Kalyani Forge Limited — Q1 FY26 earnings call

Call held 14 Aug 2025

Management summary

Kalyani Forge delivered a strong Q1 FY26, marked by robust revenue growth and significant PAT margin expansion. The company's strategic initiatives, including the Vriddhi Council, contributed to operational efficiency and cost savings. Capacity enhancement through CapEx and a focus on high-value export businesses are key drivers, with management expressing confidence in achieving ambitious long-term growth and margin targets despite Q1's higher maintenance-related expenses.

Highlights

  • Robust revenue growth of 12% year-on-year and 9% quarter-on-quarter, reaching ₹64.52 crores.

  • Significant PAT margin improvement of 300% year-on-year, with PAT at ₹1.4 crores.

  • EBITDA at ₹6.25 crores, maintaining a 9.7% margin despite planned expenses.

  • International sales grew 25% quarter-on-quarter, now comprising 21% of total sales.

  • Strategic Vriddhi Council initiatives delivered ₹10 crores in gains and savings in Q1.

Concerns

  • Analyst noted 'subdued margins' for the quarter, though management attributed this to planned maintenance.

  • Higher 'other expenses' in Q1 due to significant maintenance activities for productive capacity improvement.

Key financials

  1. Total Income ₹64.52 Cr +12%YoY
  2. PAT ₹1.4 Cr +300%YoY
  3. EBITDA ₹6.25 Cr
  4. EBITDA Margin 9.7%

What they filed

Q1 FY27: revenue up 4.2%, net profit up 217.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue62 59 59 64 56 −11%58 −1%57 −3%67 +4%
EBITDA8 6 6 6 7 −16%9 +44%7 +6%11 +78%
Net profit4 2 2 1 2 −45%-0 −107%6 +164%4 +218%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentShare of SalesYoY Growth
Engine Products59%16%
Driveline18%42%
Axle9%124%
Other Products14%—
Exports——

Order book

high confidence

Total value

₹260 Cr

as of 2025-03-31 quantified

Execution

FY24 new orders (95 crores) and FY25 new orders (115 crores) will be executed over FY26 and FY27.

Composition

  • Connecting Rods (product)
  • Nozzle Rings (Turbocharger parts) (product)
  • Tulips (product)
New business order wins in FY25 of 115 crores represent peak annual revenue over a 5-10 year program lifetime, with a focus on executing these orders efficiently.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹4 Cr this quarter · ₹25 Cr (FY26) planned 75% debt and 25% internal accruals
    • New business programs and upgrading existing machinery
    • Commissioning a new connecting rod machining line
    • Forging modernization program (second forging press recon project underway)
    Mr. Viraj G. Kalyani: Last quarter, I had highlighted that we have a budget of 25 crores approved by the CapEx allocation committee and the board. This is for FY26... In Q1, 4 crores of CapEx items have been received... We commissioned a new connecting rod machining line... The first full recon project was completed in the last quarter. Thus, in Q1, the second forging press recon project is also underway... Sorry, one point was it's not 100% debt financed. It's 75% is financed by debt and 25% from our internal accruals.
  • Debt Debt disclosed
    • New borrowing Term loan received for this year's CapEx, with additional sanction for next year's CapEx.
    Mr. Viraj G. Kalyani: So for this year's CapEx, we already received a term loan and we are fully covered. We also have some additional sanction for the term loan and it will also help in next year's CapEx.
  • Liquidity Liquidity disclosed Company is seriously exploring raising capital from equity in the coming quarters.
    Mr. Viraj G. Kalyani: At the same time, we are seriously exploring raising capital from equity in the coming quarters.

Guidance & targets

Revenue

  • Revenue Doubling Revenue · by 2027 · Medium confidence Double revenue
    Mr. Somil Shah: So if we are projecting a doubling of revenue by 2027... Mr. Viraj G. Kalyani: We are fairly on track.

    — Mr. Viraj G. Kalyani

Profitability

  • EBITDA Margin Profitability · by 2027 · Medium confidence 15%
    Mr. Somil Shah: ...our guidance of doubling of revenue with an EBITDA margin of 15% by 2027. Mr. Viraj G. Kalyani: We are fairly on track.

    — Mr. Viraj G. Kalyani

Exports

  • Share of Total Sales from Exports Exports · medium to long-term · Medium confidence 50%
    We have a target of 50% exports over the medium to long-term.

    — Mr. Viraj G. Kalyani

Capacity

  • Forging OEE Capacity Capacity · medium term · High confidence 300 crores

    From 150-200 crores today

    We aim to have at least 60% to 65% OEE in forging. That's a realistic target... Okay, so that translates into 300 crores.

