Kalyani Forge Limited — Q3 FY26 earnings call

Call held 12 Feb 2026

Management summary

Kalyani Forge delivered a strong Q3 FY26, achieving record EBITDA margins and an all-time high PBT, driven by strategic exits from low-margin businesses and enhanced operational efficiencies. While PAT was impacted by a non-cash deferred tax adjustment, the company is actively expanding its new business order book to ₹162 crores and investing in CAPEX focused on future growth areas. Management is focused on continuous operational improvements and a deliberate strategy for sustainable growth.

Highlights

  • Revenue of ₹58.22 crores, up ₹1.99 crores QoQ from ₹56.23 crores.

  • EBITDA margin expanded to 15.7%, marking the highest in the company's history.

  • Profit Before Tax (PBT) reached ₹3.94 crores, an all-time high and highest in the last several quarters.

  • Secured a new business order book totaling ₹162 crores, with significant contributions from driveline and axle segments.

  • OEM revenue improved significantly to ₹35 crores in Q3, the highest in the last five quarters.

Concerns

  • Profit After Tax (PAT) was negative ₹0.12 crores due to a non-cash deferred tax adjustment.

  • Employee costs remained high at ₹12 crores, representing 20.61% of revenue, which management aims to reduce.

  • No specific timeline provided for achieving the aspirational 20% EBITDA margin target.

Key financials

  1. Revenue ₹58.22 Cr +3.5%QoQ
  2. EBITDA Margin 15.7%
  3. PBT ₹3.94 Cr
  4. PAT ₹-0.12 Cr
  5. Employee Cost ₹12 Cr
  6. Employee Cost % of Revenue 20.6%

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.

Order book

high confidence

Total value

₹162 Cr

as of 2025-12-31 quantified

Composition

Mix 3 products
  • Connecting Rods 66%
  • Driveline 27.8%
  • Axle 6.2%

Share of order book by product

Pipeline

qualified rfp

RFQ quality for new order book pipeline has drastically improved due to rejection of unrelated and non-core product lines.

The new business order book is strategically focused on core and growth areas, with a significantly improved quality of RFQs.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹25 Cr
    • Future growth areas (driveline and axle) ₹15 Cr
    • Engine product group (market share increase, demand increase) ₹10 Cr
    • Reconditioning (mostly forging, 10% machining) ₹7.6 Cr
    60% of our CapEx allocation is to future growth areas, that is driveline and actual products. So, I'm talking about our 25 crore FY26 CapEx budget. So, 60% of that has been allocated to future growth areas and the remaining 40% is for the engine, mostly for the engine product group, which is also experiencing significant growth through market share increase as well as demand increase.
  • Debt Debt disclosed
    • Rate reset Getting new banking facilities with lower or better interest rates to optimize interest costs.
    I know that the interest cost has slightly increased in these nine months compared to last year, but that was a function of our working capital optimisation and improving our banking facilities.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · Near-term · High confidence 15.7%
    our current priority is stabilised at this level

    — Mr. Viraj Kalyani

  • EBITDA Margin Profitability · Longer term · Low confidence 20%
    20% is the next milestone. It will take a little more time but it is definitely within sight and you know, we know the approaches for it. It's too early to give a milestone date or expected time frame for that.

    — Mr. Viraj Kalyani

  • FY26 EBITDA Margin Profitability · FY26 · Medium confidence Some improvement
    EBITDA margin, we should see some improvement for overall financial year basis.

    — Mr. Viraj Kalyani

Revenue

  • FY26 Revenue Revenue · FY26 · Low confidence Similar to last year or slightly higher
    Our FY26 revenue, we are looking at a similar level as last year or slightly higher. I cannot give an exact guidance.

    — Mr. Viraj Kalyani

New Business

  • New Business Productionizing New Business · FY26 · High confidence 30 crores
    our aim is to productionize at least 30 crores of this new business in FY26.

