Krishanveer Forge Q2 FY26: Margin Expansion Drives Profitability Despite Revenue Dip

The Pune-based forging specialist, which serves critical sectors including oil, gas, power, steel, and cement industries, delivered a quarter characterised by impressive margin expansion despite topline headwinds. Revenue for Q2 FY26 stood at ₹20.98 crores, declining 11.25% sequentially from ₹23.64 crores in Q1 FY26, though maintaining a modest 4.64% year-on-year growth over Q2 FY25's ₹20.05 crores. The key positive takeaway remains the company's ability to expand operating margins to a multi-quarter high of 14.82%, up sharply from 11.25% in the previous quarter, demonstrating improved operational efficiency and better product mix realisation.

For the first half of FY26 (H1 FY26), Krishanveer Forge accumulated net sales of ₹44.62 crores with a combined net profit of ₹3.86 crores, reflecting a PAT margin of 8.65%. This half-yearly performance positions the company on track for a reasonable full-year outcome, though sequential momentum remains a critical monitoring point for investors.

Financial Performance: Margin Quality Offsets Volume Weakness

Krishanveer Forge's Q2 FY26 financial performance presents a tale of two narratives—topline pressure countered by robust margin expansion. Net sales of ₹20.98 crores marked an 11.25% sequential decline from Q1 FY26's ₹23.64 crores, suggesting softer order execution or potential seasonal weakness in client industries. However, the year-on-year comparison reveals more stability, with revenue growing 4.64% from ₹20.05 crores in Q2 FY25, indicating that the business has maintained its market positioning despite challenging industrial demand conditions.

The standout feature of the quarter was the dramatic improvement in operating profitability. Operating profit (PBDIT excluding other income) surged to ₹3.11 crores, the highest quarterly figure in recent periods, translating to an operating margin of 14.82%—a substantial 357 basis points expansion from Q1 FY26's 11.25%. This margin improvement appears driven by better cost management, favourable raw material pricing, and possibly a shift towards higher-margin product categories within the company's forging portfolio.

Net profit of ₹1.79 crores declined 13.53% quarter-on-quarter from ₹2.07 crores in Q1 FY26, primarily due to the revenue contraction and a sharp increase in the effective tax rate to 38.57% from 20.38% in the previous quarter. This elevated tax incidence significantly impacted bottom-line performance, as profit before tax of ₹2.93 crores was actually 12.69% higher than Q1 FY26's ₹2.60 crores. The tax anomaly warrants attention—whether it reflects one-time adjustments, prior period provisions, or changes in tax treatment will be critical to assess sustainable profitability going forward.

On a year-on-year basis, the profit story remains compelling. Net profit of ₹1.79 crores in Q2 FY26 represents a robust 45.53% growth from ₹1.23 crores in Q2 FY25, driven by both margin expansion (PAT margin improved from 6.13% to 8.53%) and modest revenue growth. This demonstrates the company's ability to leverage operational improvements and scale benefits as volumes gradually recover.

Operational Excellence: Return Ratios Strengthen Amid Debt-Free Status

Krishanveer Forge's operational efficiency metrics paint a picture of a company steadily improving its capital productivity. The latest return on equity (ROE) stands at 14.05%, a significant improvement from the five-year average of 10.58%, indicating that the company is generating increasingly attractive returns for shareholders on their invested capital. This ROE improvement reflects both better profitability and efficient capital deployment, positioning the company favourably within its peer group.

Return on capital employed (ROCE) has shown even more impressive progress, reaching 24.12% in the latest period compared to a five-year average of 19.42%. This 470 basis points improvement in ROCE demonstrates that management is extracting better returns from the total capital deployed in the business, encompassing both equity and debt. The higher ROCE relative to ROE is characteristic of companies with minimal leverage, where operational excellence drives value creation rather than financial engineering.

The company's working capital management deserves scrutiny. Current assets of ₹40.06 crores against current liabilities of ₹10.62 crores provide a healthy current ratio of approximately 3.8x, suggesting strong liquidity. However, the cash flow statement reveals some volatility—FY25 saw a modest ₹5.00 crores operating cash flow despite ₹7.00 crores in profit before tax, with working capital consuming ₹1.00 crore. This working capital intensity, particularly the increase in trade payables from ₹8.47 crores in FY24 to ₹10.89 crores in FY25, warrants monitoring to ensure it doesn't reflect stretched payment terms or operational stress.

