Kalyani Forge Q1 FY26: Decoding the Ambitious Plan to Double Revenue & Achieve 15% EBITDA by 2027

As an expert financial analyst and blogger, I’ve dived deep into Kalyani Forge Limited’s (KFL) latest earnings call transcript for Q1 FY26. The numbers and management commentary paint a compelling picture, especially when viewed against the backdrop of the broader Indian economic landscape. Let’s unpack the key insights.

Kalyani Forge: Forging Ahead in Q1 FY26 – A Deep Dive into Growth and Strategy

The Indian markets, after a spirited Q1 rally, faced a July correction influenced by cautious guidance and global uncertainties. Yet, amidst this volatility, Kalyani Forge Limited (KFL), a key player in the automotive components and manufacturing sector, has delivered a set of robust Q1 FY26 results that warrant a closer look. The company’s performance, particularly its strategic growth in non-ICE segments and clear roadmap for profitability, positions it as an intriguing domestic-growth play.

The Big Picture: Q1 FY26 Highlights 📈

Kalyani Forge reported a strong start to the fiscal year, with key financial metrics showing significant improvement:

• Total Income: ₹64.52 crores
• Revenue Growth: A healthy 12% increase Year-on-Year (YoY) and 9% Quarter-on-Quarter (QoQ). This consistent upward trend is a welcome sign.
• Profit After Tax (PAT): Soared by an impressive 300% YoY to ₹1.4 crores. While starting from a smaller base, this reflects a significant turnaround in profitability.
• EBITDA: Maintained at 10%, a commendable feat given the increased planned expenses and maintenance activities undertaken in the quarter.

These figures suggest KFL is not just growing, but is also improving its operational efficiency, a critical factor for sustainable value creation.

A Full Order Book Points to Future Sales 📜

For B2B manufacturing firms like KFL, the order book is a powerful indicator of future revenue visibility. Kalyani Forge has been consistently building its pipeline:

• New Order Wins: FY25 saw a remarkable ₹115 crores in new order wins, up from ₹95 crores in FY24. These orders represent peak annual revenue for programs typically lasting 5-10 years. This upward trajectory in order wins is a strong positive signal for sustained growth.
• Closing Order Book (End of FY25): Approximately ₹260 crores. This substantial backlog provides a solid foundation for upcoming quarters.
• Product Focus: New orders are concentrated in critical components like connecting rods, nozzle rings (for turbochargers), and tulips (for driveline systems). This diversification across product groups is a strategic advantage.

The consistent growth in new orders, coupled with a healthy closing order book, gives confidence in KFL’s ability to convert these into future sales, showcasing management’s capability in business development.

Accelerating Sales: Beyond Just the Top Line 🚀

KFL’s revenue growth isn’t just a number; it’s driven by strategic shifts and strong execution.

• Overall Sales Growth: The 12% YoY and 9% QoQ revenue increases are robust, especially when juxtaposed with the broader market’s cautious outlook. This signals that KFL is carving out its own growth path.
• Segmental Performance:
  • Driveline: Surged by 42% YoY and 10% QoQ, now comprising 18% of total sales. This segment’s growth, driven by products like tulips, aligns with the company’s focus on non-ICE (Internal Combustion Engine) components.
  • Axle: Witnessed an astounding 124% YoY growth, becoming 9% of sales. Stub axles, steering knuckles, and wheel hubs are clearly strategic high-growth areas.
  • Engine: The most mature business, still grew by 16% YoY, contributing 59% of sales. This shows resilience even as the auto industry contemplates EV transitions.
• Export Push: Exports now represent 21% of total sales, a 25% QoQ increase. With a strategic target of 50% exports in the medium-to-long term, KFL is diversifying its geographical revenue streams, particularly in Europe and the US, while mitigating concerns about US tariffs.
• Value Addition: The shift towards a higher machined content (60% currently, targeting 65-70% for FY26) indicates a move up the value chain, promising better margins.

The robust growth in driveline and axle, coupled with a strong export performance, underscores KFL’s successful diversification strategy. This shields the company from over-reliance on any single product group or domestic market fluctuation, a smart move given global uncertainties.

