Kalyani Forge Ltd Q1 FY27 Earnings Call Summary

Revenue

Margin

Demand

Guidance

Tone

Event Participants

Executives

2 Yash Patil, Viraj Kalyani

Analysts

6 Ajit Sethi, Aniruddha, Govind Raj, Rahul Singh, Saket Kapoor, Vanesh

Financials & KPIs

Metric	Reported	Commentary
Total Revenue	₹67.07 crores	+3.9% YoY, +13.2% QoQ; highest in 5+ quarters, driven by market demand and share gains across PV, trucks, and industrial segments
EBITDA	₹10.89 crores	All-time high; building on 15%+ margin achieved over last 2-3 quarters
EBITDA Margin	16.2%	+640 bps YoY from 9.3%; driven by operating leverage compounding, Vridhi Council savings, price increases, and exit from low-margin businesses
PBT	₹6.15 crores	+203% YoY
PBT Margin	9.2%	+600 bps YoY
PAT	₹4.48 crores	+218% YoY from ₹1.41 crores; normalized PAT (Q4 FY26 had deferred tax gain of ₹5.88 crores)
PAT Margin	6.7%	+450 bps YoY
EPS	₹12.31	For Q1 FY27
ROCE	22%	Up from 18% in Q4 and 14% a year ago; first time crossing 20%
Cash Conversion Cycle	148 days	Improved from 168 days QoQ and 170 days YoY; best in 5 quarters on tighter inventory and receivables management
Debt-to-EBITDA	2.51	Down from 3.53; now below target level; deleveraging continues
OEM Revenue	₹40.7 crores	+31% YoY, +9% QoQ; 4th consecutive quarter of OEM revenue growth
New Business Revenue (launched <3 yrs)	22% of revenue (~₹13 crores)	All-time high; new metric tracked from FY27 as proof of order-win conversion
Exports Sales Mix	16%	Up from 11% in Q4; new high-volume business replacing legacy non-fit business
Vridhi Council Cost Savings	₹19.1 crores realized	Against ₹50 crore annualized target; savings flow partially into EBITDA and partially absorb inflation
FY26 Non-fit Business Phased Out	~₹40 crores	Completed 3 phases; Phase 4 (final phase) of business mix optimization underway

Geographic & Segment Commentary

Engine (Connecting Rods): Sales grew 38% YoY to ₹40 crores; mix increased from 57% to 60% of revenue. Exposure primarily in heavy commercial vehicles and industrial/off-road, limiting EV risk.
Axle: Grew 22% YoY; fuel-agnostic product group with passenger car and LCV exposure; receiving increased CapEx allocation for stub axle capacity expansion.
Driveline: Grew 11% YoY; fuel-agnostic; part of 60% CapEx allocation to future growth areas.
Passenger Cars: +35% YoY, driven by strong OEM growth and new business ramp-up (wheel hub samples progressing).
Trucks: +48% YoY — fastest growing segment; driven by market demand and share gains.
Industrial: +67% YoY strongest percentage growth, though on a smaller base.
Agro: Down 31% YoY due to consolidation and phase-out of legacy low-margin businesses.
Exports: Mix revived to 16% from 11% QoQ; gear blanks shifting from as-forged to 100% machined condition, adding value to same volume.
Other (Tier-2/non-core): Mix reduced from 15% to 12%; deliberate deprioritization of low-volume legacy and non-scalable businesses.

Company-Specific & Strategic Commentary

Vridhi Council Cost-Saving Program: In-house strategic initiative covering material, power, manpower costs, VAVE, price increases, and dies/tools productivity improvements. ₹19.1 crores annualized savings realized to date vs ₹50 crore target; management endeavors to realize as much of the ₹50 crores within FY27.
Business Mix Optimization (Phase 4): Final phase of business reset—CapEx budgets aligned to core customers, capacity prioritized for high-volume businesses. ~₹40 crores of non-fit business phased out in FY26; OEM revenue at ₹40.7 crores (+31% YoY, 9% QoQ).
CapEx Discipline & Capacity Expansion: FY27 CapEx plan of ₹30 crores (75% debt, 25% internal accruals); 60% allocated to driveline and axle. Machining capacity being expanded from 1.8 lakh to 3 lakh pieces/month by end FY27. New wheel hub line utilizes existing CNC machines from phased-out businesses—minimal new investment.
New Business Pipeline: Wheel hub samples (Gen 3, ~~₹20 crores annual revenue potential) in validation; con-rod share increases from 3 customers; exports gear blanks scaling up. New business revenue at all-time high of 22% of revenue (~~₹13 crores quarterly).
Customer & Competitive Positioning: Top 5 customers contribute 30-40% of revenue. Only forging company offering engine + driveline + axle components to OEMs via hot and warm forging; complexity, precision at high volume, and multi-decade relationships cited as key moats. Strategic customers visited at least once a quarter.
Funding Plans: Evaluating multiple equity options; promoters will participate alongside partners; proceeds may partially repay debt—no numbers shared yet.

