Kalyani Forge Ltd Upgraded to Sell on Technical Improvements Despite Financial Challenges

Technical Factors Drive Upgrade

The most significant catalyst for the upgrade in Kalyani Forge’s rating is the improvement in its technical profile. The technical grade shifted from bearish to mildly bearish, reflecting a more constructive market sentiment. Key technical indicators present a mixed but cautiously optimistic picture. The Moving Average Convergence Divergence (MACD) remains bearish on a weekly basis but has softened to mildly bearish on the monthly chart. Meanwhile, the Relative Strength Index (RSI) shows no clear signal on both weekly and monthly timeframes, indicating a neutral momentum.

Bollinger Bands suggest a mild bearish stance weekly but have turned bullish monthly, signalling potential for upward price movement over the medium term. Daily moving averages remain mildly bearish, while the Know Sure Thing (KST) oscillator is bearish weekly and mildly bearish monthly. Other indicators such as Dow Theory and On-Balance Volume (OBV) show no definitive trend, underscoring a period of consolidation rather than clear directional bias.

This technical improvement is reflected in the stock’s recent price action. Kalyani Forge closed at ₹634.65 on 2 February 2026, up 3.86% from the previous close of ₹611.05. The stock traded within a range of ₹631.50 to ₹652.45 during the day, showing increased buying interest. Despite this, the stock remains well below its 52-week high of ₹873.00 but comfortably above its 52-week low of ₹490.00, indicating a recovery phase within a broader downtrend.

Quality Assessment Remains Weak

Despite the technical upgrade, Kalyani Forge’s quality metrics continue to reflect challenges. The company’s average Return on Equity (ROE) stands at a modest 5.67%, indicating limited profitability relative to shareholders’ funds. This low ROE suggests that the company is not generating substantial returns on invested capital, a concern for long-term investors seeking growth and value creation.

Moreover, the company’s ability to service its debt remains weak. The EBIT to Interest ratio averages only 1.61, signalling tight coverage and potential vulnerability to rising interest costs or operational disruptions. This ratio is a critical measure of financial health, and a figure below 2.0 is generally considered risky, especially in capital-intensive industries like castings and forgings.

Financial Trend Shows Mixed Signals

Financially, Kalyani Forge has experienced a negative performance in the recent quarter Q2 FY25-26. Profit Before Tax excluding Other Income (PBT less OI) fell sharply by 60.05% to ₹1.71 crore, while net sales declined by 10.69% to ₹55.67 crore. Conversely, interest expenses increased by 35.47% over nine months, exacerbating pressure on profitability and cash flows.

Over the longer term, the company’s net sales have grown at an annualised rate of 11.39% over the past five years, which is modest but not robust enough to offset profitability concerns. However, the company’s profits have risen by 17.3% over the past year, indicating some operational improvements despite top-line contraction. The Price/Earnings to Growth (PEG) ratio stands at 1.8, suggesting that the stock’s valuation is somewhat aligned with its earnings growth prospects.

Valuation Appears Attractive Amidst Challenges

From a valuation standpoint, Kalyani Forge presents an attractive profile relative to its peers. The company’s Return on Capital Employed (ROCE) is 9.1%, which, while not outstanding, is reasonable given the sector’s capital intensity. The Enterprise Value to Capital Employed ratio is a low 1.8, signalling that the stock is trading at a discount compared to historical peer valuations.

This valuation discount may partly explain the recent technical improvement and the upgrade to a Sell rating from Strong Sell. Investors appear to be recognising the stock’s relative cheapness, especially given its long-term returns. Over the past five years, Kalyani Forge has delivered a remarkable 348.36% return, vastly outperforming the Sensex’s 74.40% gain over the same period. Even over three years, the stock’s return of 174.80% dwarfs the Sensex’s 35.67%.

Technical Outlook and Market Context

While the technical indicators have improved, the overall trend remains cautious. The monthly MACD and Bollinger Bands suggest a mild bullish bias, but weekly indicators continue to show bearish tendencies. The absence of clear signals from Dow Theory and OBV further emphasises the stock’s consolidation phase.

Comparatively, the stock’s recent returns have outperformed the Sensex in the short term. Over one week, Kalyani Forge gained 8.42% while the Sensex declined 1.00%. Over one month and year-to-date periods, the stock’s losses of -3.18% and -2.96% respectively were less severe than the Sensex’s declines of -4.67% and -5.28%. However, over the one-year horizon, the stock’s -3.11% return contrasts with the Sensex’s positive 5.16%, reflecting recent volatility and sector-specific pressures.

Shareholding and Industry Position

Kalyani Forge operates within the Castings & Forgings sector, a capital-intensive industry with cyclical demand patterns. The company’s majority shareholders are promoters, which often provides stability but also concentrates control. The stock’s current Mojo Score is 34.0, with a Mojo Grade of Sell, upgraded from Strong Sell on 1 February 2026. The Market Cap Grade is 4, reflecting a mid-sized market capitalisation relative to peers.

Despite the upgrade, the overall assessment remains cautious due to the company’s weak financial fundamentals and modest growth prospects. Investors should weigh the improved technical signals against the persistent challenges in profitability and debt servicing.

Conclusion: Balanced Outlook with Cautious Optimism

The upgrade of Kalyani Forge Ltd’s rating from Strong Sell to Sell is primarily driven by a technical rebound that suggests the stock may be stabilising after a prolonged downtrend. Improved technical indicators, including a shift to mildly bearish trends and bullish monthly Bollinger Bands, have encouraged a more positive near-term outlook.

However, fundamental weaknesses remain significant. The company’s low ROE, weak EBIT to Interest coverage, declining quarterly sales and profits, and rising interest expenses highlight ongoing operational and financial risks. Valuation metrics offer some comfort, with the stock trading at a discount to peers and delivering strong long-term returns, but these factors alone are insufficient to warrant a more bullish stance.

Investors should approach Kalyani Forge with caution, recognising the potential for technical-driven gains while remaining mindful of the underlying financial vulnerabilities. The Sell rating reflects this balanced view, signalling that while the stock may no longer be a strong sell, it is not yet a compelling buy.

Upgrade at special rates, valid only for the next few days. Claim Your Special Rate →