected opening order-book Q1-25 covers two-thirds of the revenue guidance of Rs 500 cr in FY25, providing confidence on the ability of the management to deliver on the revenue guidance.