Guidance & Outlook

Metric	Guidance / Outlook	Commentary
EBITDA Margin	Sustain 15%+, targeting 20% internally	Vridhi Council projects and operating leverage directed at further expansion; expected "within a few quarters" (no exact timeframe given)
Revenue CAGR	At least 20% CAGR over next 5 years	Based on full growth strategy playing out; no formal quarterly/annual revenue guidance
Machining Capacity	3 lakh pieces/month by end FY27	Up from 1.8 lakh pieces/month (~90-95% utilization currently); via debottlenecking and new machines
Wheel Hub Line	Operational by end of Q2 FY27	Involves shifting existing machinery and retooling; some special-purpose machinery to be procured
CapEx	₹30 crores for FY27	75% debt / 25% internal accruals; focus on capacity increase and OEE (overall equipment efficiency)
Fixed Asset Turnover	Stabilize at 2.0-2.5, long-term target 2.0	Currently ~2.5-2.6; industry benchmark 1.5-2.0
Vridhi Council Savings	₹50 crores annualized; maximize realization within FY27	₹19.1 crores realized to date; savings both flow to EBITDA and absorb inflationary cost increases

Risks & Constraints

Risk	Context
EV Transition in Passenger Vehicles	Driveline and axle products are fuel-agnostic, and engine business is concentrated in HCV/industrial (low EV feasibility); management believes portfolio is almost fully hedged, with minimal exposure to PV engine electrification risk
Indirect Material Cost Inflation	Middle East conflict has driven 15-30% price increases from smaller indirect material suppliers (consumables, cutting tools); some increases absorbed, consumption controlled, and offset by customer price increases—still work in progress as OEMs seek industry-wide consensus
Customer Concentration	Top 5 customers account for 30-40% of revenue; reliance on high-runner portfolio of ~20 key customers. Share-of-wallet expansion and new business wins mitigate this risk
Forging Capacity Utilization	Forging side at only 50-60% utilization of ~20,000 tons installed capacity—underutilization represents efficiency drag, though management is prioritizing machining (90-95% utilized) for near-term growth
Execution on New Business	Wheel hub and con-rod ramp-ups depend on validation timelines, line setup (by end Q2), and customer ramp-up programs; any slippage could delay revenue conversion

Q&A Highlights

Wheel Hub Business Potential (Ajit Sethi)

Question: How big can the wheel hub component business become? (Ajit Sethi)
Answer: Wheel hubs ship 2-4 per vehicle depending on drive type, tied directly to PV market growth. Company supplies Gen 3 hubs (latest technology) which are just gaining popularity in India, replacing Gen 1/2. Would not give exact number, but projected to track passenger car segment growth. (Viraj Kalyani)

Vridhi Council Cost Savings Mechanics (Ajit Sethi, Unidentified Participant)

Question: What is the Vridhi Council initiative, and how do the savings flow through? (Ajit Sethi; Unidentified Participant)
Answer: Cross-functional project teams run strategic initiatives across material, power, manpower costs, VAVE, price increases, dies/tools productivity, reporting to steering committee chaired by MD. Savings are annualized numbers—of the ₹19.1 crores realized, quarterly equivalent is ~₹4.2 crores; portion flows directly to EBITDA, rest offsets inflation/wage/input cost increases. (Viraj Kalyani)

EBITDA Margin Sustainability & 20% Target (Ajit Sethi)

Question: Will EBITDA margins sustain at 15%+, and when can we reach 20%? (Ajit Sethi)
Answer: Will sustain 15% or more; Vridhi Council projects directed at further expansion. Internally targeting 20% EBITDA margin in line with industry benchmarks, expected within a few quarters—no exact timeframe. Revenue: no formal guidance, but Q1 at ₹67 crores is expected to continue at this level; this year focused on scaling up. (Viraj Kalyani)

