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

The company's stock has delivered exceptional long-term returns, surging 216.05% over three years and 50.92% in the past year, significantly outperforming the Sensex's 38.88% and 9.01% returns over the same periods. Trading at ₹135.90 as of February 10, 2026, the stock has retraced 11.70% from its 52-week high of ₹153.90, reflecting profit-booking after a stellar run. The shares carry a price-to-earnings ratio of 23x and a price-to-book value of 3.50x, positioning the company at a premium to some peers whilst maintaining a debt-free balance sheet.

Quarterly Performance Trends: Revenue Volatility Meets Margin Resilience

Krishanveer Forge's quarterly performance reveals a pattern of revenue volatility characteristic of the capital-intensive forging industry, where order flows can be lumpy and project-driven. In Q2 FY26, net sales declined 11.25% sequentially to ₹20.98 crores from ₹23.64 crores in Q1 FY26, though the year-on-year comparison showed a modest 4.64% improvement from ₹20.05 crores in Q2 FY25. This sequential softness appears to be a temporary pause rather than a structural concern, as the company has historically demonstrated revenue recovery patterns.

The standout feature of Q2 FY26 was the impressive margin expansion. Operating profit margin (excluding other income) surged to 14.82%, up from 11.25% in Q1 FY26 and 10.12% in Q2 FY25. This 357 basis points sequential improvement and 470 basis points year-on-year expansion reflects improved operational efficiency, better product mix, and effective cost management. Operating profit (PBDIT) excluding other income reached ₹3.11 crores, the highest in the trailing seven quarters, demonstrating the company's ability to extract better profitability from its revenue base.

Financial Performance Analysis: Profitability Strength Amidst Tax Rate Volatility

Krishanveer Forge's financial performance in Q2 FY26 showcased both operational strengths and areas requiring investor attention. The company generated operating profit (PBDIT) of ₹3.34 crores, representing 15.92% of revenue when including other income of ₹0.23 crores. Whilst other income declined from ₹0.33 crores in Q1 FY26, the core operating performance remained robust, with operating profit excluding other income reaching its highest quarterly level at ₹3.11 crores.

The company maintained its debt-free status with zero interest costs, a significant competitive advantage in the capital-intensive forging industry. Depreciation remained stable at ₹0.41 crores, reflecting steady asset utilisation. Profit before tax stood at ₹2.93 crores, up 12.69% sequentially, demonstrating strong operational momentum. However, the net profit of ₹1.79 crores declined 13.53% quarter-on-quarter due to a sharp increase in the effective tax rate to 38.57% from 20.38% in Q1 FY26, highlighting the impact of tax volatility on bottom-line performance.

On a half-yearly basis (H1 FY26), Krishanveer Forge reported net sales of ₹44.62 crores and net profit of ₹3.86 crores, positioning the company on track for a respectable full-year performance. The PAT margin for Q2 FY26 stood at 8.53%, marginally lower than Q1 FY26's 8.76% but significantly higher than Q2 FY24's 6.13%, indicating sustained profitability improvement year-on-year. Employee costs remained well-controlled at ₹1.31 crores, representing 6.24% of revenue, reflecting operational discipline.

Operational Excellence: Debt-Free Balance Sheet Drives Capital Efficiency

Krishanveer Forge's operational strength is anchored in its exceptionally clean balance sheet and improving capital efficiency metrics. The company's return on equity (ROE) reached 15.37% in the latest period, a substantial improvement from the five-year average of 10.58%, signalling enhanced profitability and better utilisation of shareholder capital. Higher ROE indicates the company is generating stronger returns on invested equity, a critical metric for assessing management's effectiveness in deploying capital. This improvement in ROE reflects the company's ability to convert operational improvements into bottom-line growth, making it an attractive proposition for investors seeking efficient capital allocation.

The company's return on capital employed (ROCE) stands at an impressive 24.12%, significantly higher than the five-year average of 19.42%, demonstrating excellent asset productivity. This elevated ROCE, combined with zero debt, positions Krishanveer Forge favourably in the capital-intensive forging sector where many peers carry substantial leverage. The balance sheet as of March 2025 showed shareholder funds of ₹42.42 crores against fixed assets of ₹15.13 crores, with current assets of ₹40.06 crores providing ample liquidity. The absence of long-term debt since FY22 and minimal current liabilities of ₹10.62 crores underscore the company's conservative financial management.

