Kalyani Forge Ltd (NSE: KALYANIFRG) Q2 2025 Earnings Call dated Nov. 13, 2024
Corporate Participants:
Rachana Agarwal — Company Secretary and Compliance Officer
Viraj G. Kalyani — Managing Director
Analysts:
Unidentified Participant
Presentation:
Rachana Agarwal — Company Secretary and Compliance Officer
Hello, a very good morning, ladies and gentlemen, and a warm welcome to all the attendance of this conference call of Kalyani Forge Limited. This conference call is regarding the Q2 financials, results of the company and future prospects, prospectus of the company. Please note that this conference call is being hosted and all participants are attending remotely. This conference call shall have the following highlights about the company and forward-looking statements of the company, based on the beliefs, understanding, expectations of the company as on date. This statement’s presentation are with the performance of the future and growth of the company.
As a reminder, our Managing Director Mr. Viraj G. Kalyani will be making presentation, and then all participants shall be given a fair time to ask questions. If any question regarding performance of the company or any such matter that shall be answered by our MD Mr. Viraj G. Kalyani. If any participant needs any assistance during the conference call, please reach out to our moderator, Mr. Rajkumar Diksangi by signaling regarding the sequence.
I now hand over the conference to Mr. Viraj G. Kalyani, Managing Director of the company. Thank you, and over to you, Mr. Viraj G. Kalyani.
Viraj G. Kalyani — Managing Director
Hello, good morning. Can you hear me, Rachana?
Rachana Agarwal — Company Secretary and Compliance Officer
Yes, sir.
Viraj G. Kalyani — Managing Director
Okay. Good morning, everyone. Welcome to our, Investor analyst call for Kalyani Forge. I am Viraj Kalyani, the Managing Director and CEO of Kalyani Forge. I’ve been working in the company since the year 2012, and recently took over this role last year. Incidentally, this is our first investor call. So I’m sure we will get a lot of feedback from investors, shareholders, prospective, investors as well. And going forward, we will definitely keep improving this practice and make it a regular affair. So, thank you everyone for taking the time and joining us. I will now take you through our investor presentation.
Rachana, can you confirm that the screen is visible?
Rachana Agarwal — Company Secretary and Compliance Officer
Yes, sir. Visible entirely.
Viraj G. Kalyani — Managing Director
The entire slide show is visible?
Rachana Agarwal — Company Secretary and Compliance Officer
Yes, sir.
Viraj G. Kalyani — Managing Director
Yeah. So this is our investor presentation for Q2 FY ’25, sorry, there’s a typo here it’s Q2 FY ’25 and H1 FY ’25, and the theme for our year is about gaining strength as you would have seen in our annual report, recently published. These are our company stats for some of you who may be, new to the company. We have been established in 1978 with around 50 years of experience in the industry. We are publicly listed on the National Stock Exchange and Bombay Stock Exchange. We have a workforce headcount of about a 1,000 plus employees, and we are located in Pune, in Maharashtra, near the seaport of Mumbai, and also in the automotive hub of Pune.
We have five plants, which are all in the same one kilometer radius. In Koregaon Bhima and Sanaswadi outside of Pune. And these are Hot Forging Division 1, Hot Forging Division 2, Machine Components Division 1, Machine Components Division 2, and Cold and Warm Forging Division. Our business segments are primarily passenger cars, trucks, industrials, agro, and turbo, about 60% of our business is in the Automotive segment, which is passenger cars and trucks, and we are fairly well diversified with about 40% of business in the industrials and agro verticals.
So as I said, we are a well-diversified company leveraging common strengths across various market segments. So as a strategy, these are the core segments that we are tracking, and we are increasing our market sharing. In the truck space, this segment is high volume and has high volume, high value forgings in every truck, which makes it very attractive for us and a very good fit for the kind of products we make. It is also a large and mature market globally. And in India, it is a fast growing market. The passenger cars as well have high volume and high volume value forgings in every car, including in electric vehicles. This also is a large and mature market globally, and there’s a lot of headroom for growth, of passenger cars in India. So we are very bullish about this space.