Fixed asset turnover provides another lens into operational efficiency. With net sales of ₹82.00 crores in FY25 and fixed assets of ₹15.13 crores, the company generates approximately ₹5.40 in revenue for every rupee invested in fixed assets—a respectable utilisation rate for a capital-intensive forging business. The sales-to-capital-employed ratio of 1.86x (five-year average) indicates moderate capital intensity, typical for the castings and forgings sector.

Industry Context: Navigating Cyclical Headwinds in Capital Goods

The castings and forgings industry serves as a critical supplier to capital-intensive sectors including power generation, oil and gas infrastructure, steel manufacturing, and general engineering. These end-markets have experienced mixed demand dynamics through 2025, with government infrastructure spending providing support whilst private sector capital expenditure remains selective. Krishanveer Forge's modest 4.64% year-on-year revenue growth in Q2 FY26 broadly aligns with the muted industrial activity observed across the sector.

The company's product portfolio—steel open die forgings—caters to heavy engineering applications requiring high-strength, custom-fabricated components. This positions Krishanveer Forge in a niche segment with relatively higher technical barriers and customer stickiness compared to commodity castings. The margin expansion witnessed in Q2 FY26 suggests the company may be benefiting from a favourable product mix shift towards more complex, higher-value forgings that command premium pricing.

Raw material costs, particularly steel and alloy inputs, represent a significant variable in forging profitability. The sequential margin improvement from 11.25% to 14.82% suggests either favourable raw material price movements or successful pass-through of costs to customers through pricing adjustments. Given that steel prices have remained relatively stable through mid-2025, the margin gains likely reflect operational improvements and better absorption of fixed costs rather than purely input cost deflation.

Competitive dynamics in the micro-cap forging space remain fragmented, with numerous small-scale players competing primarily on price and delivery timelines. Krishanveer Forge's ability to sustain margins above 14% suggests some degree of differentiation—whether through quality certifications, established customer relationships, or technical capabilities in complex forging geometries. However, the absence of institutional investor interest (0.00% FII and mutual fund holdings) indicates the company remains largely off the radar of professional investors, potentially limiting valuation multiples despite operational improvements.

Peer Comparison: Valuation Premium Amidst Sector Weakness

Krishanveer Forge's positioning within the castings and forgings peer group reveals both relative strengths and valuation concerns. Trading at a price-to-earnings ratio of 25.22x based on trailing twelve-month earnings, the company commands a premium to the sector median, though below high-growth peers like Samrat Forgings (28.31x) and Kalyani Forge (27.54x). This valuation multiple appears justified by the company's improving return profile, with ROE of 10.58% comparing favourably to peers like Kalyani Forge (4.97%) and matching Gujarat Intrux (10.87%).

The price-to-book ratio of 3.54x positions Krishanveer Forge in the middle of the peer range, below KVS Castings (3.83x) and Samrat Forgings (3.70x) but above Gujarat Intrux (2.08x) and Kalyani Forge (2.88x). This P/BV multiple appears reasonable given the company's improving ROE trajectory—when ROE exceeds the cost of equity, trading above book value is justified, and Krishanveer Forge's 14.05% latest ROE supports the current valuation.

A critical differentiator lies in balance sheet strength. Krishanveer Forge's net debt-to-equity of -0.31 (net cash position) compares exceptionally favourably to leveraged peers like Samrat Forgings (2.32 debt-to-equity) and Kalyani Forge (0.77). This financial conservatism provides downside protection and strategic flexibility, though it also suggests potential underutilisation of cheaper debt capital that could enhance returns in a favourable operating environment.

Dividend yield of 1.82% positions Krishanveer Forge below Gujarat Intrux's attractive 6.10% but ahead of most peers. The latest dividend of ₹2.50 per share, representing a payout ratio of 48.52%, demonstrates management's confidence in cash generation whilst retaining sufficient capital for organic growth. This balanced capital allocation approach—returning cash to shareholders whilst maintaining a debt-free balance sheet—appeals to conservative investors seeking both income and stability.