Working capital management showed mixed signals in FY25, with changes in working capital consuming ₹1.00 crore of cash compared to a ₹5.00 crore consumption in FY24. Current assets expanded to ₹40.06 crores from ₹35.38 crores, whilst current liabilities remained relatively stable, suggesting inventory or receivables build-up that warrants monitoring. Trade payables increased to ₹10.89 crores from ₹8.47 crores, potentially indicating extended payment terms with suppliers or increased business activity. The company's book value per share stands at ₹38.77, with the current market price of ₹135.90 implying a 3.50x price-to-book multiple.

Industry Context: Forging Sector Dynamics and Export Opportunities

Krishanveer Forge operates in the specialised open die forging segment, serving critical industries including oil and gas, infrastructure, power transmission, mining, and construction. The company's focus on export markets, particularly to global oil and gas players, positions it to benefit from the ongoing energy transition and infrastructure investment cycles worldwide. The castings and forgings industry in India has witnessed moderate growth, with the sector delivering 18.99% returns over the past year, though Krishanveer Forge's 50.92% return significantly outpaced this benchmark by 31.93 percentage points.

The forging industry is characterised by high capital intensity, technical expertise requirements, and long customer qualification cycles, creating natural barriers to entry. Krishanveer Forge's established presence since 1990 (originally as Rajkumar Forge Limited, renamed in August 2022) provides it with deep domain expertise and customer relationships. The company's export orientation offers currency diversification benefits and access to higher-value markets, though it also exposes the business to global commodity price fluctuations and geopolitical risks affecting the oil and gas sector.

Compared to peers, Krishanveer Forge trades at a moderate P/E multiple of 23.0x, below the industry average of 39x, suggesting reasonable valuation relative to earnings. However, its price-to-book ratio of 3.50x is among the highest in the peer group, reflecting market confidence in the company's asset quality and future earnings potential. The company's ROE of 10.58% (five-year average) positions it in the middle of the peer pack, below Nitin Castings (12.95%) and Samrat Forgings (13.35%) but ahead of Kalyani Forge (5.67%). The dividend yield of 1.84% is modest but reflects a sustainable payout ratio of 48.52%.

Valuation Analysis: Fair Value with Growth Potential

Krishanveer Forge's current valuation presents a mixed picture, with the stock trading at what appears to be fair value based on multiple metrics. At ₹135.90, the shares carry a trailing twelve-month P/E ratio of 23.0x, representing a significant discount to the industry average P/E of 39x. This 41% discount suggests either market scepticism about the company's growth sustainability or recognition of its micro-cap status and lower liquidity. The company's enterprise value-to-EBITDA multiple of 13.93x and EV/EBIT of 16.76x indicate reasonable valuations for a profitable, debt-free manufacturing company.

The price-to-book ratio of 3.50x represents a premium to most peers, justified by the company's improving ROE (15.37% latest vs 10.58% average) and debt-free status. However, this premium demands continued operational excellence and margin sustainability. The PEG ratio of 1.22x, calculated against the five-year sales growth rate of 13.14%, suggests the stock is reasonably priced relative to growth, with a PEG below 1.5x generally considered attractive. The company's valuation grade has fluctuated between "Fair" and "Attractive" over the past year, currently sitting at "Fair" since July 7, 2025.

From a historical perspective, the stock has retraced 11.70% from its 52-week high of ₹153.90, potentially offering a more favourable entry point than at the peak. Conversely, the stock trades 111.35% above its 52-week low of ₹64.30, reflecting the substantial re-rating that has occurred. The dividend yield of 1.84% provides modest income support, though it trails some peers like Gujarat Intrux (5.59%). With zero institutional holdings and 72.47% promoter stake, the stock offers potential re-rating upside if institutional investors develop interest, though low liquidity remains a consideration.

Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest

Krishanveer Forge's shareholding structure reveals a highly stable promoter base and complete absence of institutional participation, a characteristic pattern for micro-cap companies. Promoter holding has remained constant at 72.47% across the last five quarters (December 2024 through December 2025), indicating strong promoter confidence and no dilution concerns. Key promoter entities include Western India Forgings Private Limited (0.658%) and Arun Krishankumar Jindal (0.066%), with zero pledged shares, eliminating any concerns about promoter financial stress or potential forced selling.