    — Mr. Viraj Kalyani

What to watch in Q4 FY26

EBITDA Margin Stabilization and Progress towards 20%

Next quarter and beyond
Current 15.7%
Target Stabilize at current level, progress towards 20%

Why it matters

Core to the company's profitability strategy and a key management focus for long-term value creation.

our current priority is stabilised at this level, 20% is the next milestone.

Risks & concerns

  • Volatility in PAT due to Deferred Tax Adjustments

    medium

    PAT was negative ₹0.12 crores due to a non-cash deferred tax adjustment, which may recur or reverse in future quarters depending on asset capitalization.

    Management acknowledged

  • High Employee Cost Percentage

    medium

    Employee costs are 20.61% of revenue (₹12 crores), which is considered high, though management is focused on improving productivity and sales to reduce this percentage.

    Analyst acknowledged

Q&A highlights

6 direct, 1 evasive
PAT Margin vs. EBITDA Margin as Profitability Driver Direct
But what's going to improve the PAT margin the most, the biggest lever is EBITDA margin and that's why that has been our top most focus. Historically, our EBITDA margin was pretty low and improving that was the top priority. The moment, the more you increase EBITDA margin, it just lifts up PBT as well as PAT, as long as we keep depreciation and interest costs in control.

Clarifies management's primary focus on EBITDA margin as the key driver for overall profitability, including PAT, and explains the factors influencing PAT beyond EBITDA.

Asked by Saket Kapoor

Timeline for Achieving 20% EBITDA Margin Target Evasive
I mean, as I said, I won't give a forward looking guidance on EBITDA margin, our current priority is stabilised at this level, 20% is the next milestone. It will take a little more time but it is definitely within sight and you know, we know the approaches for it. It's too early to give a milestone date or expected time frame for that.

Indicates an aspirational target without a concrete timeline, suggesting potential long-term execution challenges or uncertainty.

Asked by Saket Kapoor

Impact of Deferred Tax Adjustment on PAT Consistency Direct
So deferred tax is a tax that it's a sort of tax accounting rule where you have to look at tax as per income tax act and tax calculated as per the company's books. There is some difference in the rules of calculating it and that difference is what has to be booked as a deferred tax. Sometimes it can be plus sometimes it can also be minus. So the major factor was that in Q1 and Q2, there was some significant capitalisation of assets this year and therefore the deferred tax expenses come up. We expect in next quarter, it may become negative as well. That means it will add to the bottom line. But please don't hold me for that. It depends on several factors.

Explains the reason for negative PAT in Q3 and indicates potential volatility in PAT due to non-cash deferred tax adjustments in future quarters.

Asked by Vansh

Completion Status of Operating Reset Phase Partial
I wouldn't say it's done or complete because operational excellence and continuous improvement is a very core part of manufacturing philosophy. It comes from the manufacturing philosophy, which companies like Toyota had made into a fine science, so to speak. So continuous improvement will be our next phase as we finish a lot of the resetting and reconditioning or restructuring activities.

Clarifies that while significant progress has been made, the operational reset is an ongoing process, transitioning from 'resetting' to 'continuous improvement,' implying sustained effort rather than a one-time fix.

Asked by Neha Saxena

Trade-off Between Revenue Growth and Margin Expansion Direct
Short answer is NO, the company is not consciously trying to control revenue to increase margins. We are consciously removing bad business and bringing in good business into the company. And this is what will improve future ability to increase sales as well as future sales and improve the margins and that's what we have highlighted in our business mix optimisation roadmap.

Addresses concerns about sacrificing top-line growth for margins, explaining that current flat revenue is a deliberate outcome of business mix optimization aimed at healthier, sustainable growth.

Asked by Swami

Maximum Revenue Potential with Current Capacity and CAPEX Strategy Direct
Our installed capacity theoretically can produce revenues of close to 500 crores. However, the fixed asset value currently is only 74 crores... Industry benchmark for sales to net fixed assets is 1.5 to 2 and we are currently having revenues of 3.5 times the net fixed assets. Our plan is to increase the CAPEX to bring the asset base up to a good level that is what will help us realise that 500 crore installed capacity.

