Kalyani Forge Limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Kalyani Forge reported a Q3 FY25 total income of ₹59 crores, a slight decline from previous periods, primarily due to a slowdown in the automotive market. Despite this, the company maintained its EBITDA at 11.5% (₹6.83 crores) and saw PAT increase to ₹1.82 crores YoY, driven by cost reduction efforts and product mix optimization. Strategic initiatives, including new customer acquisitions, a large OEM order, and commissioning of a rooftop solar project, position the company for future growth, with management targeting to double revenue in the coming years.

Highlights

  • EBITDA maintained at 11.5% (₹6.83 crores) despite lower revenue, demonstrating cost control and product mix optimization. (Page 6)

  • PAT increased to ₹1.82 crores in Q3 FY25, up from ₹1.52 crores in Q3 FY24, indicating improved profitability. (Page 6)

  • Acquired three new customers in Q3, including a new Tier 1 automotive customer and a large order from an existing passenger car OEM, signaling strong business development. (Page 7)

  • Share price reached an all-time high of ₹823 in the last quarter, reflecting positive investor sentiment. (Page 6)

  • Commissioned a rooftop solar project covering 40% of electricity consumption for its PAD unit, contributing to cost savings and sustainability. (Page 7)

Concerns

  • Total income for Q3 FY25 was marginally lower at ₹59 crores, compared to ₹62.8 crores in Q2 FY25 and ₹61.45 crores in Q3 FY24. (Page 6)

  • The automotive market experienced some decline in Q3, leading to reduced OEM production volumes to control inventory. (Page 6)

  • Historical lack of significant revenue growth over the past decade was highlighted by an analyst, though management outlined a new aggressive approach. (Page 10)

Key financials

  1. Total Income ₹59 Cr -4%YoY
  2. EBITDA ₹6.83 Cr
  3. EBITDA Margin 11.5%
  4. PAT ₹1.82 Cr +19.7%YoY
  5. Raw Material Cost 47%
  6. Employee Cost 15 % of sales

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

  • Industrial Segment
    ₹64 Cr Revenue
  • Power and Turbo Segment
    ₹75 Cr Revenue (Previous)₹30 Cr Revenue (Current)
  • Agro Segment
    ₹35 Cr Revenue (Previous)₹18 Cr Revenue (Current)
  • Exports
    15% Share of Business

Order book

high confidence

Total value

₹380 Cr

as of 2024-12-31 quantified

Execution

The order book cycle for programs typically runs for about five, seven, or ten years, with peak annual volumes over the next coming years.

Composition

  • Exports (geography) 15%

Cancellations & deferrals

  • phased out: Phasing out of non-profitable businesses and those reaching end-of-life.
  • phased out: 75-80% of the bottom 20% of earlier existing non-profitable business has been phased out or improved.
We expect a healthy growth in the utilization level next year, with an increase on the forging side and a need to expand machining capacity.

Source: Prepared remarks · Q&A

Capital allocation

high confidence
  • Capex ₹30 Cr
    • Machining expansion phase two
    • Forging modernization program
    • Utilities modernization project for energy efficiency
    • Rooftop solar project
    • Driveline machining cells
    • 4000-ton press project (phased manner)
    In the last 2-3 years, we have added a capital of about 30 crores. And now the current ratio is near about 0.77. And after doing some more additional capex, the ratio will be around 1.3. ... another 30, 40 crores. That will be significant.
  • Debt Debt disclosed
    And also on your debt numbers, what is the net debt numbers, our cost of fund and after this, sir, I have one brief understanding on since you have now opened up to your investors, a couple of suggestions on my side, if that could be deliberated on.
  • M&A Other companies Acquisition · Future plan

    inorganic growth

    In the long term, we will look at acquiring other companies for our inorganic growth. And that is in our long-term growth plan.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · Ongoing · High confidence 15%
    So we are at 11.5% and our target EBITDA is 15%.

    — Mr. Viraj G. Kalyani

  • Gross Margins Improvement Profitability · next two years · Medium confidence 200 to 300 bps
    Yeah, our future forecast is very positive and as explained by Virastha, our gross margin will be higher in upcoming years on account of product mix. Those products which are having higher material cost and those products which are having lower material cost were making a proper product mix. So the raw material cost will be under control and there will be definitely increase in gross margin in the upcoming two years.

    — Mr. Nilesh Bandale

Revenue

  • Revenue Doubling Revenue · next few years · Medium confidence doubling our revenue
    So as we have been discussing, I cannot give you an exact forward-looking statement, but we are looking at doubling our revenue over the next few years.

