Kalyani Forge Ltd Downgraded to Strong Sell Amid Weak Financials and Bearish Technicals

Technical Analysis Triggers Downgrade

The primary catalyst for the downgrade stems from a shift in the technical outlook. Kalyani Forge’s technical grade has worsened from mildly bearish to outright bearish, signalling increased downside risk. Key technical indicators present a mixed but predominantly negative picture. The Moving Average Convergence Divergence (MACD) is mildly bullish on a weekly basis but mildly bearish monthly, indicating short-term strength overshadowed by longer-term weakness.

Other momentum indicators such as the Relative Strength Index (RSI) show no clear signals, while Bollinger Bands suggest bearish pressure weekly and sideways movement monthly. Daily moving averages are firmly bearish, reinforcing the negative trend. The Know Sure Thing (KST) indicator is bearish weekly and mildly bearish monthly, and Dow Theory readings are mildly bullish weekly but mildly bearish monthly, reflecting uncertainty but a tilt towards weakness.

On balance, the technical picture is dominated by bearish signals, with the On-Balance Volume (OBV) showing no trend weekly and mild bearishness monthly. This technical deterioration has contributed significantly to the MarketsMOJO downgrade to a Mojo Score of 28.0 and a Strong Sell grade, down from a previous Sell rating.

Financial Trend: Weakening Profitability and Debt Servicing

Kalyani Forge’s recent financial performance has been disappointing, particularly in Q3 FY25-26. The company reported a net loss with a PAT of ₹-0.12 crore, a steep decline of 106.6% compared to the previous quarter. Earnings per share (EPS) also fell to a low of ₹-0.33, while interest expenses surged to ₹2.71 crore, the highest recorded in recent quarters. This spike in interest costs has strained the company’s ability to service debt, reflected in a poor EBIT to Interest ratio averaging just 1.68, signalling weak coverage and heightened financial risk.

Long-term growth remains subdued, with net sales expanding at a modest compound annual growth rate (CAGR) of 8.08% over the past five years. Return on Equity (ROE) is low at an average of 5.67%, indicating limited profitability generated from shareholders’ funds. Additionally, Return on Capital Employed (ROCE) stands at 9.1%, which, while reasonable, is insufficient to offset the company’s financial challenges.

Despite these concerns, the valuation metrics present a somewhat attractive picture. The stock trades at an enterprise value to capital employed ratio of 1.7, suggesting it is priced at a discount relative to peers’ historical valuations. However, this valuation advantage is overshadowed by the deteriorating fundamentals and weak earnings momentum, with profits declining by 16.6% over the past year despite a modest 5.52% stock return in the same period.

Quality Assessment: Low Profitability and Debt Concerns

The quality of Kalyani Forge’s business remains under scrutiny. The company’s ability to generate consistent returns is limited, as evidenced by the low ROE and the negative quarterly earnings. The high interest burden further undermines financial stability, raising concerns about the sustainability of operations without significant improvement in profitability or debt management.

Promoters remain the majority shareholders, which typically provides some stability. However, the weak EBIT to Interest ratio and negative earnings trend suggest that the company faces operational and financial headwinds that could impair shareholder value in the near term.

Valuation Perspective: Discounted but Risky

From a valuation standpoint, Kalyani Forge’s current price of ₹621.50 is well below its 52-week high of ₹873.00, indicating a significant correction. The stock’s 52-week low is ₹490.00, placing the current price closer to the lower end of its trading range. While the discounted valuation relative to peers might attract value investors, the underlying financial and technical weaknesses justify caution.

Comparing returns with the broader market, Kalyani Forge has outperformed the Sensex over three and five years with returns of 156.66% and 232.00% respectively, versus Sensex returns of 38.28% and 61.92%. However, over the last year, the stock’s 5.52% gain lags the Sensex’s 10.44%, reflecting recent underperformance amid deteriorating fundamentals.

Technical Summary and Market Context

The downgrade to Strong Sell is consistent with the technical signals that suggest further downside risk. The daily moving averages and weekly Bollinger Bands are bearish, while monthly indicators show sideways or mildly bearish trends. This technical weakness is compounded by the stock’s recent price action, which saw a 5.83% decline over the past week compared to a 1.47% drop in the Sensex, highlighting relative underperformance.

Intraday trading on 25 Feb 2026 saw the stock fluctuate between ₹615.00 and ₹638.00, closing near the lower end of the range. This volatility reflects investor uncertainty amid the company’s financial struggles and the broader sector challenges in Castings & Forgings.

Conclusion: Strong Sell Justified by Multi-Factor Weakness

Kalyani Forge Ltd’s downgrade to a Strong Sell rating by MarketsMOJO is driven by a confluence of factors. The technical deterioration, weak financial performance marked by negative quarterly earnings and high interest costs, low profitability ratios, and only modest valuation support collectively paint a cautious picture for investors. While the stock’s long-term returns have been impressive relative to the Sensex, recent trends indicate a loss of momentum and increased risk.

Investors should weigh these factors carefully, considering the company’s limited growth prospects and financial vulnerabilities. The downgrade serves as a warning signal to reassess exposure to Kalyani Forge amid a challenging operating environment and bearish technical outlook.

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