The quarter's results paint a picture of mounting operational challenges, with revenue declining to its lowest level in recent quarters at ₹55.67 crores. Despite a sequential improvement in operating margins, the company's bottom line suffered from elevated interest costs and normalising tax rates. The stock, currently trading at ₹690.05, has delivered a robust 36.51% return over the past year, significantly outperforming both the Sensex (8.42%) and its sector peers. However, recent technical indicators have turned mildly bearish, with the stock trading below most key moving averages.
Financial Performance: Revenue Weakness Overshadows Margin Recovery
Kalyani Forge's Q2 FY26 performance was marked by a concerning revenue contraction. Net sales declined 13.19% quarter-on-quarter to ₹55.67 crores from ₹64.13 crores in Q1 FY26, and fell 10.69% year-on-year from ₹62.33 crores in Q2 FY25. This represents the lowest quarterly revenue in the recent past, signalling potential demand softness or customer-specific challenges in the precision forging segment.
| Metric | Q2 FY26 | Q1 FY26 | Q2 FY25 | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| Net Sales | ₹55.67 Cr | ₹64.13 Cr | ₹62.33 Cr | -13.19% | -10.69% |
| Operating Profit (Excl OI) | ₹6.55 Cr | ₹5.94 Cr | ₹7.76 Cr | +10.27% | -15.59% |
| Operating Margin % | 11.77% | 9.26% | 12.45% | +251 bps | -68 bps |
| Net Profit | ₹2.15 Cr | ₹1.41 Cr | ₹3.92 Cr | +52.48% | -45.15% |
| PAT Margin % | 3.86% | 2.20% | 6.29% | +166 bps | -243 bps |
On a positive note, operating margins excluding other income improved to 11.77% from 9.26% in Q1 FY26, reflecting better cost management and operational efficiency. However, this improvement was insufficient to offset the revenue decline. Employee costs rose to ₹12.12 crores from ₹11.70 crores sequentially, indicating continued wage pressures despite lower production volumes.
Interest expenses continued their upward trajectory, climbing to ₹2.43 crores in Q2 FY26 from ₹2.27 crores in Q1 FY26 and ₹1.58 crores in Q2 FY25. This 53.80% year-on-year increase in interest costs reflects higher working capital requirements and elevated debt levels, with long-term debt standing at ₹12.25 crores as of March 2025. The company's EBIT to interest coverage ratio of 1.44x remains weak, highlighting limited financial flexibility.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 55.67 | 64.13 | 58.95 | 58.62 | 62.33 | 56.74 | 56.82 |
| QoQ Growth % | -13.19% | +8.79% | +0.56% | -5.95% | +9.85% | -0.14% | — |
| Operating Margin % | 11.77% | 9.26% | 10.79% | 10.35% | 12.45% | 6.71% | 2.06% |
| Net Profit (₹ Cr) | 2.15 | 1.41 | 2.23 | 1.82 | 3.92 | 0.35 | 0.71 |
| PAT Margin % | 3.86% | 2.20% | 3.78% | 3.10% | 6.29% | 0.62% | 1.25% |
Operational Challenges: Weak Returns and Rising Leverage
Kalyani Forge's operational metrics reveal structural challenges that extend beyond quarterly volatility. The company's return on equity (ROE) stands at a modest 4.97% on average, with the latest annual figure at 10.46%, significantly below industry standards for manufacturing excellence. This weak profitability on shareholder capital reflects the capital-intensive nature of the forging business combined with moderate utilisation and pricing power.
⚠️ Capital Efficiency Concerns
Key Issue: Return on capital employed (ROCE) averaged just 4.06% over recent years, though the latest annual figure improved to 10.19%. This indicates the company generates minimal returns on the capital deployed in operations, raising questions about asset productivity and pricing power in a competitive forging market.
Leverage Rising: Net debt to equity ratio of 0.77 and debt to EBITDA of 2.72x indicate moderate but rising leverage. With interest coverage at just 1.44x, the company has limited cushion to absorb further profitability shocks or demand weakness.
