Kalyani Forge

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.

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.

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%.

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.

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.

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.