The Industrial segment has been a steady and growing market for large engines, so we’re able to manufacture and sell similar products in the industrial space, especially for stationary engines, gensets, off road vehicles, construction equipment et cetera. This acts as a hedge against the cyclicality of automotive markets. At the same time, we’re able to leverage our automotive standards expertise to differentiate with our competitors. In the agro space, there are, there’s a high volume market for agro engines. Again, this is a hedge against automotive cyclicality and similarly we leverage the automotive experience.
Again for many of you, may be familiar with our products, but recently we have decided to focus on fewer product groups and increase our market share in these areas. So our main product groups are engine, driveline, and axle. Of these, the engine products obviously are the part of the ICE market, which is the existing conventional, powertrain technology, but it has a very longstanding staying power and we are, we believe that the ICE market will continue to grow in absolute terms, even though there will be some growth in the electric and alternate fuels or powertrain technologies.
Then the driveline and axle products are both EV agnostic, or sorry, x-EV products, fuel agnostic products. So we are fairly well placed to ride the wave of new powertrain technologies, as well as the existing, best technologies in the market. So in the engine, we have connecting rods, crankshafts, they are very high precision products and connecting rods have been our marquee product, since inception. We are present across all market segments, and we make connecting rods of various sizes. We’re also the first in India to make the fracture split connecting rod. And the BS6 connecting rod or the Euro 6 compliant connecting rod.
So we are seeing good traction in this area. Our fastest growing product segment, however is the driveline space where we have established warm forging technology, which is a niche area. And we are amongst very few players in India, who are able to produce warm forging products like outer races, tulips, inner race, and tripods. These go in the half shafts between the wheels in passenger vehicles, typically in passenger vehicles. Similarly, axle products are stub axles, steering knuckles, and wheel hubs. We are growing in these areas as well. They are our third largest product group, and we have recently won some orders in all these three groups, which I will talk about in the later slide.
So, Kalyani Forge has a growth formula, which is very important for our, for achieving our long-term goals, as well as our balanced scorecard targets. So number one is Strong Execution, number two, Business Development, and number three, Capex. And these are the three ingredients that enable and ensure growth of the company. This is the approach that we have set forth over the last one-and-a-half years or so. And this strategy and approach is playing out pretty positively. And we’re able to see the results. So I’ll take you through each of these in a bit of detail.
So in terms of strong execution, we have our financial results, which are most important. In Q2, we clocked a total revenue of INR62.85 crores, EBITDA of INR8.29, crores and PAT of INR3.9 crores. As you can see, there is a significant growth in, income and especially in EBITDA and PAT. The main reason is, we have, had a favorable product mix in our sales, focusing on more profitable business, and we have also taken a lot of steps on cost control, improving operational inefficiencies [Phonetic], lean manufacturing, and so on. So our EBITDA margin in Q2 was also at 13.2%.
We have also been able to provide strong shareholder returns over the last five years, as you can see in the chart. We have outpaced the, BSC Sensex with 180% growth compared to the market, which is at shift at 100% or yeah, at 94%. This is, along with this, we have our Board of Directors strengthened with new Board of Directors following some vacancies we had for, due to retirement of the earlier board members. This is helping us a lot with the right kind of guidance, industry expertise and strategy to achieve our growth targets.
Our leadership team is also strengthened with very clear, org structure across our manufacturing divisions, product lines and market segments. The leadership is also established at multiple levels so that there is a clear succession planning for the future. We have a cost reduction program in place where we’re focusing on material costs, power costs, and productivity and we have a digital shop floor program, which I will talk about in the next slide.
Second is, second ingredient of our growth is business development. And I’m happy to share with you that we have won new orders. We have one total multi-year order book of INR384 crores in H1 of FY ’25. So this translates to a peak annual value of INR63 crores of new orders, as you can see in the graph, on the right. And to give perspective, our existing forecasted order book for this year is INR273 crores. So it is about 25% of the existing order book that we have won new orders.