    — Mr. Viraj G. Kalyani

Market Share

  • Export Share of Total Business Market Share · long-term · Medium confidence 50%
    We do have a plan of increasing exports to 50%. Of our total business over the long-term

    — Mr. Viraj G. Kalyani

Capital Allocation

  • Current Ratio Capital Allocation · after doing some more additional capex · High confidence 1.3
    And after doing some more additional capex, the ratio will be around 1.3. ... 1.3 is comfortable level, sir.

    — Mr. Nilesh Bandale

What to watch in Q4 FY25

4000-ton Press Project Completion

Q1 of next year (FY26)
Current Main press erected, ancillary equipment being assembled.
Target Ready for operation.

Why it matters

This is a significant capex project that will enhance capacity and contribute to future growth.

on the 4,000 ton press project we have completed the main press erection, there are now the ancillary equipment which is getting assembled the supporting trimming press and so we are going to do that in a phased manner... So we will take another quarter and have it ready in Q1 of next year.

Risks & concerns

  • Cyclicality of Automotive Industry

    medium

    Q3 revenue was impacted by reduced production volumes from OEMs to control inventory after the festive season, highlighting the cyclical nature of the industry.

    Management acknowledged

  • Raw Material Price Volatility

    medium

    Raw material accounts for almost 50% of costs, and efforts are underway to control it through procurement, supplier consolidation, and yield improvement.

    Analyst acknowledged

  • Competition from Larger Players

    medium

    The forging industry has many players, with larger, more efficient players, but Kalyani Forge focuses on specialized products and customer relationships to compete.

    Analyst acknowledged

Q&A highlights

6 direct, 1 evasive
Gross Margins and Raw Material Costs Direct
So raw material is a very big factor in our cost structure. It accounts for almost 50% of our costs. Last quarter, we were at 47%. We are taking a very conscious three-pronged effort in raw material costs. First is in the procurement cost itself. We are working with a stronger supplier base, consolidating the supplier base of raw material vendors.

Addresses a core profitability driver and outlines specific strategies for improvement, including supplier consolidation and quality control.

Asked by Mr. Rahul Jain

Segmental Sales Performance and Reclassification Direct
the industrial segment growth to 64 crores has come from new programs that have been launched in the last year as well as market share or share of business increases with our existing customer base particularly in the gen set market... the power and turbo which has reduced from 75 to 30 and the industrial from 23 to 64 if you take them together you'll get overall picture what we did is some reclassification where we separated out turbo completely and we moved the power to the industrial segment so some of that reclassification is also causing a swing in these numbers

Clarifies the significant shift in industrial segment revenue and explains that reclassification played a role in the apparent decline of turbocharger and agro segments, providing context for future segment analysis.

Asked by Mr. Rahul Jain

Historical Lack of Growth and Future Aggressive Approach Direct
in the 2010s we took a very conservative approach we did not invest too much in additional capacity and the focus was more on preserving the business for a long-term sustainability... now we are working on getting the right timing and I think the last few years we are much more clear about the picture regarding our product portfolio... So what's going to be different is our is a more aggressive approach now, based on our lessons learned from the last decade.

Directly addresses the analyst's concern about stagnant revenue over the past decade and signals a strategic shift towards more aggressive growth, crucial for investor confidence.

Asked by Mr. Ankit Gupta

Competing with Larger Players and Strategic Focus Direct
Our competitive strategy is based on sticking to our core strengths. Okay. So, the main thing is not to get carried away with everything that our competitors are doing. Each competitor specializes in a certain set of products or, it could even be one product or a few signature products. That is the discipline that we are maintaining increasingly now... we focus on fewer products.

Explains the company's strategy to compete in a fragmented industry dominated by larger players by focusing on core strengths and a narrower product portfolio, rather than broad expansion.

Asked by Mr. Dhwanil Desai

Phasing Out Less Profitable Businesses Direct
Quantifying the number, I may give you some wrong figures right now, but this is something, I think we, looked at about 20% of our earlier existing business, as potential for turnaround. These are either replacing or, phasing out or improving the margins, the bottom 20% of our order book, out of this, I think we have, come towards 75% of the journey. There is still another 15% left.

Provides a quantitative insight into the company's ongoing efforts to streamline its business by exiting or improving less profitable segments, indicating 75% completion of this initiative.

