Summary
Kalyani Forge Limited - Q3 FY26 Earnings Call Summary Thursday, February 12, 2026, 11:00 AM IST
Event Participants
Executives Viraj G. Kalyani (Managing Director)
Analysts Saket Kapoor, Sunil Kumar Amin, Neha Saxena, Vansh, Swami, Jagdish
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue | ₹58.22 crores | +3.54% QoQ; Resilient despite deliberate exit from low-margin legacy business. |
| EBITDA | ₹9.14 crores | Calculated based on 15.7% margin; Driven by material/power discipline and operational stabilization. |
| EBITDA Margin | 15.7% | +~300 bps YoY; All-time high for the company, following “Vriddhi Council” efficiency initiatives. |
| PBT | ₹3.94 crores | Strongest performance in several quarters; reflects structurally improved operating profitability. |
| PAT | (₹0.12 crores) | Negative due to a non-cash deferred tax adjustment relating to significant asset capitalization. |
| Export Revenue | ₹10.60 crores | Growth driven by scaling of the new European transmission program; old legacy volumes pruned. |
| New Order Book | ₹162 crores | Includes ₹107cr in engine (Connecting Rods), ₹45cr in driveline, and ₹10cr in axle segments. |
| Net Fixed Assets | ₹74 crores | Increased from ₹60.4 crores in Q4 FY25; Fixed Asset Turnover stands at 3.5x. |
Geographic & Segment Commentary
- Engine Segment: Remains the core capability centered on connecting rods; experienced stable growth supporting OEM demand in the domestic passenger vehicle (PV) segment.
- Driveline & Axle Segments: Designated as future growth areas with 60% of FY26 CapEx allocation; focus is on warm/cold forging technologies for xEV and high-performance components.
- Exports (Europe & US): Scaling up a major transmission program for a European marquee OEM; management is bullish on the upcoming FTA (Jan 2027) to further enhance competitiveness.
Company-Specific & Strategic Commentary
- Business Mix Optimization: Executing a three-phase “Operating Reset” involving product rationalization (exiting non-core), customer quality upgrades (reducing credit risks), and price optimization.
- Operational Excellence: The “Vriddhi Council” is overseeing reconditioning of legacy forging presses and upgrading die-life to improve Overall Equipment Effectiveness (OEE).
- Digitalization: Implemented an automatic credit control system through ERP to mitigate receivable risks and enhance cash conversion cycles.
- Manufacturing Capability: KFL remains the only Indian forging company offering engine, driveline, and axle components under one roof using hot, warm, and cold forging.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue | Flat to slightly higher (FY26) | Rationalization of old business offsets new growth; target is to productionize ₹30cr of new business by Mar '26. |
| EBITDA Margin | 15% (Stabilization) | Medium-term target is to stabilize at 15%; long-term milestone set at 20%. |
| Revenue Potential | ₹500 crores (Theoretical) | Current physical capacity supports ₹500cr, but requires asset base strengthening to make it reliable/predictable. |
| CapEx | ₹25 crores (FY26) | ₹18cr spent as of Q3; focused on refurbishing forging presses and adding induction hardening capacity. |
Risks & Constraints
| Risk | Context |
|---|---|
| Asset Age | Forging assets are old; requires constant reconditioning (₹7.6cr allocated) to maintain productivity and prevent quality rejections. |
| Tax Volatility | Non-cash deferred tax adjustments impacted PAT this quarter; management expects potential reversals in Q4 depending on capitalization timing. |
| High Employee Costs | Employee costs remain at 21-22% of revenue due to wage agreements; mitigation planned via automation and higher sales denominator. |
Q&A Highlights
Margin Trajectory & PAT
- Question: How will the company improve PAT margins given that 15-16% EBITDA is not yet reflecting below the line? (Saket Kapoor)
- Answer: EBITDA is the primary lever; as it expands, it will lift PBT/PAT. Management is also optimizing interest costs through better banking facilities and managing depreciation via structured CapEx. (Viraj Kalyani)
Capacity & Utilization
- Question: What is the maximum revenue potential of the current setup? (Vansh)
- Answer: Theoretical capacity is ₹500 crores. Current reliable capacity is around ₹200 crores; CapEx is aimed at moving this toward the ₹500 crore mark by improving OEE. (Viraj Kalyani)
Business Rationalization
- Question: Is the company sacrificing growth for margins? (Swami)
- Answer: No. The “flat” revenue reflects a deliberate substitution of “bad” legacy business with “good” high-margin OEM business to improve future scalability. (Viraj Kalyani)
Order Execution
- Question: What is the status of the new business productionization? (Saket Kapoor)
- Answer: Target is ₹30 crores for FY26. Approximately ₹20 crores was productionized in the first nine months; several projects are in the final launch phase for Q4. (Viraj Kalyani)
Key Takeaway
Kalyani Forge reported a resilient Q3 FY26, characterized by record EBITDA margins of 15.7% despite a deliberate strategy to prune low-margin legacy accounts. The company is undergoing a multi-year structural transformation, shifting focus toward high-value Driveline and Axle segments, which now constitute 60% of the ₹25 crore FY26 CapEx budget. While revenue remained relatively flat at ₹58.22 crores due to business rationalization, the underlying quality of earnings has improved, evidenced by an all-time high PBT. The negative PAT this quarter was a non-cash accounting aberration due to deferred tax. Management remains focused on stabilizing margins at current levels while targeting a theoretical revenue potential of ₹500 crores as they modernize the asset base. Investors should monitor the successful scale-up of the ₹162 crore new order book and the stabilization of employee costs as key drivers for future PAT growth.
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