Provides a clear long-term revenue potential figure and links it directly to the ongoing CAPEX strategy to strengthen the asset base.

Asked by Vansh

CAPEX Spend and Capitalization Progress Direct
So out of the 25 crore budget, we have spent around 18 crores in up to Q3. This is a ballpark figure I'm telling you and the rest we are going to complete in this quarter. In terms of capitalised value, as you can see in this fixed asset graph, it's simply 74 minus 60. Which is this is Q4 fixed asset base of 60.4 and 74 is the latest. That's a rough estimate. So around 14 crores is capitalised so far. But this 14 crores may include some projects from last year as well. So you cannot automatically relate the 18 crores to the 14 crores.

Provides clarity on the progress of CAPEX execution and capitalization, highlighting that most projects are for immediate turnaround and ROI.

Asked by Saket Kapoor

High Employee Cost as a Percentage of Revenue Direct
So, the first point, sir, which I wanted to understand from you is pertaining to the employee cost. I think so, you showed it from the aspect of efficiency and Vriddhi council but, as a percentage of sales, where do you see this number? Because in this quarter also, it has remained flat at 12 crores. If we go in percentage, then it is of 21 -22 % of revenue.

Identifies a key cost area that remains high as a percentage of revenue, despite management's focus on efficiency, indicating a potential drag on profitability if not managed.

Asked by Saket Kapoor

2 min read 6 chapters

Detailed narrative

Q3 FY26 Financial Performance Highlights

Kalyani Forge reported a strong Q3 FY26 with revenue reaching ₹58.22 crores, an increase of ₹1.99 crores from the previous quarter. The company achieved its highest-ever EBITDA margin at 15.7% and an all-time high Profit Before Tax (PBT) of ₹3.94 crores. However, Profit After Tax (PAT) was negative ₹0.12 crores, primarily due to a non-cash deferred tax adjustment related to asset capitalization.

Strategic Business Mix Optimization and Margin Expansion

The company's significant EBITDA margin expansion to 15.7% is attributed to a deliberate strategy of exiting low-margin and non-core businesses, coupled with improved material and power cost discipline. Management emphasized that the current flat revenue growth is a conscious outcome of this business rationalization, which is designed to enhance future sales capability and improve margins sustainably. The long-term target is to reach a 20% EBITDA margin, though no specific timeline was provided.

New Business Development and Order Book Growth

Kalyani Forge secured a new business order book totaling ₹162 crores, with ₹107 crores from connecting rods, ₹45 crores from driveline, and ₹10 crores from the axle segment. The company is actively scaling up new export businesses, particularly a European transmission program, and aims to productionize at least ₹30 crores of this new business in FY26. Approximately ₹20 crores of new business has already been productionized in the first nine months of the fiscal year.

Capital Expenditure and Asset Base Enhancement

For FY26, Kalyani Forge has a CAPEX budget of ₹25 crores, with 60% allocated to future growth areas like driveline and axle, and 40% to the engine segment. Approximately ₹18 crores has been spent up to Q3, with ₹14 crores capitalized. The company's current fixed asset value is ₹74-75 crores, and the plan is to increase this asset base to support a theoretical installed capacity of ₹500 crores, improving the sales to net fixed assets ratio from 3.5x towards the industry benchmark of 1.5-2x.

Operational Efficiency and Cost Management

Operational stabilization, driven by initiatives like machine reconditioning and dye run prioritization, has contributed to improved productivity and reduced rejections. While employee costs remain a concern at 20.61% of revenue (₹12 crores in Q3), management is focused on enhancing productivity, reducing manual work, and increasing sales to bring this percentage down. The company is also working on reducing working capital through improved inventory management and a new credit control system.

Market Outlook and Geographic Diversification

The company is bullish on export opportunities, particularly with the Free Trade Agreements with Europe (expected to be effective January 2027) and the US, which are anticipated to drive future growth. Kalyani Forge benefits from a diversified customer base across passenger cars, trucks, construction, and agriculture segments, providing a hedge against seasonal demand fluctuations and leveraging India's high-growth market and premiumization trends.

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