There is a continuous new business development process which is on track. So we had a similar order book winning in the previous year as well, and we are continuing this growth engine, which was an area that required a lot of, lot of boost and we are seeing the results play out in, in these last few quarters. There is a focus strategy on core products and segments. So by eliminating non-core products, we’re able to give more and more attention to the right set of customers, to the right locations and market segments. And therefore, we’re able to fine tune our offerings as well as consolidate our internal processes, capex, and all the decisions that go along with it. This has greatly simplified our operations as well. So we strongly believe in this focus strategy.
Kalyani Forge also enjoys an entrenched position with, in the market with multi-decade relationship with OEMs. And so we are getting significant traction with our existing customers itself, while we do target new customers, new customer acquisition for our larger expansion boards. On capex side, this is our third ingredient for growth.
As you can see we have steadily increased our capex over the last five quarters. In Q2, our fixed assets have grown to INR62.5 crores, which is almost about INR8 crores of growth. We commissioned several capex projects in Q2 FY ’25, particularly in plant and machinery. Our machining expansion Phase 1 is complete, and Phase 2 is underway. So Phase 1 is, has been for the immediate connecting rod machining lines. Phase 2 is in the driveline and axle space, where we have recently installed new plant and machinery or new cells. And this will continue in the coming quarters.
We have a new 1,600 ton forging press also installed last quarter and the 4,000 ton press, which I had spoken about in an earlier AGM, this is on track for completion in Q3. This has been a long pending project, which was on the back burner for almost a decade. And now we’re happy to see this come to fruition as it will unlock larger weight products, especially for the truck segment and industrial segment.
Continuing on capex, this is just an image to help you understand how we are expanding our machining capacity. We have done re-layouts for six old machining lines based on lean manufacturing principles. With this, we have been able to save 50% of existing shop floor space and free it up for new expansion. So these are a lot of low hanging fruits that we are able to utilize and therefore make very judicious capital expenditure for growth.
And finally on capex side, we have a digital shop floor initiative where we have digitized a lot of our machine data inspection and quality data to provide a lot of insights and analysis. The quality data helps in traceability and rapid problem solving for our internal teams, as well as with customers. We have learning management and training tools, and this is enabling automation and predictive maintenance of machines. So these digitization projects are underway in collaboration with our Group technology partner, Kalyani Studio, which has been a software startup founded in 2016. So we’re able to leverage a lot of synergies with this company.
And this is our leadership, Board of Directors. Mrs. Rohini Kalyani is our Executive Chairperson. She has had a lot of, decades of experience, leading Kalyani Forge for over 25 years and she’s also happens to be the only female leader in the forging industry, and has been a pioneer in technology with the connecting rod, machining, fracture split technology, as well as the warm forging technology, these were all spearheaded under her leadership. So we’re able to really leverage her experience on the board. Next is, myself. I’m the Managing Director. I’ve already given my introduction. Mr. Gaurishankar N. Kalyani. He is the Director, Non-Executive and Non-Independent Director. He is also on the Board of various group companies and has a lot of experience in commercial and other businesses.
In terms of Independent Directors, we have Mr. Ajay Tandon, who recently joined as an Independent Director. He has been at the helm of affairs in the Tata Group with being the MD of Tata Autocomp and on the board of several Tata Group companies. Similarly, Mr. Jeevan Mahaldar also joined in the last quarter. He is an Independent Director and he has been, MD and board member in the Minda Group for several years, before that he had worked with, Tata Ficosa and several other global companies. Mr. Abhijit Sen, he is also an Independent Director. He has been with us for several years now, and he was the CFO of Citibank, in his earlier career and has a lot of financial expertise. So overall we have a deep expertise at scale, automotive domain knowledge, global exposure and strong strategic and leadership skills.
So with that, I come to the end of our presentation. Thank you very much for your patience and for listening. I’d like to now hand over to Rachana, who will moderate for Q&A.
Questions and Answers:
Rachana Agarwal
Thank you very much, sir, on your insightful presentation on our Kalyani Forge Limited. I would request you —
Viraj G. Kalyani
Should I close the screen share?
