Kalyani Forge: Forging Ahead with Profitability Amidst Export Headwinds

Kalyani Forge Limited, a prominent player in India's forging industry for nearly five decades, recently unveiled its financial performance for the second quarter of Fiscal Year 2026 (Q2 FY26). Despite navigating a challenging global trade landscape marked by US tariff-related export reductions, the company demonstrated remarkable resilience and strategic agility, particularly in bolstering its profitability and domestic market presence.

For Q2 FY26, Kalyani Forge reported a total income of INR 56.23 crore. While this represents a slight reduction compared to the previous year, the quarter's highlight was a significant improvement in profitability. The Profit After Tax (PAT) margin surged by an impressive 53% from the preceding quarter, and the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin climbed to 13%. This EBITDA margin is the highest recorded in the last four quarters, underscoring the effectiveness of the company's rigorous cost control measures, clean audit actions, and enhanced operational efficiency. The management emphasized that these gains were achieved despite the contraction in the exports business, showcasing a strong internal drive for performance.

Segmental Performance and Strategic Shifts

The company's revenue streams are diversified across key product groups: Engine, Driveline, and Axle, along with other products. In Q2 FY26, the Engine business constituted the largest share at 62% of revenues, followed by Driveline at 19%, Axle at 10%, and Other products at 9%. While the Engine and Driveline segments experienced slight reductions, primarily due to the US export situation, the Axle business demonstrated robust growth over the last two quarters, maintaining its sales level. This growth in the Axle segment is a strategic focus area, with the company expecting continued expansion in both Driveline and Axle product groups.

Financial Summary (Q2 FY26 vs. Q2 FY25)

Segmental Revenue Contribution (Q2 FY26)

Geographically, Kalyani Forge's sales are primarily driven by domestic and export markets. While US tariff-related business and stock reduction impacted US truck-related exports, the company successfully ramped up high-volume non-auto export business in the US, particularly for stationary engines and the power generation sector. Furthermore, new transmission business consignments to Europe have commenced, with expectations for scaling up in the coming quarters. The company is actively re-evaluating old, low-volume export businesses that act as a drag on growth momentum, aligning its portfolio with a long-term growth strategy.

Strategic Initiatives and Future Outlook

Kalyani Forge's growth strategy is built on three pillars: Strong Execution, Business Development, and Capex. The company reported significant progress on several fronts:

• Governance and Compliance Drive: A special focus was placed on strengthening governance. Clean audit review actions were completed, new ERP controls implemented, and compliance software was deployed. These measures have automated workflows, improved efficiency, and increased audit-related compliances, leading to an increased Internal Financial Control (IFC) score. This initiative is crucial for scaling the business with robust internal systems.
• Strategic Projects (Vriddhi Council): The Vriddhi Council successfully delivered gains and savings valued at INR 17 crore during the quarter. This marks the first year of measuring such impacts, which are expected to contribute significantly to the company's financials and future growth prospects.
• New Business Development: The company secured a new MNC customer in the Axle business during Q2 FY26, with execution expected to commence over the next six months. This order is projected to add INR 5-10 crore per annum to the existing Axle portfolio. Additionally, Startup Production (SOP) has commenced for a new Europe transmission business, with scaling anticipated in subsequent quarters.
• Capex Program: Kalyani Forge commissioned and capitalized INR 7 crore of projects from its Capital Work-in-Progress (CWIP) in Q2 FY26. Approximately 58% of the FY26 Capex program is either in process or completed. This program is strategically designed to improve existing business productivity, increase capacity for ramp-up programs, support new business wins, and upgrade infrastructure, all foundational for sustaining growth.

Looking ahead, management anticipates that Q3 FY26 will continue to experience some impact from US tariffs, but an uptake is expected in Q4 FY26. The company remains committed to its internal efforts for efficiency improvement, EBITDA margin enhancement, and better price realization. Plans for fundraising, including increasing equity, are also moving forward, with formal announcements expected once clear corporate actions are finalized. The second half of the fiscal year is generally stronger for the business, and management expects better growth and market pull.

Conclusion: Disciplined Execution for Sustainable Growth

Kalyani Forge Limited's Q2 FY26 performance reflects a company that is proactively managing external challenges while strengthening its internal foundations. The emphasis on profitability through cost control, robust governance, and strategic new business development underscores a disciplined approach to execution. By focusing on high-growth segments like Axle and Driveline, expanding into new geographies like Europe, and investing in capacity and infrastructure, Kalyani Forge is positioning itself for sustainable long-term growth. The company's commitment to its 'KFL Growth Formula' and proactive risk management demonstrates a clear roadmap for navigating market dynamics and delivering value to its stakeholders.