Kalyani Forge Sets ₹30 Crore Capital Expenditure And Aims For 20% EBITDA Margin

Market snapshot: Kalyani Forge Limited is accelerating its transition to a high-margin value-added specialist, targeting an internal EBITDA margin of 20% within the next few quarters. To enable this strategic growth, the company has set a capital expenditure plan of ₹30 cr for FY27, focusing on expanding its precision machining capacity. Additionally, the raw alert claims this investment is funded by a ₹169 cr order book (as stated in the source alert; not independently verified).

Data Snapshot

• EBITDA margins reached an all-time high of 16.2% in Q1 FY27, compared to 9.3% in Q1 FY26.
• Planned capital expenditure of ₹30 cr for FY27, with 60% of the funds allocated to driveline and axle components.
• Standalone net profit surged 218% YoY to ₹4.48 cr in Q1 FY27, compared to ₹1.41 cr in Q1 FY26.

What's Changed

• Operating revenue grew to ₹66.80 cr in Q1 FY27, up from ₹64.13 cr in Q1 FY26.
• Return on Capital Employed (ROCE) expanded to 22% in Q1 FY27, crossing the company's milestone 20% target for the first time.
• The company structurally optimized its business mix by exiting from approximately ₹40 cr of legacy low-margin contracts.

Key Takeaways

• Machining Capacity Scaling: The ₹30 cr capital expenditure will nearly double monthly machining capacity from 1.8 lakh units to 3.0 lakh units by the end of FY27.
• Strategic Capex Split: Capex allocations include ₹11.70 cr for engines, ₹10.00 cr for axle parts, and ₹8.30 cr for driveline segments.
• Pruning for Profitability: Operational turnaround has been fueled by walking away from unprofitable legacy segments, leading to a 640 bps expansion in EBITDA margin.

SAHI Perspective

Kalyani Forge's management has clearly demonstrated that margin health is prioritized over raw volume growth. By sacrificing ₹40 cr of low-margin legacy revenue, the company achieved a major margin inflection in Q1 FY27. Because driveline and axle components are fuel-agnostic, this shift structurally de-risks the company from traditional ICE engine cycles, establishing a much more sustainable earnings profile.

Market Implications

The transition of forging players from raw component casting to highly engineered machined parts is driving multiple expansion across the sector. If Kalyani Forge can sustain its 16.2% EBITDA margin floor and move towards its 20% target, it could trigger a structural re-rating. Multi-year OEM validation cycles provide high revenue predictability once capacity expands.

Trading Signals

Market Bias: Bullish

The sharp 640 bps YoY expansion in EBITDA margins to 16.2% and a 218% surge in standalone PAT to ₹4.48 cr highlight a major profitability pivot. Growth is structurally supported by the planned ₹30 cr capex.

Overweight: Auto Ancillaries, Precision Forgings

Trigger Factors:

• Execution of the ₹30 cr capex to double machining capacity by end of FY27
• Stabilization of input steel costs and pricing power pass-through to OEMs
• Volume ramp-up in newly launched xEV axle and wheel-hub contracts

Time Horizon: Medium-term (3–12 months)

Industry Context

The Indian auto ancillary and forging sector is undergoing high levels of technological upgrades. OEMs are preferring fully machined components over raw forgings to simplify their assembly lines. Kalyani Forge is uniquely positioned in this landscape, being the only domestic forge operator with hot and warm forging capabilities under one roof.

Key Risks to Watch

• Rising Leverage: Debt-to-equity stands at 1.11, and funding 75% of the ₹30 cr capex through debt could further stretch the capital structure.
• Cash Conversion Lags: The cash conversion cycle remains high at approximately 148 days, straining working capital requirements.
• Raw Material Volatility: Unpredictable steel prices and a typical 2-3 month pass-through lag to OEMs can temporarily compress margins.

Recent Developments

In August 2026, Kalyani Forge paid a final dividend of 40% (₹4 per share) for the financial year ended March 31, 2026. On August 11, 2026, the company announced its Q1 FY27 results, reporting a 218% YoY rise in standalone net profit to ₹4.48 cr and EBITDA margins touching 16.2%. Audio and video recordings of the investor meet were made available online on August 12, 2026.

Closing Insight

Kalyani Forge's strategy to drop legacy contracts in favor of high-margin machined segments is a textbook execution of capital efficiency. If the company manages its rising leverage while deploying its ₹30 cr capex, it is well-positioned to cement its role as a premium fuel-agnostic auto supplier.

High Performance Trading with SAHI.