Rachana Agarwal
Yes, sir. I would request you to close the screen share. Now all the attendees, investors and analyst, I request them if they have any questions in regards with our company, any processes progresses, I request you to all put your questions on forth. Kindly raise your hands or you can use the chat box for questioning.
Viraj G. Kalyani
We have a question from Mr. Sunil Kumar.
Rachana Agarwal
Yes, sir.
Unidentified Participant
Good morning, sir.
Viraj G. Kalyani
Yeah. Good morning, Mr. Amin. How are you doing?
Unidentified Participant
I’m so happy, rather I’m elated.
Viraj G. Kalyani
Yes, thank you.
Unidentified Participant
See yesterday it was auspicious day, that was Dev Diwali.
Viraj G. Kalyani
Okay.
Unidentified Participant
And you have, rather we have all celebrated the occasion with fantastic results.
Viraj G. Kalyani
Yes, thank you. Thank you.
Unidentified Participant
See the EBITDA you could raise it from 7.48% to 13.2% in a quarter, it’s unbelievable. Absolutely unbelievable.
Viraj G. Kalyani
Yes, yes.
Unidentified Participant
And I’m sure that with this rapid run, we may definitely double that figure to say 15%, is it?
Viraj G. Kalyani
Yeah. Our goal is to get there. I cannot make forward-looking statement —
Unidentified Participant
I understand sir.
Viraj G. Kalyani
But definitely improving EBITDA is one of our top most priorities.
Unidentified Participant
Exactly.
Viraj G. Kalyani
And we have a clear operational strategy to increase it by improving our material costs, our power costs, and also productivity. And lastly, improving the product mix, the pricing. So these are the more major levers that we’re working on.
Unidentified Participant
Absolutely great, sir. And I wish that, Kalyani Forge may come out with quarterly turnover of INR100 crores. Let’s hope.
Viraj G. Kalyani
Yes, yes. Definitely. Thank you. Thank you for your [Speech Overlap].
Unidentified Participant
So nice.
Viraj G. Kalyani
Yeah. Thanks for participating.
Rachana Agarwal
Thank you, Sunil Kumar, sir. Any other analysts, investors? Sir, we have one question from Mr. Mehul Jain, asking —
Viraj G. Kalyani
Yes. The question is, is this EBITDA margin sustainable?
Rachana Agarwal
Yes.
Viraj G. Kalyani
Yeah. That’s a very good and important question. Of course, this is, in many quarters, after many quarters, we have reached this kind of breakthrough level of EBITDA margin. We do hope to keep, keep it sustained at this level, and we are keeping a tight watch on our costs and operations. Our target is to grow the EBITDA margin as well as our contribution margin. So the first step is to stabilize the contribution margin, which is basically our revenue minus material costs, the direct material costs, that plays about, materials are about 45% to 50% of our cost structure. So we need to, as long as we make that very sustainable, we can, we’ll be on the right path.
Rachana Agarwal
So we have another question from Mr. Ankur Agarwal [Phonetic].
Viraj G. Kalyani
Yeah. Please go ahead.
Rachana Agarwal
Yes, Mr. Ankur.
Unidentified Participant
Hello, sir.
Viraj G. Kalyani
Yes.
Unidentified Participant
And good set of numbers. [Foreign Speech].
Viraj G. Kalyani
Auto or non-auto is fairly well balanced. Auto segment is about 60% of our revenues and 40% is the Industrial segment, non-auto segment.
Unidentified Participant
[Foreign Speech]
Viraj G. Kalyani
It depends based on the product, as well. So, if it is a critical product, margins are better, if it is, has more value addition machining, ready to assemble products have better margins.
Unidentified Participant
[Foreign Speech]
Viraj G. Kalyani
We have a target of growing our top line, doubling our top line over the next few years. I cannot give an exact forecast.
Unidentified Participant
Not exact, but [Foreign Speech].
Viraj G. Kalyani
Yes. So our long-term target is to double the revenues to about INR500 crores and increase our EBITDA margin to 15%.
Unidentified Participant
[Foreign Speech].
Viraj G. Kalyani
Yes. Most of our legacy issues or any sort of areas that needed a lot of improvement, those are done. Those are resolved. So we are now focusing on next level of improvement, next level of growth, new business in multiple product lines.
