Kirloskar Oil Engines shares hit 20% upper circuit. JM Financial sees more upside

Shares of power-generation solutions manufacturer Kirloskar Oil Engines were locked in the 20% upper circuit in Monday's intraday session, June 22, settling at ₹2,390 apiece after the company announced a large order win from HyperNext, one of the hyperscalers in the data centre space, for the supply of 96 units (192 MW) of its 2,500 kVA Optiprime Dual Core power systems.

The order highlights the growing traction of KOEL's high-horsepower (HHP) products in India's rapidly expanding data centre market. It comprises 192 MW and 96 units of KOEL's 2,500 kVA Optiprime Dual Core power systems, representing one of the largest deployments of high-capacity power systems for hyperscale data centres in the country.

The order marks a significant breakthrough for the company in the colocation and hyperscale data centre segment, a market currently dominated by Cummins.

JM Financial sets a target price of ₹2,430

The development has boosted JM Financial's confidence in the stock, prompting the brokerage to upgrade its rating to 'Buy' with a target price of ₹2,430 per share.

"This development reinforces our view that with multiple product introductions and a reduced technology gap (or capability gap), the valuation discount of KOEL versus Cummins will diminish," the brokerage said.

JM Financial also highlighted the company's capacity expansion plans, top-tier talent acquisition from competitors, and export-focused strategy as key drivers for further re-rating.

The company has committed ₹14 billion in capital expenditure to expand capacity at its Kagal facility by 20,000 engines per annum. The brokerage believes this investment will strengthen KOEL's HHP portfolio, support export growth, and potentially generate an additional ₹5 billion-6 billion in annual sales at peak utilisation by FY30.

According to JM Financial, the latest order is comparable to Cummins' QSK65 (2,250-2,500 kVA) offering in the data centre segment. Earlier, KOEL's 2,500 kVA Optiprime system had been deployed at a Mumbai-based data centre operated by a leading bank.

While the 2,500 kVA engine is currently attracting attention, KOEL has also developed a 2,750 kVA data centre-certified engine, offering capabilities comparable to Cummins' QSK78 platform.

The data centre power solutions market remains heavily dominated by Cummins, with an estimated market share of over 80%. As a result, the latest order is being viewed as a key milestone that underscores KOEL's improving technological capabilities and narrowing gap with the industry leader.

Motilal Oswal revises target price upward

Meanwhile, brokerage firm Motilal Oswal also raised its target price on the stock to ₹2,350 from ₹1,900 while maintaining its 'Buy' rating. Notably, the revised target was achieved during Monday's trading session.

The brokerage expects the company's ongoing capex programme of ₹7 billion announced in FY25, along with the upcoming ₹14 billion investment announced in May 2026, to enable KOEL to capitalise on high-growth opportunities in the data centre market while continuing to expand its non-HHP product portfolio.

Motilal Oswal also expects growth in the industrial segment to receive a boost from the execution of large orders over the next two years, which could more than offset any weakness arising from subdued construction activity across the country.

The brokerage further believes that improving volumes will drive operating leverage and support margin expansion. It has accordingly raised its estimates for the power generation segment and expects slightly better profitability going forward.

"KOEL's entry into hyperscalers, along with the rapid growth of its overall power generation and industrial businesses, is resulting in a further reduction in the valuation discount versus Cummins, which we believe will continue as such orders increase," the brokerage said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.