The complete absence of foreign institutional investors (FIIs), mutual funds, insurance companies, and other domestic institutional investors (DIIs) reflects the company's micro-cap status (₹150 crore market capitalisation) and limited liquidity. Non-institutional holdings of 27.53% have remained static, suggesting minimal trading activity and limited float. This ownership structure presents both opportunities and risks: whilst institutional entry could drive significant re-rating, the lack of institutional research coverage and low liquidity may deter larger investors.

The stable shareholding pattern indicates long-term investor conviction and minimal speculative interest. However, the absence of institutional investors means the stock lacks the research coverage, liquidity, and credibility stamp that institutional participation typically provides. For retail investors, this translates to higher volatility risk and potential difficulty in executing large trades. The high promoter holding of 72.47% ensures aligned interests with minority shareholders but also limits the available float for trading, contributing to price volatility.

Stock Performance: Exceptional Long-Term Returns with Recent Consolidation

Krishanveer Forge has delivered remarkable wealth creation for long-term investors, with the stock surging 216.05% over three years, 66.75% over two years, and 50.92% in the past year. These returns substantially outperformed the Sensex across all timeframes, generating alpha of 177.17%, 49.04%, and 41.91% respectively. The ten-year return of 676.57% versus Sensex's 254.70% represents exceptional compounding, though investors should note that past performance in micro-caps can be heavily influenced by liquidity events and sentiment swings.

Recent performance shows consolidation after the strong rally, with the stock declining 8.64% year-to-date and underperforming the Sensex by 7.53 percentage points. The one-month and three-month returns are marginally negative, reflecting profit-booking and possibly concerns about revenue growth sustainability. However, the six-month return of 7.69% remains positive, outpacing the Sensex by 2.16 percentage points, suggesting the medium-term trend remains intact. The stock's beta of 1.50 indicates it is 50% more volatile than the market, categorising it as a high-beta, high-risk stock suitable for aggressive investors.

Technical indicators present a mixed picture, with the overall trend classified as "Mildly Bullish" since October 13, 2025. The stock trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting near-term weakness. MACD shows mildly bearish signals on the weekly chart but bullish on the monthly chart, whilst RSI indicates no clear directional signal. The immediate resistance lies at the 20-day moving average of ₹132.97, with major resistance at the 100-day moving average of ₹138.86. Support exists at the 52-week low of ₹64.30, though a breakdown to those levels appears unlikely given the company's improving fundamentals.

Investment Thesis: Quality Improves, Scale Remains a Constraint

Krishanveer Forge's investment thesis rests on three pillars: improving operational efficiency evidenced by margin expansion, a pristine debt-free balance sheet providing financial flexibility, and consistent dividend payments reflecting management confidence. The company's quality grade has improved from "Below Average" (prior to June 2025) to "Average" currently, reflecting sustained financial performance improvements. The proprietary Mojo score of 61/100 places the stock in "HOLD" territory, with the financial trend rated "Positive" and technicals "Mildly Bullish."

The bull case centres on margin sustainability and potential revenue recovery. If Krishanveer Forge can maintain operating margins above 14% whilst achieving even modest revenue growth of 10-15% annually, earnings could compound attractively. The debt-free balance sheet provides capacity for growth investments or acquisitions without diluting returns. The company's export focus offers currency tailwinds and access to premium markets. Potential institutional discovery could drive significant re-rating given the current zero institutional holding.

The bear case highlights revenue volatility, scale constraints, and execution risks. Annual sales of ₹82 crores in FY25 represent minimal growth from ₹83 crores in FY24, raising questions about demand visibility. The five-year sales CAGR of 13.14% is respectable but not exceptional, whilst EBIT growth of just 6.78% over the same period suggests margin gains have been offset by volume challenges. The micro-cap status limits institutional participation, whilst the absence of research coverage creates information asymmetry. Working capital management requires attention given the cash consumption in FY25.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The key variable to monitor is revenue trajectory in Q3 and Q4 FY26. If Krishanveer Forge can achieve quarterly sales of ₹23-25 crores whilst maintaining 14%+ operating margins, full-year FY26 net profit could reach ₹7.5-8.0 crores, representing 50-60% growth over FY25's ₹5.00 crores. Such performance would justify the current valuation and potentially drive further re-rating. Conversely, if revenue remains subdued below ₹20 crores per quarter, the earnings growth story weakens significantly.