The balance sheet shows total shareholder funds of ₹89.69 crores as of March 2025, up from ₹82.01 crores a year earlier, supported by retained earnings. However, current liabilities surged to ₹120.57 crores from ₹95.58 crores, driven by higher trade payables of ₹51.07 crores. This working capital intensity, combined with modest cash generation, constrains financial flexibility.
Cash flow from operations improved to ₹21.00 crores in FY25 from ₹10.00 crores in FY24, a positive development. However, capital expenditure of ₹24.00 crores exceeded operating cash flows, necessitating external financing. The company's closing cash position remains minimal at near-zero levels, highlighting tight liquidity management.
Industry Context: Underperforming a Struggling Sector
The castings and forgings sector has faced significant headwinds, with the industry delivering a negative 7.18% return over the past year. Kalyani Forge's 36.51% one-year return represents a remarkable 43.69 percentage point outperformance versus its sector, suggesting company-specific factors or niche positioning have shielded it from broader industry weakness.
However, the recent quarterly performance indicates this outperformance may be under threat. The company's revenue decline of 10.69% year-on-year in Q2 FY26 aligns more closely with sector struggles, potentially signalling that macro headwinds are catching up. The precision forging segment serves automotive, industrial, and engineering sectors, all of which have experienced demand moderation in recent quarters.
Sector Positioning: Small Player in Fragmented Market
With a market capitalisation of just ₹251.04 crores, Kalyani Forge ranks as a micro-cap player in the castings and forgings space. The company operates a specialised niche in precision closed-die forgings up to 8 kg weight, using press forging technology. This specialisation provides differentiation but limits addressable market size and bargaining power with larger OEM customers.
Peer Comparison: Valuation Discount Reflects Weak Fundamentals
Kalyani Forge trades at a significant discount to sector peers across most valuation metrics, reflecting its weaker profitability profile and operational challenges. The company's price-to-earnings ratio of 26.70x appears moderate in isolation but compares unfavourably when adjusted for its low ROE of 4.97%.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Kalyani Forge | 26.70 | 2.79 | 4.97 | 0.77 | 0.58 |
| Tirupati Forge | 77.86 | 3.69 | 16.94 | 0.05 | — |
| ANB Metal | 41.99 | 12.67 | 40.10 | 0.58 | — |
| Munish Forge | 19.85 | 4.22 | 0.00 | 0.00 | — |
| Sharp Chucks | 21.52 | 2.16 | 9.67 | 1.37 | — |
| Forge Auto | 15.08 | 2.47 | 23.88 | 0.58 | — |
The company's price-to-book ratio of 2.79x sits below the peer average of approximately 5.0x, whilst its ROE of 4.97% trails significantly behind peers like ANB Metal (40.10%) and Forge Auto (23.88%). This valuation discount is justified given the weak capital efficiency and elevated leverage relative to peers like Tirupati Forge, which maintains a debt-to-equity ratio of just 0.05.
Kalyani Forge's dividend yield of 0.58% provides minimal income support, with the company paying ₹4.00 per share in its latest dividend. The payout ratio of 23.99% suggests room for increased distributions, but weak earnings growth limits this prospect in the near term.
Valuation Analysis: Fair Pricing Offers Limited Margin of Safety
At the current price of ₹690.05, Kalyani Forge trades at a P/E ratio of 26.70x trailing twelve-month earnings, marginally above the industry P/E of 24.00x. This modest premium is difficult to justify given the company's below-average profitability metrics and negative financial trend.
The company's EV/EBITDA multiple of 12.21x and EV/EBIT of 17.67x suggest reasonable valuations relative to historical norms. However, the PEG ratio of 0.19 appears deceptively attractive, as it reflects volatile earnings growth rather than sustainable expansion. The stock's recent valuation grade has fluctuated between "Fair" and "Attractive" over the past two months, settling at "Fair" currently, indicating limited upside potential at prevailing prices.