    — Mr. Viraj G. Kalyani

  • Tonnage OEE Capacity Capacity · within 1.5-2 years · Medium confidence 20,000-25,000 tons

    From 10,000 tons today

    Tonnage currently is at close to 10,000 tons in terms of OEE capacity. And it should be increasing. It can go up to 20,000- 25,000 tons... I mean, that's the major challenge. We have an internal target to get there within the next one and a half to two years.

    — Mr. Viraj G. Kalyani

Cost Efficiency

  • Material Cost as % of Revenue Cost Efficiency · within 2 years · High confidence 45%

    From 48% today

    The biggest factor is material cost, which is at 48% right now, we need to bring it to 45%.

    — Mr. Viraj G. Kalyani

  • COPQ Reduction Savings Cost Efficiency · for the year · High confidence 1.5 crores
    We're targeting about 1.5 crores of savings from COPQ reduction for the year.

    — Mr. Viraj G. Kalyani

Product Mix

  • Machined Sales as % of Total Sales Product Mix · this year · High confidence 65-70%

    From 60% today

    We are doing 60% of our sales is machined supply condition and 40% is as forged... Yes, machining is from 60%. Our target is to go to 70% this year, or 65 to 70%.

    — Mr. Viraj G. Kalyani

What to watch in Q2 FY26

One-off maintenance expenses

next quarter (Q2 FY26)
Current Significant in Q1, contributing to higher other expenses
Target Much less in Q2

Why it matters

Will impact profitability and provide a clearer picture of underlying operational efficiency.

Mr. Viraj G. Kalyani: Yes, it will be much less in the next quarter, I cannot give an exact quantification at this point, but as I said it is related to maintenance expenses which were necessary to improve our productive capacity.

Risks & concerns

  • Achieving ambitious growth and margin targets

    medium

    Doubling revenue by 2027 and achieving 15% EBITDA margin is acknowledged as a challenging task requiring strong execution, business development, and CapEx.

    Management acknowledged

  • Execution of new orders and capacity ramp-up

    medium

    Converting the 115 crores of new business wins from FY25 and 95 crores from FY24 into revenue requires efficient execution and capacity ramp-up, which is a major focus.

    Management acknowledged

  • Impact of EV transition on traditional engine business

    medium

    Management maintains a positive outlook, believing their engine business (truck, off-road, industrial segments) is resilient, and EVs are primarily restricted to passenger cars/two-wheelers.

    Analyst downplayed

  • Impact of US Tariff Issues on export growth

    low

    Management states they are not currently facing challenges from US tariffs due to niche products and the ability to pass on costs to customers.

    Analyst downplayed

Q&A highlights

8 direct
CapEx, Capacity, Asset Turnover, and Other Expenses Direct
We have installed capacity in forgings of close to 500 crores. But this is at 100% OEE i.e. overall equipment efficiency. When we look at the OEE capacity of forgings, we are currently at 150 to 200 crores.

Clarifies the company's current capacity utilization and the strategic intent behind CapEx and higher Q1 expenses, indicating a significant headroom for growth.

Asked by Mr. Saket Kapoor

OEE Definition and Forging Capacity Target Direct
No, I said for the forging capacity, our installed capacity is 500 crores and the OEE capacity is 150 crores... Yes, yes. It won't reach 500 crores because we aim to have at least 60% to 65% OEE in forging. That's a realistic target... Okay, so that translates into 300 crores.

Provides a clear target for forging OEE capacity (300 crores) and explains the current gap, highlighting the potential for operational improvement.

Asked by Mr. Saket Kapoor

Doubling Revenue and 15% EBITDA Margin by 2027 Direct
This Vriddhi Council is a council of project leaders that are driving high impact strategic initiatives across the company... These are initiatives which involve ramping up production and major cost savings...

Explains the strategic framework (Vriddhi Council) and initiatives driving the ambitious growth and margin targets, indicating a structured approach to achieving them.

Asked by Mr. Somil Shah

Export Orders, US Tariff Issues, and Geographic Mix Direct
No, we are not facing challenges on the tariff situation currently. Our businesses are very niche and very high precision products and it's not very easy to just change over to some other location... Europe and US share pretty equal, Europe slightly higher.

Provides clarity on the company's export strategy, resilience to tariff issues, and geographic distribution of international sales, reassuring investors about global market risks.

Asked by Mr. Somil Shah

Funding of CapEx and Potential Equity Raise Direct
So for this year's CapEx, we already received a term loan and we are fully covered... At the same time, we are seriously exploring raising capital from equity in the coming quarters... Sorry, one point was it's not 100% debt financed. It's 75% is financed by debt and 25% from our internal accruals.