Unidentified Participant
Okay. Thank you.
Viraj G. Kalyani
Thank you. Thank you. There’s a follow up question to Mehul —
Rachana Agarwal
Thank you. Yes, sir. Thank you. Mr. Ankur Agarwal. There is a follow-up question from Mr. Mehul Jain. What’s your future capex plan?
Viraj G. Kalyani
Yeah. Our capex plan for, we have been planning, over three years to four years cycle. Last year we did capex of around INR13 crores. This year we have planned a significantly larger outlay around INR25 crores to INR30 crores. Some of it is based on the business projections that we are getting from our customers.
Yeah. The next question is from —
Rachana Agarwal
Sir, please.
Viraj G. Kalyani
Yeah.
Rachana Agarwal
Sir, I would request if you can disclose your name. The question is, what are the reason for such good operating margins and plans to sustain them?
Viraj G. Kalyani
Yes. As I’ve already answered this question, the operating margins have improved based on better price and product mix, as well as improving our operational efficiencies and cost reduction measures. We are working on sustaining this and the approach is to focus on our, largely on our material cost contribution margins first and then achieving the rest. Yeah. Thank you, Mr. Kamaldeep Singh for your question.
Rachana Agarwal
Thank you, sir.
Viraj G. Kalyani
We put out the sales target for this and next FY and how we are planning to increase sales. I won’t disclose our exact targets for each year as we don’t make forward-looking statements. But I can elaborate how we are planning to increase sales. As I had shown in my presentation, we have a focused strategy on three product segments i.e., engine, driveline, and axle. We are working closely with our existing customers and we have received a record number of new orders around INR62 crores of peak annual orders we have won in H1 of FY ’25. So this is the effort that we are continuing. And we have a three-pronged formula for growth, which is strong execution, business development and capex.
On full capacity, your next question is on full capacity, how much sales are possible and capacity utilization currently and targets for this and next FY?
Yes, thank you for your question. Again, capacity is very, very important in the forging industry. It’s also very expensive. So we must be very judicious in allocating capacity to the right type of business. So, currently in our forging plants, our utilization is fairly low and in our machining plants, our utilization is much higher. This is because in our forging plants, we had to phase out some non-profitable business and make room for better business from our existing customers. And there’s also our efforts are to work on upgrading our forging machinery, reconditioning, modernizing, and so on. So we don’t need additional capacity in our forging side, but machining side, we will be spending in terms of a new capacity based on every new business order or visibility that we get.
Rachana Agarwal
Thank you, sir. Moving ahead, we have some question from Ankur Agarwal again.
Viraj G. Kalyani
Yes, please go ahead.
Unidentified Participant
What’s your debt? [Foreign Speech].
Viraj G. Kalyani
[Foreign Speech] debt, it’s maintained at the current level. We have a lot more headroom to take on more debt, because our debt to equity ratio is fairly low.
Unidentified Participant
Okay.
Viraj G. Kalyani
So we may take on some additional debt. But our general approach is about 75%, funding of capex, 75% from debt and 25% by internal accruals.
Unidentified Participant
[Foreign Speech].
Viraj G. Kalyani
I can’t give an exact number, but this year’s, full year plan was around INR25 crores to INR30 crores.
Unidentified Participant
Next year?
Viraj G. Kalyani
Next year I cannot give the numbers yet, because we have to, we are awaiting, finalizing and getting the board approval on the same. So probably by next quarter, we’ll be able to give an update on this.
Unidentified Participant
[Foreign Speech].
Viraj G. Kalyani
Yeah, asset to sales ratio is very important. Generally, it’s 0.5 asset to sales.
Unidentified Participant
0.5, okay.
Viraj G. Kalyani
Yeah. So for example, INR1 crore of asset will generate INR2 crores of sales.
Unidentified Participant
Oh, two times. Okay.
Viraj G. Kalyani
Yes, yes. So asset divided by sales is 0.5, or sales divided by assets is two times.
Unidentified Participant
Okay.
