# 1. Financial Performance ## A. Key Figures * Revenue: ₹58.22 Cr Q3 FY26 · ₹35 Cr OEM revenue (5-quarter high) * EBITDA Margin: 15.7% (record high) * PBT: ₹3.94 Cr (strongest in 4 quarters) * PAT: (₹12 Lakhs) negative due to non-cash deferred tax adjustment ## B. Revenue Growth * **Strategic Realignment Paying Off:** Revenue resilience and OEM strength reflect successful exit from low-quality business and expanded wallet share in focused accounts. * **Pricing Power Emerging:** Price improvements on legacy products—long unadjusted—are being secured with customer buy-in, boosting both top line and margins. ## C. EBITDA Margin * **Record Margin Driven by Mix & Discipline:** EBITDA margin hit an all-time high on improved business mix, cost control, and operational stabilisation, not volume leverage. * **Significant Operating Leverage Potential:** Company is below peak capacity with room to improve equipment efficiency, supporting future margin expansion. * **Investor Focus Remains on EBITDA Trajectory:** Management highlights EBITDA margin as the key leading indicator, targeting a long-term move toward **20%** as foundation for PBT and PAT growth. ## D. Profitability Metrics * **Core Profitability Strong Despite Negative PAT:** PBT reached near-record levels; negative PAT was driven by **non-cash deferred tax expense** from prior asset capitalisation, not operational weakness. * **Path to Positive PAT Clear:** Management expects consistent quarterly profitability going forward, with tax planning and operational gains supporting bottom-line recovery. * **Employee Costs a Structural Focus:** Labour costs remain high at **21–22% of revenue**, but are stabilising; future reduction will come via sales growth, automation, and productivity gains. ## E. Balance Sheet Health * **Highly Efficient Asset Utilisation:** Fixed asset turnover of **5x**—well above industry norms—demonstrates lean, productive operations. * **Proactive Capital Structure Management:** Strategy to shift toward long-term debt, reduce short-term borrowings, and optimise working capital via inventory, payables, and ERP-driven credit controls. * **Cash Flow Discipline Embedded:** Working capital reduction initiatives—including **longer die runs** and **supplier rationalisation**—are central to funding growth organically. --- # 2. Order Book & Demand ## A. Key Figures * **New Order Book:** **₹107 Cr** connecting rods · **₹45 Cr** driveline · **₹10 Cr** axle * Export Revenue: ₹10.6 Cr in current quarter ## B. New Business Wins * **High-Quality Pipeline:** New order book reflects strong segment diversification, with a strategic shift toward higher-quality wins and reduced exposure to low-margin, high-credit-risk customers. ## C. Customer Share Growth * **Integrated Product Penetration:** Vehicle share of wallet expanding through bundled supply of engine, driveline, and axle components across multiple platforms. * **OEM Coverage:** Company supplies all major Indian OEMs across key vehicle segments, engaging most top 5–10 industry leaders despite nondisclosure of specific names. ## D. Export Demand Recovery * **Europe Momentum:** Export recovery underway with scaling European transmission programme and growing interest from marquee OEMs, supported by upcoming **India-EU FTA (effective Jan 2027)**. * **US Market Opportunity:** Proposed India-US FTA enhances competitive positioning due to favorable tariff differentials; Europe prioritized first, followed by selective US expansion. --- # 3. Product & Segment Performance ## A. Key Figures * **Product Groups:** **3 major segments** (engine, driveline, axle) with connecting rods as core offering * **Business Rationalization:** **1.5 years** of Phase 1 execution focused on exiting non-core lines ## B. Engine Segment Growth * **Core Engine Strength:** Growth sustained by robust OEM demand and domestic PV momentum, particularly in driveline and axle ramp-up programmes. * **Strategic Focus:** Connecting rods remain the signature product, anchoring the engine segment’s competitive positioning. ## C. Driveline & Axle Expansion * **New Business Momentum:** Secured additional orders and achieved xEV driveline programme ramp-up, with samples submitted to a new MNC axle customer in Q3. * **Outsize Growth Potential:** Driveline and axle segments represent a multi-fold expansion opportunity relative to current scale, surpassing mature engine segment upside. ## D. Product Rationalization * **Disciplined Growth Framework:** Growth driven by execution, business development, and CapEx, underpinned by a clear three-phase mix optimization strategy. * **Intentional Revenue Trajectory:** Flat top-line performance reflects temporary overlap of legacy business exits and new programme onboarding, not stagnation. * **Margin-Neutral Scaling:** Rationalization replaces low-margin "bad business" with high-potential "good business," preserving growth intent while enhancing long-term profitability. --- # 4. Capacity & Manufacturing ## A. Key Figures * **CAPEX Budget (FY26):** **₹25 Cr** (60% to growth areas) * **CAPEX Spent (Q1–Q3):** **₹18 Cr** of ₹25 Cr budget · **₹14 Cr** capitalized in fixed assets * Fixed Asset Base: ₹74 Cr (up from ₹60.4 Cr) * Revenue per Net Fixed Asset: 3.5x (exceeds industry 1.5–2x) * **Installed Capacity Revenue Potential:** **₹500 Cr** ## B. Forging Press Reconditioning * **Operational Reset Gains Traction:** Multi-year reconditioning initiative at Kalyani Forge drives margin expansion