Valuation Analysis: Fair Pricing Leaves Limited Margin of Safety

At the current market price of ₹133.00, Krishanveer Forge trades at a P/E ratio of 25.22x trailing twelve-month earnings, representing a premium to the sector average P/E of approximately 21x but below the broader small-cap manufacturing universe median of 28-30x. This valuation appears broadly fair when considering the company's improving profitability trajectory, debt-free status, and consistent dividend track record.

The price-to-book multiple of 3.54x, whilst elevated in absolute terms, finds justification in the company's ROE profile. With the latest ROE of 14.05% and improving trend (from 10.58% five-year average), the company is creating value above book value at an accelerating rate. The P/BV-to-ROE relationship (often expressed as the PEG-like metric P/BV divided by ROE) yields approximately 0.25, suggesting the market is valuing the company's return generation at roughly 4 years' payback—a reasonable timeframe for a stable, mature forging business.

Enterprise value multiples provide additional perspective. EV/EBITDA of 15.87x appears elevated for a mature, cyclical manufacturing business, particularly when compared to larger, more liquid peers in the capital goods space trading at 10-12x EV/EBITDA. This premium likely reflects the micro-cap liquidity discount being offset by the debt-free balance sheet and recent operational improvements. The EV/Sales ratio of 1.67x, whilst high in absolute terms, aligns with the company's improving margin profile—with PAT margins expanding towards 8-9%, revenue multiples naturally command higher valuations.

The PEG ratio of 0.83 suggests the stock may offer some value relative to growth expectations, as PEG ratios below 1.0 traditionally indicate undervaluation. However, this metric must be interpreted cautiously given the company's modest five-year sales CAGR of 12.17% and EBIT CAGR of just 5.43%. The current quarter's strong margin performance may not be sustainable at these levels, suggesting the PEG ratio could be misleadingly attractive if growth moderates.

Considering all factors—improving profitability, pristine balance sheet, modest growth outlook, and elevated valuation multiples—a fair value estimate for Krishanveer Forge centres around ₹130-145 per share, implying limited upside from current levels of ₹133.00. The stock appears fairly valued rather than attractively priced, offering minimal margin of safety for fresh investors.

Shareholding: Stable Promoter Base, Absent Institutional Interest

Krishanveer Forge's shareholding pattern reflects a tightly held, promoter-dominated structure with negligible institutional participation. Promoter holding has remained rock-solid at 72.47% across the last five quarters, with no sequential changes indicating strong management conviction and alignment with minority shareholders. The primary promoter entity, Western India Forgings Private Limited, holds 65.82%, whilst Arun Krishankumar Jindal maintains a 6.64% stake.

The complete absence of foreign institutional investors (0.00%), mutual funds (0.00%), insurance companies (0.00%), and other domestic institutional investors (0.00%) is striking and reflects the company's micro-cap status and limited liquidity. With average daily trading volumes of just 3,363 shares (as observed on November 13, 2025), institutional investors face significant entry and exit challenges, effectively excluding the stock from professional portfolio consideration.

Non-institutional holdings of 27.53% have remained unchanged, suggesting a stable retail shareholder base with minimal churn. This stability can be viewed positively—indicating satisfied long-term retail investors—or negatively, reflecting limited liquidity and discovery mechanisms for fair valuation. The absence of institutional activity means the stock lacks the research coverage, liquidity, and valuation support that typically accompanies institutional ownership.

Critically, there is zero promoter pledging, eliminating a significant governance risk factor. This clean pledge status, combined with majority promoter holding and stable shareholding pattern, provides confidence in management's long-term commitment to the business. However, the flip side is limited free float (just 27.53%) and consequently poor liquidity, making the stock unsuitable for investors requiring quick entry or exit capabilities.

Stock Performance: Exceptional Long-Term Gains, Recent Consolidation

Krishanveer Forge has delivered exceptional wealth creation over extended timeframes, though recent performance has been lacklustre. The stock has generated a staggering 499.10% return over ten years, massively outperforming the Sensex's 231.02% gain by 268.08 percentage points. Five-year returns of 441.75% versus Sensex's 95.14% (alpha of +346.61%) and three-year returns of 186.33% versus 37.19% (alpha of +149.14%) underscore the stock's ability to compound shareholder wealth significantly above market benchmarks.

