Balu Forge in FY26: Profits surged, defence scaled up, but cash conversion weakened

Balu Forge Industries Limited ended FY26 with strong profit growth and a clearer shift toward higher-value engineering segments, especially defence-linked products. Revenue from operations rose to Rs 11,074 million in FY26 from Rs 9,236 million in FY25, as per the investor presentation. The margin profile remained elevated. FY26 EBITDA was Rs 2,995 million with a 27.0% margin, and PAT was Rs 2,589 million with a 22.7% margin.

The presentation positions the company as a precision machining and forging supplier to multiple industries. Its stated product portfolio spans automotive components like crankshafts and brake parts, and non-auto components such as railway wheels, hydraulic motors, turbine blades, and oil and gas flow control parts. Over FY24 to FY26, the company also highlights increasing emphasis on defence, aerospace and railways, supported by new capacity commissioning and customer qualifications.

In Q4 FY26, revenue from operations stood at Rs 2,636 million. EBITDA was Rs 599 million and PAT was Rs 657 million. The quarter showed a compression in EBITDA margin to 22.7% from 27.2% in Q3 FY26, while PAT margin remained at 22.9%.

The operating story: capacity build-out and higher-value sectors

Balu Forge’s manufacturing footprint highlighted in the presentation includes machining facilities at Kakti, Belgaum and a larger site at Hattargi, Hukkeri, along with forging infrastructure at Hattargi. The presentation states forging capacity of 100,000 plus MTPA, with a plan to increase to 150,000 MTPA, alongside a machining capacity of 45,000 plus MTPA targeted to rise to 80,000 MTPA.

The strategic direction outlined is built around a gradual replacement of outsourced forging with in-house forging, deeper capabilities in high-precision machining, and expansion into defence, aerospace and railways. It also highlights technology investments such as 7-axis and 11-axis machining systems and a 25-ton hydraulic hammer under commissioning.

A key differentiator in this deck is the explicit emphasis on ammunition components. The company states it commissioned a fully automated shell line with stated capacity of 360,000 shells per annum at its greenfield Belgaum facility. This is described as a fully indigenous Made in India line, aimed at strengthening advanced defence manufacturing capability.

Defence and aerospace: visible milestones, order book tilt

The FY26 presentation lists a cluster of defence and aerospace updates that act as measurable operating milestones. The company states it has been inducted into the NATO supply chain for artillery shell bodies and mission-critical components. It also mentions a 5-year binding MoU with a NATO-affiliated entity for supply of large-caliber ammunition shells, which management describes as improving long-term demand visibility.

In addition, Balu Forge states it secured an order for 30,000 units of 152mm artillery shells from an Indian energetics player, with supplies commencing in June 2026. On the aerospace side, it reports a maiden aerospace order from Alpha Aircraft Systems Inc., USA, which the company positions as entry into the aerospace supply chain.

The presentation quantifies how this strategic push is reshaping mix. It shows Defence, Aerospace and Railways contribution rising from 5% in FY24 to 13% in FY26. It also states that Defence, Aerospace and Railways now represent about 50% of the order book. This order book skew suggests that, at least in pipeline terms, the company expects strategic sectors to have a larger share going forward.

Revenue mix and financial quality: diversification, but working capital pressure

The company provides a sector-wise revenue contribution split for FY26. Defence, Aerospace and Railways is the largest at 36%, followed by Agriculture at 20% and Heavy Engineering and Industrial Machinery at 16%. Oil and Gas is 13%, Power Generation 10%, and Commercial Vehicles 5%.

While profitability stayed strong, the cash flow picture in FY26 is weaker. Net cash from operating activities is stated at Rs 317 million, despite EBITDA of Rs 2,995 million. The cash flow statement shows a working capital change of negative Rs 2,572 million, indicating significant cash absorption into receivables, inventory, or other operating working capital.

Balance sheet disclosures show net debt moved to Rs 377 million in FY26 from net cash of Rs 603 million in FY25. Total debt increased to Rs 1,267 million, driven by short-term borrowings rising to Rs 1,160 million. The company still reports net debt to equity at 0.02x, but the increase in short-term funding is notable.

The company also highlights an ICRA rating upgrade to A- (Stable) for long-term and A2+ for short-term facilities, reflecting improved credit assessment during the period.

What stands out going into FY27

The FY26 presentation presents Balu Forge as a company attempting to widen its addressable market by combining heavy forging, precision machining, and defence manufacturing in a scale-oriented model. The combination of NATO supply chain induction, a 5-year ammunition MoU, and a commissioned shell line provides tangible markers that the defence strategy has moved beyond intent into execution.

At the same time, the main point of caution from the disclosed numbers is cash conversion. Working capital absorption and a rise in short-term borrowings sit in contrast to the strong accounting margins. If the company’s order book in defence and strategic sectors ramps up as indicated, the next phase will need to show whether operating cash flows begin to align better with earnings.

Overall, FY26 reflects strong profitability, an expanding strategic-sector pipeline, and measurable capex and qualification milestones. The company’s near-term credibility will increasingly rest on how smoothly capacity expansion ramps up and how efficiently working capital is managed as volumes scale.