Unlocking Capacity and Operational Efficiencies ⚙️

KFL’s operational metrics reveal significant potential for future growth:

• Forging Capacity: The company boasts an installed capacity of ₹500 crores but is currently utilizing only around 40% (₹150-₹200 crores OEE capacity). Management aims to increase OEE to 60-65%, translating to ~₹300 crores in capacity, and ambitiously target doubling tonnage OEE capacity to 20,000-25,000 tons within 1.5-2 years. This ample headroom, once unlocked through modernization, promises significant future volume growth without immediate large-scale capacity additions.
• Machining Capacity: Currently at ~80% utilization, this segment aligns with the strategy to increase machined content and thus value addition. Recent CapEx in this area seems well-justified.
• Asset Turnover: At close to 4 (Sales to Fixed Assets), KFL significantly outperforms competitors (typically 2 or below). This indicates an efficient utilization of its existing asset base, with considerable scope to enhance its asset base without diluting efficiency.

The focus on improving OEE in forging through reconditioning older machines is a smart way to boost output and efficiency, directly impacting future sales potential.

The Path to Enhanced Profitability 💰

KFL’s 300% YoY PAT jump, even from a relatively low base, is a clear indicator of improving profitability. While EBITDA was maintained at 10% in Q1 despite planned maintenance expenses, management has articulated a clear strategy to achieve an ambitious 15% EBITDA margin by 2027. This plan hinges on four key pillars:

1. Material Cost Reduction: Targeting a shift from 48% to 45% of revenue through increased machining, better pricing, improved material yield, and reduced cost of poor quality (COPQ). The target of ₹1.5 crores in COPQ reduction for FY26 is notable.
2. Manpower Cost Efficiency: Enhancing workforce productivity and fostering a performance-driven culture.
3. Power Cost Reduction: Implementing energy efficiency initiatives and modernizing equipment.
4. Consumable & Indirect Costs: Optimizing procurement strategies and vendor management.

This detailed, multi-pronged approach to margin expansion demonstrates a disciplined management team focused on operational excellence. The higher “other expenses” in Q1 due to maintenance are a temporary blip, with management expecting them to normalize in Q2, further supporting margin recovery. Based on its aggressive growth targets and clear profitability roadmap, Kalyani Forge is currently exhibiting characteristics of a fast grower, striving to become a super grower.

Strategic Capital Expenditure Fuels Future Growth 🏗️

KFL’s CapEx strategy is squarely aimed at unlocking potential and driving future earnings:

• FY26 CapEx Budget: A ₹25 crore approved budget, with ₹4 crores already invested in Q1.
• Focus Areas: This CapEx is not merely for maintenance but is strategically directed towards upgrading existing machinery, supporting new business programs, and modernization for profitability.
• Recent Initiatives: Commissioning of a new connecting rod machining line and initiation of a forging modernization program (with one reconditioning project completed and another underway in Q1).

This growth-oriented CapEx, with a clear focus on high-utilization machining and unlocking forging potential, indicates management’s commitment to expanding capacity and improving efficiency. The availability of ample land for future expansion further de-risks growth plans.

Financing Growth: A Balanced Approach 🏦

The company’s CapEx plans are being funded through a mix of debt and internal accruals (75% debt, 25% internal accruals). Interestingly, management is also exploring an equity capital raise in coming quarters. This could signal a more significant growth phase ahead or a strategic move to strengthen the balance sheet and reduce debt dependence. Both options, if executed well, can provide robust financial backing for KFL’s ambitious targets.

Key Takeaways and Outlook: A Domestic Growth Story 🇮🇳

Kalyani Forge’s Q1 FY26 performance is a compelling narrative of growth, strategic diversification, and a clear roadmap for profitability.

• Strong Fundamentals: Healthy revenue growth, significant PAT improvement, and a robust order book provide strong visibility for future earnings.
• Strategic Shift: The emphasis on high-growth non-ICE segments (driveline, axle) and exports reduces reliance on traditional engine components, making the company more resilient to industry shifts towards EVs.
• Operational Excellence: The detailed margin expansion plan, focused CapEx on modernization, and efforts to improve OEE indicate a disciplined management approach aimed at sustainable profitability.
• Indian Context: KFL aligns perfectly with the “domestic-growth themes” favoured by investors, benefiting from the broader “capex revival and government push” in infrastructure and manufacturing. The company’s focus on domestic demand, coupled with growing exports, positions it well in the current economic environment.
• Management Ambition: Management’s confidence in doubling revenue by 2027 with a 15% EBITDA margin is ambitious, but it appears to be backed by a clear strategy and tangible operational improvements.

While global factors and FPI flows remain watchpoints for the broader market, KFL’s strong Q1 results and proactive strategies suggest it’s well-positioned to ride the wave of domestic growth. For investors, KFL offers a compelling story of earnings visibility combined with strategic expansion and a clear path to improved valuations. Stock-picking remains critical, and KFL’s Q1 performance certainly makes it a company to watch closely.

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