through improved equipment reliability, die life, and production strategy. * **Forging-Centric Investment:** Forging capacity is a strategic cost lever, with **two presses fully reconditioned** recently and a third in progress to boost volume, quality, and reduce rejections. * **Targeted Machining Expansion:** Machining capacity grows incrementally with new programs, while forging remains the primary focus for structural improvement. ## C. Capacity Utilization * **High Utilization, Stretched Forging Capacity:** Available forging capacity (~₹200 Cr) is operating at stretched levels; focus is on improving reliability and predictability to stabilize sales. * **Machining Capacity Tight:** Utilization is already high, signaling need for selective expansion in line with order inflows. * **Transition to Continuous Improvement:** Company shifts from restructuring to sustained efficiency gains and technology-driven utilization optimization. ## D. CAPEX Deployment * **Growth-Aligned Capital Spending:** 60% of FY26 CAPEX directed at future growth platforms—driveline, actuator—with driveline as a key growth engine. * **Efficient Asset Turnaround Emphasized:** Focus on rapid productionization of CAPEX projects to accelerate ROI, with most assets designed for immediate operational impact. * **Flexible Funding Strategy:** Pursuing **debt and equity options in parallel** to maintain strategic flexibility for CAPEX financing. * **Asset Base Scaling to Unlock Potential:** Current revenue generation at 5x net fixed assets exceeds benchmarks; CAPEX aims to expand asset base and realize **₹500 Cr revenue potential**. --- # 5. Technology & Capabilities ## A. Key Figures * **Forging Press Lifespan:** **20–100 years** (with maintenance) · **Machining Equipment Lifespan:** **10–15 years** (non-restorable) ## B. Machining Integration * **Margin Expansion Drivers:** EBITDA improvement linked to **Vriddhi Council initiatives** focused on cost savings, productivity gains, and operational scaling. * **Value-Add Transition:** Driveline division advancing from forged to **fully finished spline-rolled and machined parts**, integrating induction hardening—a rare domestic capability—to capture new programs. ## C. Integrated Forging Portfolio * **Technology Leadership:** KFL uniquely combines **hot, warm, and cold forging** capabilities in one facility, enabling advanced driveline and axle solutions. * **OEM Differentiation:** Kalyani Forge is the **only Indian forging player** supplying engine, driveline, and axle components across technologies, underpinned by decades-long development of warm forging expertise. --- # 6. Risks & Operational Constraints ## A. Strategic Transformation & Business Mix Shift * **Major Strategic Reset Underway:** Company is executing a significant transformation focused on **streamlining business mix**, exiting misfit legacy operations, and enhancing financial governance. * **Operational Realignment:** Internal departments have been restructured to align with unified strategic goals, shifting focus from external stakeholder pressures to coherent internal execution. ## B. Capacity & Operational Efficiency * **Improved Utilization from Portfolio Pruning:** Exiting non-core businesses has enhanced **capacity utilization** and delivery capability for strategic programs, unlocking scale benefits. * **Next Phase: Continuous Improvement:** Operational excellence remains a priority, with management advancing toward a **Toyota-inspired continuous improvement** culture. ## C. Seasonal & Cyclical Demand Dynamics * **Segment-Specific Seasonality:** Strong **Q4 demand** in passenger cars and trucks due to Diwali; construction dips during monsoon (Q2) with recovery in Q3–Q4; agri/tractor demand follows crop cycles. * **Natural Volatility Hedge:** Diversified end-market exposure provides **offsetting seasonal trends**, reducing overall earnings volatility. * **Inventory-Led Cyclicality:** Longer-term volumes in auto OEM segments subject to **production cuts during distributor inventory corrections**. --- # 7. Guidance & Outlook ## A. Key Figures * **Revenue:** Similar to prior year or slightly higher (FY26) ## B. Revenue Trajectory * **Cautious Top-Line Stance:** Management expects revenue to be flat to marginally higher in FY26, prioritizing business quality over volume. * **Growth Enablers:** Strategic shift positions company for stronger sales growth and margin expansion in coming quarters, supported by India’s premiumization trend and rising passenger car ownership. ## C. Margin Stabilization * **Margin Priority:** Near-term focus is on stabilizing EBITDA margins at current levels, with medium-term target of **15%** and long-term aspiration of **20%**. * **Path to 20%:** While 20% margin is within sight, no formal timeline is provided; execution will proceed in phases after stabilization. * **Deferred Tax Tailwind:** Potential one-time positive impact on net profit in next quarter if deferred tax turns negative, though outcome remains uncertain. ## D. New Business Ramp-up * **Export-Led Scaling:** New transmission business, operational for two quarters, is now in steady ramp-up phase, driving export growth. * **Strategic Pruning:** Company has entered phase three—volume and price optimization—by exiting low-margin export and legacy domestic orders. * **Investor Confidence:** Key investors, including Saket, affirm support for strategy centered on **profitable growth** and long-term value creation.