KALYANIFRG - Kalyani Forge Ltd. Share Price

In the recent conference call held on February 12, 2026, management provided an optimistic outlook for Kalyani Forge Limited, highlighting key financial and operational metrics. For Q3 FY26, the company reported revenue of Rs.58.22 crores, a slight increase of Rs.1.99 crores from the previous quarter, alongside an impressive EBITDA margin of 15.7%, the highest in the company's history. Profit Before Tax (PBT) reached Rs.3.95 crores, reflecting improved operational performance due to strategic decisions including exiting low-margin segments.

Management emphasized that the path to profitability remains robust, with structural profitability improvements linked to better material costs, power cost management, and operational stabilization through initiatives like the Vriddhi Council. The medium-term target for the EBITDA margin is set at 15%, with a longer-term goal of achieving 20%.

In response to inquiries about growth prospects, the management noted that the new business order book includes Rs.107 crores for connecting rods, Rs.45 crores from driveline, and Rs.10 crores from axle segments, indicating diversification and expansion. They also clarified their intention to maintain financial stability without providing specific forward-looking guidance on EBITDA margins, while aiming for an overall FY26 revenue slightly higher than the previous year.

On capital expenditure, the company plans to allocate 60% of their CAPEX budget of Rs.25 crores towards future growth areas, particularly in driveline and axle products, aiming to boost fixed asset turnover which currently stands at approximately 3.5 times net fixed assets, well above the industry benchmark of 1.5 to 2.

Forward-looking points provided by management include ongoing efforts to streamline business operations, improve capital structure, enhance cash flow through optimized working capital, and expand into international markets, particularly benefiting from upcoming free trade agreements with Europe and the US, expected to take effect in 2027.

1. Question: "As you alluded to, the employee costs have increased in the last two years. As a percentage of sales, where do you see this number?"
   Answer: "Yes, employee costs have indeed risen due to wage agreements with unions and improved salaries. Currently, they comprise about 21-22% of revenue. We view employees as assets. Our goal is to improve productivity to bring this percentage down through reduced manual work and enhanced operational efficiencies. While we acknowledge the high costs now, we are focused on increasing sales to alleviate this burden as improvements come later."

2. Question: "How will you improve PAT margin, critical for investors?"
   Answer: "Improving PAT involves multiple levels from sales to EBITDA. Our strategy centers on increasing EBITDA, as it directly impacts PAT. Recently, our reasonable PBT reflects our focus. Initiatives include optimising asset capitalisation and managing depreciation. We're negotiating price increases on older products to further enhance revenue, while also controlling interest costs through favourable banking facilities."

3. Question: "Is the operating reset phase complete, and when should we expect normalised operations?"
   Answer: "Yes, our operational reset is showing results, evident in our margin expansion. This transformation is ongoing and now focuses on continuous improvement. Key activities include reconditioning equipment and optimising capacity allocation. While we've made substantial progress, operational excellence remains an ongoing commitment to further boost efficiencies."

4. Question: "What is your deferred tax adjustment this quarter, and will any of that come in next quarter?"
   Answer: "Deferred tax reflects differences in accounting standards and asset capitalisation. We had significant capitalisation this year which triggered this expense. We anticipate the next quarter may see a reversal and positively impact the bottom line, but it's contingent on various factors."

5. Question: "What is the FY26 revenue and EBITDA guidance?"
   Answer: "For FY26, we expect revenue to remain at last year's level or slightly higher, without providing exact numbers. We aim for an improvement in our EBITDA margin for the overall financial year."

6. Question: "What's your view on the FTA with Europe and its expected impact?"
   Answer: "The India-EU FTA is promising; benefits commence in January 2027. We see growing interest from European customers, and increasing our business there is a priority. The US FTA is also advantageous, with low tariffs for India versus others. While growth forecasts fluctuate, we are optimistic about both geographies."

7. Question: "Given the current capacity, what is the maximum revenue potential?"
   Answer: "Theoretically, our installed capacity can generate around Rs.500 crores in revenue. Presently, our effective capacity is about Rs.200 crores, and we aim to enhance our asset base through CAPEX to fulfil this potential, focusing on consistent capacity availability while ensuring reliability."

8. Question: "Can you outline the current progress on CAPEX?"
   Answer: "Out of a Rs.25 crore CAPEX budget, we have spent roughly Rs.18 crores by Q3, with plans to complete the remaining this quarter. The capitalised value so far is around Rs.14 crores, which includes projects from previous years. We work efficiently to ensure quick returns on our investments."

These insights elucidate our strategic direction and growth trajectory while ensuring shareholder value and operational excellence.