Viraj G. Kalyani
Again, that’s a very good question. And I want to elaborate that, the ratio for Kalyani Forge is quite low, which means our asset value is very low currently and that’s why we are able to take on more capex to enable the growth.
Unidentified Participant
Okay. [Foreign Speech].
Viraj G. Kalyani
Again, that’s a very important question. Order book is typically given for a particular program by the OEM. So they have a start of production and end of production plan, which is over, could be five years or 10 years. So when they give an order, it’s an order for five years to 10 years.
Unidentified Participant
Okay. So then current order book [Foreign Speech]?
Viraj G. Kalyani
Current order book, our forecast is about INR270 cores for this year.
Unidentified Participant
Okay. That’s good. Okay. Thank you. That’s all for my side.
Viraj G. Kalyani
Yeah. Thank you. Thank you, Ankurji. Yes.
Rachana Agarwal
Sir, one more question in the chat box.
Viraj G. Kalyani
Yeah.
Rachana Agarwal
Asking, can we share capacity utilization in numbers and targets?
Viraj G. Kalyani
Yeah. Capacity utilization, I can’t give an exact number right now, I’ll give you a ballpark. In the forging side, we have about 50% capacity utilization. In the machining side, we have about 80% or 75% to 80% capacity utilization.
Rachana Agarwal
Okay, sir.
Viraj G. Kalyani
And our targets are to get to, in the forging side, to get to 70% utilization in the coming year.
There’s one more question from Mr. Mehul Jain. How much company spends on new product development?
Yeah. That’s a good question. I honestly don’t have the numbers at my fingertips right now. We will get back to you on this, but we have a pretty significant outlay for new product development and it’s based on the outlook from our customers. We are seeing some certain products are undergoing design changes and so we proactively work on those and for new business where we have received orders from our customers. That’s part of our regular new product development activities. So, it is a pretty significant spend as well as effort that we put on it.
Rachana Agarwal
Thank you, sir. Sir, we have one question from Ankur Agarwal sir, asking now management con call is every quarter?
Viraj G. Kalyani
Yes, Mr. Agarwal, we will make this a regular affair, and we will try to ensure we have a call at least once a quarter. And it’s nice to see the participation of shareholders and the investor community.
Rachana Agarwal
So we are welcoming one more question. Can we share sales CAGR for this and next two financial years?
Viraj G. Kalyani
No. Unfortunately, we cannot give this kind of a prediction on the sales CAGR. Of course, it depend, we have our internal targets in place for growing the top line as well as bottom line. We have a plan up to FY ’27, an annual sales plan, and we are working on the strategy, the strategy is also in place for that and we are executing on the same.
Rachana Agarwal
Thank you, sir. We hope that all attendees are getting satisfactory answers. And if they have any more questions, we welcome them all.
Viraj G. Kalyani
If some of you have joined here on this call, we will be sharing the presentation and the transcript of the call as well.
Rachana Agarwal
So with the permission of all attendees and our Managing Director, I thank you all the participants and put forward to end this meeting, if there are no questions or any comments? Yeah, we have —
Viraj G. Kalyani
Yeah, let’s have one last comment from Mr. Amin.
Rachana Agarwal
Yes.
Unidentified Participant
So sir, it was a fantastic meet. Wonderful.
Viraj G. Kalyani
Thank you, thank you.
Unidentified Participant
And great going, and see you every quarter. Happiest time forever.
Viraj G. Kalyani
Yes, definitely. This is very encouraging, and look forward to interacting with all of you next quarter. Thank you, Mr. Amin as well.
Unidentified Participant
Thank you, sir.
Viraj G. Kalyani
Yeah. Thank you, everyone. Thank you to all the participants for this interactive session. We look forward to participating and engaging with you in the coming quarters. You can be in touch for any further follow up questions with our company secretary, Mrs. Rachana Agarwal. Thank you, and have a nice day.
Rachana Agarwal
Thank you all participants. We will be posting this recording as well as transcript on the stock exchanges shortly and looking forward for your support and encouragement as always. Thank you all. And with this note, we are ending this meeting. Thank you so much.