Reveals the funding mix for CapEx (75% debt, 25% internal accruals) and the strategic consideration of an equity raise, indicating future capital structure plans.

Asked by Mr. Rohit Balakrishna

Strategy for Margin Improvement from 10-11% to 15% Direct
The biggest factor is material cost, which is at 48% right now, we need to bring it to 45%... Next is manpower cost... Third is power cost... And then the fourth is on the consumable costs...

Details the four key levers management plans to use for significant margin expansion, including specific targets for material cost reduction, providing a roadmap for profitability.

Asked by Mr. Rohit Balakrishna

Outlook on Engine Business and EV Transition Direct
No, we have a very positive outlook on all our businesses, including the engine business... engines are here to stay and even though EVs may increase, it's most probably restricted to the passenger car space and maybe the two wheeler space. We are, our engine business is mostly on the truck space, a truck segment and off-road and industrial segments.

Addresses a key sector risk (EV transition) and management's confidence in the continued relevance and growth of its core engine business segments, reassuring investors about future demand.

Asked by Mr. Rohit Balakrishna

Call Timing and Presentation Upload Direct
Sir, another point was that we hosted our call at 11am and presentation was uploaded 9 or 10 minutes ago only. So requesting that next time, either with the results you come up with the presentation or give us at least 2 hours time.

Highlights a logistical issue that impacted analyst preparation, indicating a need for improved communication practices in future calls.

Asked by Mr. Saket Kapoor

3 min read 7 chapters

Detailed narrative

Q1 FY26 Performance Overview

Kalyani Forge reported a strong Q1 FY26 with total income reaching ₹64.52 crores, marking a 12% year-on-year and 9% quarter-on-quarter revenue growth. Profitability significantly improved, with PAT at ₹1.4 crores and PAT margin up 300% YoY. EBITDA stood at ₹6.25 crores, translating to a 9.7% margin, maintained despite increased planned expenses and maintenance activities.

Strategic Growth Drivers & Initiatives

The company's "Vriddhi Council," comprising 13 strategic projects, delivered ₹10 crores in gains and savings during Q1. These initiatives focus on production ramp-up, cost savings (purchase, power, tools, quality), and are reviewed monthly to drive top-line growth and EBITDA expansion. Governance and compliance were strengthened with a clean audit review task force and direct MD oversight on high-value vendor engagements.

Capacity Enhancement & Modernization

Kalyani Forge is actively working on unlocking capacity, particularly in forging, where current OEE capacity is ₹150-200 crores against an installed capacity of ₹500 crores, with a target to reach ₹300 crores (60-65% OEE). In Q1, ₹4 crores of the ₹25 crore FY26 CapEx budget was utilized, commissioning a new connecting rod machining line and initiating a second forging press recon project. The company aims to increase tonnage OEE capacity from 10,000 tons to 20,000-25,000 tons within 1.5-2 years.

Product & Geographic Mix Evolution

The product mix in Q1 FY26 saw Engine components contributing 59% of sales (up 16% YoY), Driveline 18% (up 42% YoY to ₹12 crores), and Axle 9% (up 124% to ₹5.5 crores). Exports constituted 21% of total sales, growing 25% QoQ, with Europe sales showing particular strength. The company targets 50% exports in the medium to long term, focusing on high-volume, high-value businesses in Europe and the US.

Margin Improvement Strategy

Management outlined a clear strategy to achieve a 15% EBITDA margin, primarily by reducing material cost from 48% to 45% through increased machining content, better pricing, and yield improvement. Other levers include increasing manpower productivity, implementing energy efficiency initiatives to reduce power costs, and optimizing consumable, transport, and indirect costs through better procurement and planning. The company also targets ₹1.5 crores in savings from Cost of Poor Quality (COPQ) reduction this year.

Business Development & Order Wins

Kalyani Forge secured new business orders worth ₹115 crores in FY25, representing peak annual revenue over a 5-10 year program lifetime. This follows ₹95 crores in new orders in FY24. The company received two significant customer awards in Q1: the Technology and Support Award from KOEL and the Collaboration Excellence Award from Mahindra, recognizing its capabilities in new product development and line setup. New order wins are primarily in connecting rods and nozzle rings, with tulips also starting SOP this year.

Outlook on Engine Business & EV Transition

Despite concerns about the EV transition, management maintains a positive outlook on its engine business, which primarily serves the truck, off-road, and industrial segments. They believe these segments will continue to grow, asserting that EVs are largely restricted to passenger cars and two-wheelers. The company also highlights that 40% of its current products are non-ICE based, which are experiencing higher growth rates, indicating a balanced and diversified portfolio.

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