The 52-week trading range of ₹481.30 to ₹890.00 shows significant volatility, with the current price 22.47% below the 52-week high and 43.37% above the 52-week low. This positioning suggests the market has already priced in recent operational challenges, but further deterioration could test support levels.
Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest
Kalyani Forge's shareholding structure reveals a stable promoter base with minimal institutional participation. Promoter holdings stood at 58.76% as of September 2025, up marginally from 58.73% in June 2025 and 58.71% in March 2025. This gradual increase, though small, demonstrates promoter confidence and alignment with minority shareholders.
| Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 58.76% | 58.73% | 58.71% | 58.71% | +0.03% |
| FII | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Non-Institutional | 41.24% | 41.26% | 41.29% | 41.29% | -0.02% |
Notably, the company has zero foreign institutional investor (FII), mutual fund, or insurance company holdings. This complete absence of institutional participation reflects the stock's micro-cap status, limited liquidity, and lack of research coverage. The 41.24% non-institutional shareholding comprises primarily retail investors and non-institutional entities.
Positively, there is no promoter pledging, eliminating concerns about financial stress or forced selling. The promoter group is well-diversified across multiple investment entities within the Kalyani family, with Kalyani Consultants Pvt. Ltd. (10.37%) and Vakratund Investment Pvt. Ltd. (9.41%) being the largest individual holders.
Stock Performance: Strong Long-Term Returns Mask Recent Weakness
Kalyani Forge has delivered exceptional long-term returns, significantly outperforming benchmark indices across multiple timeframes. The stock has generated a 36.51% return over the past year, compared to the Sensex's 8.42%, representing a positive alpha of 28.09 percentage points. Over three years, returns of 138.28% dwarf the Sensex's 36.49%, whilst the five-year return of 431.22% versus the Sensex's 92.75% highlights the stock's wealth-creation potential.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +1.93% | +1.08% | +0.85% |
| 1 Month | -3.42% | +2.54% | -5.96% |
| 3 Months | -1.43% | +4.36% | -5.79% |
| 6 Months | -8.19% | +3.42% | -11.61% |
| 1 Year | +36.51% | +8.42% | +28.09% |
| 2 Years | +55.80% | +29.53% | +26.27% |
| 3 Years | +138.28% | +36.49% | +101.79% |
| 5 Years | +431.22% | +92.75% | +338.47% |
However, recent performance tells a different story. The stock has underperformed over the past six months (-8.19% versus Sensex's +3.42%), three months (-1.43% versus +4.36%), and one month (-3.42% versus +2.54%). This recent weakness coincides with deteriorating quarterly results and negative financial trends, suggesting the market is repricing expectations downward.
The stock exhibits high volatility with a beta of 1.50, indicating it moves 50% more than the broader market. This high-beta characteristic, combined with 49.25% annualised volatility, makes it suitable only for risk-tolerant investors. The risk-adjusted return of 0.74 over one year compares favourably to the Sensex's 0.69, but the absolute volatility remains elevated.
"Kalyani Forge's exceptional five-year track record of 431% returns contrasts sharply with recent quarterly struggles, creating a valuation puzzle for investors weighing past glory against present challenges."
Investment Thesis: Negative Momentum Outweighs Long-Term Track Record
The investment case for Kalyani Forge presents a conflict between impressive long-term returns and deteriorating near-term fundamentals. The company's proprietary Mojo score stands at just 31 out of 100, firmly in "SELL" territory, reflecting concerns across multiple dimensions.
The financial trend turned negative in Q2 FY26, driven by falling revenues, rising interest costs, and compressed profitability. Key negative factors include profit before tax (excluding other income) declining 60.05%, interest expenses growing 35.47% on a nine-month basis, and net sales hitting multi-quarter lows. These deteriorating fundamentals suggest operational challenges that may persist in coming quarters.