Debt Repayment & Equity Raising (Vanesh)

Question: Plans to repay debt? (Vanesh)
Answer: Long-term debt repayment ongoing—debt-to-EBITDA improved from 3.53 to 2.51 with EBITDA improvement. Evaluating multiple equity-raising options; promoters will participate along with other partners, and some proceeds could repay debt. Too soon to state numbers. (Viraj Kalyani)

Competitive Advantage & Machining In-house (Ajit Sethi)

Question: What is our competitive advantage, and is machining done in-house? (Ajit Sethi)
Answer: Highly complex forgings fully machined to ready-to-assemble parts; few players can match precision at high-volume scale. 4-5 decades of engineering expertise and multi-decade customer relationships are key moats. Machining is done in-house for all core products; non-core products may outsource where capacity doesn't justify. (Viraj Kalyani)

Capacity & Utilization (Ajit Sethi)

Question: What are the current capacity and utilization levels? (Ajit Sethi)
Answer: Forging: ~20,000 tons installed capacity, 50-60% utilization. Machining: 1.8 lakh pieces/month capacity (connecting rods, wheel hubs, gear blanks, tulips), utilization at 90-95%; expanding to 3 lakh pieces/month by end FY27. (Viraj Kalyani)

New Order Wins & Rollout (Saket Kapoor)

Question: What color can you give on new order wins and their additions in coming quarters? (Saket Kapoor)
Answer: Wheel hubs (~₹20 crores annual potential), con-rod share increases from 3 customers (playing out through FY27), and exports gear blanks transitioning to 100% machined condition (adding value to same business). (Viraj Kalyani)

Raw Material Cost Impact (Govind Raj)

Question: How much were we hit by raw material cost increases and how much was passed through? (Govind Raj)
Answer: Well insulated on direct raw materials due to pass-through mechanism with all customers; price increases received. Indirect materials (consumables, cutting tools) rose 15-30% due to Middle East disturbances; some increases taken but consumption controlled, and conversion cost increases passed to customers—still in progress as OEMs seek industry-wide consensus. (Viraj Kalyani)

EV Exposure & Hedging (Aniruddha)

Question: Are the same forgings used in EVs, and how are we capturing that market? (Aniruddha)
Answer: Portfolio almost fully hedged to EV growth. Engine products are in HCV and off-road/industrial (long staying power); driveline and axle are EV-agnostic and grow with all platforms. Investing more capacity in these areas—new wheel hub line and stub axle forging capacity expansion. EVs likely to grow mainly in 2W/3W and PV; limited feasibility in trucks. (Viraj Kalyani)

CapEx Funding Mix (Vanesh)

Question: How will the ₹30 crore CapEx be funded—full internal accruals? (Vanesh)
Answer: Combination of debt and internal accruals—75% debt, 25% internal accruals, as per policy. (Viraj Kalyani)

Key Takeaway

Kalyani Forge delivered a strong normalized Q1 FY27 with revenue of ₹67.07 crores (+3.9% YoY, +13.2% QoQ), all-time high EBITDA margin of 16.2% (+640 bps YoY), PAT of ₹4.48 crores (+218% YoY), and ROCE crossing 20% for the first time to 22%. The margin expansion stems from compounding operating leverage, Vridhi Council cost savings (₹19.1 crores realized vs ₹50 crore annual target), price increases, and phased exit of ₹40 crores of non-fit business in FY26. Strategic focus remains on scaling OEM business (₹40.7 crores, +31% YoY, 4th consecutive quarter of growth), ramping new business (22% of revenue, all-time high) including Gen 3 wheel hubs (₹20 crores annual potential, line to be operational by end Q2), and disciplined CapEx of ₹30 crores (75% debt-funded) to expand machining capacity from 1.8 lakh to 3 lakh pieces/month by FY27 end. Management targets 20% EBITDA margin internally within a few quarters and at least 20% revenue CAGR over 5 years, while flagging indirect material inflation (15-30% from Middle East impact) and EV transition hedging as key watch points—with driveline/axle fuel-agnostic products and low PV engine exposure providing structural insulation.