Asked by Mr. Dhwanil Desai

Peer Comparison and Merger Speculation Evasive
No, I can't. Thank you, sir. Thank you for your suggestions. Thank you very much. We will update all the presentations according to your suggestions. Definitely, Kalyani Forge is a strong, resilient company. We are here for the long term. So, there is no question of being acquired by some other company. In the long term, we will look at acquiring other companies for our inorganic growth. And that is in our long-term growth plan.

Management explicitly denies any plans for merger with a larger entity like Bharat Forge, reassuring investors about the company's independent future and long-term inorganic growth strategy.

Asked by Mr. Saket Kapoor

4000-ton Press Project Status Direct
on the 4,000 ton press project we have completed the main press erection, there are now the ancillary equipment which is getting assembled the supporting trimming press and so we are going to do that in a phased manner... So we will take another quarter and have it ready in Q1 of next year.

Provides a clear update on a significant capex project, indicating its phased completion and expected readiness in Q1 of the next fiscal year.

Asked by Mr. Hemant

3 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Overview and Market Dynamics

Kalyani Forge reported a total income of ₹59 crores for Q3 FY25, marking a marginal decrease from ₹62.8 crores in Q2 FY25 and ₹61.45 crores in Q3 FY24. This revenue dip was primarily attributed to a slowdown in the automotive market, where OEMs reduced production volumes to manage inventory post-festive season. Despite the top-line pressure, the company successfully maintained its EBITDA at ₹6.83 crores, achieving an 11.5% margin. Furthermore, PAT increased to ₹1.82 crores in Q3 FY25 from ₹1.52 crores in the prior year's corresponding quarter, driven by effective cost reduction efforts and an optimized product mix.

Strategic Growth Pillars and Business Development Successes

The company's growth strategy is underpinned by three key pillars: strong execution, robust business development, and judicious capital expenditure. In Q3, Kalyani Forge achieved significant business development milestones, including the acquisition of three new customers. These comprised a new Tier 1 automotive customer, a new MNC customer in the XCV product group, and a new export customer for transmission parts. Additionally, the company secured a large order from an existing leading passenger car OEM, reinforcing its entrenched position and multi-decade relationships with key clients.

Product Portfolio, Market Diversification, and Segment Reclassification

Kalyani Forge's product offerings span engine, driveline, and axle components, catering to diverse market segments such as trucks, cars, industrial, and agro. While the automotive sector experienced some cyclicality, the industrial segment, particularly gen sets, showed strong demand. Management clarified that the industrial segment's growth to ₹64 crores was partly due to a reclassification, where 'power and turbo' business (previously ₹75 crores, now ₹30 crores) was moved. The agro segment also saw a decline from ₹35 crores to ₹18 crores, attributed to phasing out non-core agricultural businesses. Exports currently account for 15% of total business, with a long-term target to reach 50%.

Cost Optimization and Margin Enhancement Initiatives

A significant focus for the company is cost optimization and margin improvement. Raw material costs, which constituted 47% of total costs last quarter, are being actively managed through a three-pronged approach: strengthening the supplier base, consolidating vendors, and improving metallurgy to enhance quality and reduce poor quality costs. Engineering projects are also underway to improve yield (gross weight to net weight of parts). These efforts, combined with optimizing manpower costs and improving OEE, are aimed at increasing gross margins by 200-300 basis points over the next two years and achieving a 15% EBITDA margin target.

Capital Expenditure and Capacity Expansion

Kalyani Forge's capital expenditure strategy focuses on high-return investments and optimizing existing capacities. Total fixed assets have marginally grown to ₹71 crores, with ₹8.4 crores in Capital Work-in-Progress (CWIP). The company has invested approximately ₹30 crores in capex over the last 2-3 years and plans an additional ₹30-40 crores over the next 15 months. Key capex projects include machining expansion (phase two), a forging modernization program, and utilities modernization for energy efficiency. The 4000-ton press project has completed main erection and is expected to be ready in Q1 of the next fiscal year, while a rooftop solar project has been commissioned, covering 40% of electricity consumption for its PAD unit.

Future Outlook and Growth Trajectory

Management expressed confidence in doubling revenue over the next few years, driven by a more aggressive approach to growth and a record number of order wins. The company anticipates healthy growth in the Indian market, benefiting from government focus on infrastructure and agriculture, which will boost demand for commercial vehicles and agro machinery. Kalyani Forge affirmed its independent trajectory, denying any merger plans with larger entities, and stated its long-term plan includes inorganic growth through future acquisitions. The current ratio is expected to improve to a comfortable 1.3 after planned capex.

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