Technical indicators have also turned unfavourable, with the stock shifting to "Mildly Bearish" on November 13, 2025. The stock trades below its 5-day, 20-day, 50-day, and 100-day moving averages, indicating weakening momentum. MACD, RSI, and Bollinger Bands all flash bearish signals on weekly timeframes, whilst the monthly chart shows mixed signals with RSI bearish but Bollinger Bands mildly bullish.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Exceptional Long-Term Returns: 431.22% five-year return demonstrates wealth-creation capability and resilience through cycles
- Niche Specialisation: First company in India to use press forging technology for precision closed-die forgings, providing differentiation
- No Promoter Pledging: Zero pledged shares eliminates financial stress concerns and forced selling risk
- Stable Promoter Base: 58.76% promoter holding with recent marginal increases shows alignment with shareholders
- Improving Operating Margins: Q2 FY26 operating margin of 11.77% up from 9.26% in Q1 FY26 shows cost management progress
- Positive Operating Cash Flow: FY25 operating cash flow of ₹21 crores doubled from ₹10 crores in FY24
- Sector Outperformance: 36.51% one-year return versus sector's -7.18% indicates relative strength
⚠ KEY CONCERNS
- Sharp Revenue Decline: Q2 FY26 sales of ₹55.67 crores down 13.19% QoQ and 10.69% YoY to multi-quarter low
- Weak Capital Returns: ROE of 4.97% and ROCE of 4.06% (average) significantly below industry standards
- Rising Interest Burden: Interest costs up 53.80% YoY with weak coverage ratio of 1.44x limiting financial flexibility
- Negative Financial Trend: Mojo score identifies deteriorating quarterly performance with multiple red flags
- Zero Institutional Holdings: Complete absence of FII, mutual fund, and insurance participation limits liquidity and research coverage
- High Leverage: Debt-to-EBITDA of 2.72x and net debt-to-equity of 0.77 constrain balance sheet flexibility
- Technical Weakness: Bearish trend with stock below all key moving averages and negative momentum indicators
- Micro-Cap Illiquidity: Low trading volumes (237 shares on recent day) create execution challenges and price volatility
Outlook: What to Watch
POSITIVE CATALYSTS
- Revenue Stabilisation: Return to ₹60+ crores quarterly run-rate would signal demand recovery
- Margin Sustainability: Maintaining 11%+ operating margins despite lower volumes would demonstrate pricing power
- Working Capital Improvement: Reduction in current liabilities and improved cash conversion
- Institutional Entry: Any mutual fund or insurance participation would validate investment case and improve liquidity
- Technical Reversal: Break above ₹715 (100 DMA) with volume would signal trend change
RED FLAGS
- Further Revenue Decline: Sales falling below ₹55 crores would indicate structural demand issues
- Margin Compression: Operating margins reverting to sub-10% levels would pressure profitability
- Rising Debt Levels: Any increase in borrowings without corresponding EBITDA growth
- Promoter Selling: Reversal of recent marginal buying would signal lack of confidence
- Technical Breakdown: Break below ₹650 could accelerate selling towards ₹600 and 52-week low of ₹481
The Verdict: Challenging Near-Term Outlook Warrants Caution
Score: 31/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of declining revenues, weak capital efficiency (ROE of 4.97%), negative financial trends, and bearish technical setup creates an unfavourable risk-reward profile. Wait for clear signs of operational stabilisation, including revenue recovery above ₹60 crores quarterly and sustained margin improvement, before considering entry. The stock's micro-cap status and zero institutional holdings add execution risk.
For Existing Holders: Consider reducing positions on any technical bounce towards ₹715-₹730 levels. Whilst the long-term track record is impressive, near-term headwinds including margin pressures, rising interest costs, and demand weakness suggest further downside risk. The stock's 22.47% decline from 52-week highs may extend if Q3 FY26 results fail to show improvement. Maintain strict monitoring of quarterly revenue trends and margin sustainability.
Fair Value Estimate: ₹620 (10% downside from current levels), based on 22x P/E applied to normalised earnings of ₹7.00 crores annually, reflecting weak ROE profile and elevated operational risks.
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial adviser before making any investment decisions. Past performance is not indicative of future results. The stock discussed carries significant risks including micro-cap illiquidity, operational challenges, and high volatility.