However, recent performance tells a different story. Over the past year, the stock has delivered a mere 2.82% return, underperforming the Sensex's 9.12% by 6.30 percentage points. This underperformance has accelerated in recent weeks, with one-week returns of -4.39% (versus Sensex +1.76%) and one-month returns of -0.75% (versus Sensex +2.97%) indicating loss of momentum. The stock currently trades at ₹133.00, down 13.58% from its 52-week high of ₹153.90 achieved earlier in the year.

The six-month return of 62.20% (versus Sensex 4.47%, alpha of +57.73%) suggests the stock experienced a strong rally through mid-2025, likely driven by improving operational performance and margin expansion. However, this momentum has stalled, with the stock now consolidating below key moving averages—trading below the 5-day MA (₹139.08), 20-day MA (₹140.52), and 50-day MA (₹139.48). This technical weakness, combined with high volatility of 56.75%, classifies the stock as "HIGH RISK LOW RETURN" in the current environment.

The stock's beta of 1.50 indicates significantly higher volatility than the broader market, meaning it amplifies both upward and downward market movements by approximately 50%. For risk-averse investors, this high beta combined with recent underperformance and limited liquidity (just 3,363 shares traded on November 13, 2025) presents challenges. The risk-adjusted return of 0.05 over one year, compared to Sensex's 0.74, suggests investors are not being adequately compensated for the elevated volatility they're assuming.

Investment Thesis: Quality Improving, Valuation Limiting Upside

Krishanveer Forge's investment case rests on three pillars: operational improvement, financial conservatism, and modest growth prospects. The company has successfully transitioned from a "Below Average" quality rating (prior to June 2025) to "Average" quality status (August 2025 onwards), reflecting sustained improvements in profitability metrics, particularly the expansion of ROE from 10.58% (five-year average) to 14.05% currently. This quality upgrade, combined with a debt-free balance sheet and consistent dividend payments, positions the company as a stable, if unspectacular, long-term holding.

However, the investment thesis faces meaningful constraints. The company's five-year sales CAGR of 12.17% and EBIT CAGR of just 5.43% indicate modest growth prospects, limiting the potential for significant multiple expansion. With the stock trading at a P/E of 25.22x—above the sector average and offering limited margin of safety—fresh investors face an unfavourable risk-reward equation. The current "FAIR" valuation grade (changed from "ATTRACTIVE" in July 2025) reflects this reality: the stock is reasonably priced for its fundamentals but offers minimal upside potential.

The financial trend remains "POSITIVE" as of September 2025, driven by record operating margins of 14.82% and improved half-yearly profitability. However, this positive momentum must be sustained across subsequent quarters to validate the trend upgrade. The sequential revenue decline of 11.25% in Q2 FY26 raises questions about demand sustainability, whilst the elevated tax rate of 38.57% (versus 20-25% historically) presents a profitability headwind if it persists.

Technical indicators present a mixed picture. The stock's "MILDLY BULLISH" trend (since October 2025) has weakened, with the stock now trading below all key short-term moving averages (5-day, 20-day, 50-day). Weekly indicators show "Mildly Bearish" signals for MACD and KST, whilst monthly indicators remain more constructive with "Bullish" MACD. This technical divergence suggests the stock is in a consolidation phase, awaiting either fundamental catalysts (sustained margin expansion, revenue acceleration) or broader market momentum to break out of its current range.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The forward outlook for Krishanveer Forge hinges primarily on the company's ability to sustain the margin improvements demonstrated in Q2 FY26 whilst returning to positive revenue growth. The castings and forgings sector faces mixed demand dynamics through FY26, with government infrastructure spending providing tailwinds but private capital expenditure remaining selective. Management's ability to navigate this environment whilst maintaining operating margins above 14% will be critical to justifying current valuations.

From a technical perspective, the stock needs to reclaim the ₹140-145 zone (20-day and 50-day moving average area) to restore positive momentum. A sustained break above the ₹150 level would open the path towards retesting the 52-week high of ₹153.90. Conversely, a break below ₹125 could trigger further weakness towards the ₹110-115 support zone, representing potential downside of 13-15% from current levels.

The key catalysts to watch include: (1) Q3 FY26 results (expected January 2026) for validation of margin sustainability and revenue recovery; (2) any change in institutional shareholding pattern, particularly mutual fund or insurance entry; (3) management commentary on order book visibility and capacity utilisation trends; and (4) normalisation of the tax rate to historical 20-25% range. Absence of these positive developments would likely keep the stock range-bound in the ₹120-145 zone for the near term.