Kalyani Forge Ltd (NSE: KALYANIFRG) Q3 2025 Earnings Call dated Feb. 13, 2025
Corporate Participants:
Rachana Agarwal — Company Secretary
Viraj G. Kalyani — Managing Director
Nilesh Bandale — Chief Financial Officer
Analysts:
Rahul Jain — Analyst
Ankit Gupta — Analyst
Saket Kapoor — Analyst
Dhwanil Desai — Analyst
Hemant — Analyst
Sunilkumar Amin — Analyst
Presentation:
Rachana Agarwal — Company Secretary
Good morning ladies and gentlemen and a warm welcome to Kalyani Forge Ltd. Quarter 3 and 9 months intent for financial year 24:25 Analyst Investor Conference call As a reminder, all participants line will be in the listen only mode and there will be an opportunity for you to ask question after the presentation concludes. Should you need any assistance during the conference call, please signal to operator by passing a star then zero on your touchstone phone. Please note that this conference is being recorded before we move on to the presentation. A small disclaimer to all participants. This conference call may contain forward looking statements about the company which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantee of future performance and involves risks and uncertainties that are difficult to predict. I now hand over the conference to Mr. Viraj Kalyani Managing Director of Kalyani Forge Limited. Thank you. And over to you Virat sir.
Viraj G. Kalyani — Managing Director
Thank you Rachna. Good morning everyone. Good morning dear shareholders, analysts, potential investors. Investors and the general public at large. Thank you for attending today’s investor presentation. Kalyani Forge for Q3FY25. I also have with me our CFO, Mr. Nilesh Bandale. He will be with me on the call along with Rachna, our company secretary. And primarily I will take you through a presentation of our updates for Q3, our strategy, as well as the performance highlights for the quarter. And both Nilesh and I will take some of your questions and we’ll engage in a discussion. So let me begin with the presentation. Rachna, can you confirm it’s visible for everyone?
Rachana Agarwal — Company Secretary
Yes sir, it is clearly visible.
Viraj G. Kalyani — Managing Director
Okay. All right. So this is our Investor presentation for Q3FY25. The theme for the year is Gaining Strength. As you would have seen in our annual report of last year, it’s a safe harbor statement that all forward looking statements regarding our strategies, business plan, expectations, potential growth, etc. Are based on assumptions and they are inherently uncertain and subject to risks. And there are issues of materiality or accuracy that of course there are challenges in forecasting. So I’d like you all to go through this statement at your own pace where as we publish this presentation online. So I’ll just take you through a quick overview of our company for those of you who are new to the company. I had already presented some of these slides last quarter but so this time I will go a little faster. So we were established in 1978, around 50 years ago. 50 years in the industry. Publicly listed on the stock exchange. We have a headcount of about 1,000 plus employees. And we are located in Pune near the seaport of Mumbai. We have five plants. Hot Forging Division 1 and 2, Machine Components Division 1 and 2 and Cold and Warm Forging Division. All these five plants are in a 1 km range. Radius in the Korea Bhima Sanasadi area outside of Pune. So here’s a overview of the company milestones over the various decades. Now this is a new slide which we hadn’t shown earlier but it will give you an idea of our journey from very humble beginnings and the progress we are making every decade. So in the 1980s and 90s we were founded by Dr. Nilkan Kalyani who was the founder of the Kalyani Group. He set up various companies and Kalyani Forge was started with a clear vision to enter into precision and critical forgings typically of small and medium sized forgings. The major focus on at that time was on two wheeler forged components and we IPO on the Bombay Stock Exchange and National Stock exchange in the mid-90s as Kalyani Fault Limited. Then in the year 2000 we had a leadership transition and Mrs. Rohini Kalyani, she joined as the executive director and then took over the reins of the company. So under her leadership we had the first fracture split connecting rod developed in India. We forayed into passenger car segment as well as the truck segment and started warm forging first again a first in India. We also installed mid sized presses of 1600 tons and 2,500 tons. In the earlier decades the presses at Kalyani Forge were much smaller because it was focused more on the two wheeler segment. It was also in the 2000s, particularly 2005 that we established a machining division. A state of the art precision Autocom division where a lot of machining lines were established for the passenger car and truck segment. Then in the next decade of the 2000 and tens, we established machine lines for marquee global OEMs. This was when the machining business started to scale up, especially the automotive truck segment. We were the first to launch the Euro 6 or BS Stage 6 compliant connecting rod in India. This was in 2015 and it involved very critical machining and stringent quality parameters which we were able to achieve. In the same decade we expanded the driveline and industrial business. We launched the wheel hub business which was a new product for Kalyani Forge but helped us to expand our non engine. Gin or non ice business lines. It was around in that decade when electrification of vehicles was becoming a pretty hot topic. So we had already planted the seeds of a diversified product portfolio in the 2010s. It was also in 2016 that Kalyani Studio was established as a separate company and it was it is a tech vertical of the group. So today there are a lot of synergies between Kalyani Forge and Kalyani studio. In the 2000 and twenties we started scaling up the machining business. We also started sales to EV platforms. There have been a record order wins from target customers. We launched higher value add processes like spline rolling and induction hardening which helps us to move up the value chain and increase our product profitability. Our exports pipeline has been built up and we also have a digital shop shop floor project implemented with Kalyani Studio. So these are our major product offerings. We make primarily critical high performance components leveraging decades of experience. So the three major segments currently are engine, driveline and axle. We also have some transmission based products, but those are in a growing stage. In engines we primarily make connecting rods which is our signature product and also crankshafts, rocker arms and camshafts. In Driveline we make components like tulips, outer race, inner race and tripod as well as yokes and yoke shafts. These are in the between the wheels and part of the half shaft assemblies. Then we in the axle product group we make stub axles, steering knuckles and wheel hubs. All these parts are particularly in the axle or chassis assembly both in passenger car and in the truck segment. The engine products are present across multiple segments. Passenger cars, trucks, industrial agro, off road vehicles of as well as gen sets. So there’s a lot of broad based customers and market potential for these these products. We are well diversified across markets. Segments leveraging common strengths as I just mentioned. So our major segments are trucks, cars, industrial and agro. The cars and trucks segment are witnessing a good amount of growth over the past few years as especially with the Indian economy growing. Last quarter Q3 was a bit challenging for the automotive industry but we believe that’s more of a typical cyclicality of the industry and it will bounce back. There’s a lot of potential in the industrial space both in India and in overseas markets as the demand for Gen sets is increasing With AI driven large data sets or large data warehouses coming up all over the world as well as the need for more decentralized electricity access and risk management. The agro segment also is witnessing a lot of growth. We have been working with some of the key agro OEMs. Recently the government of India announced major budget increases in agriculture as well as in the previous budgets. This was a major focus. So we believe that this is a strong and growing market where a lot of our products can serve the OEMs and end customers. This is our leadership board of directors. This is Rohini Kalyani is the executive chairperson. Myself Viraj Kalyani, I’m the Managing Director. Mr. Gauri Shankar Kalyani is a director or non independent director on the board. And we have three independent directors. Mr. Ajay Tamdan, Mr. Jeevan Mahal Dar and Mr. Abhijit Sen. The entire board put together has a lot of deep experience and at scale automotive and manufacturing domain knowledge, global exposure, strong strategic and leadership skills. So we are ready to take on our upcoming growth objectives which we initiated in the year 2023. So KFL’s growth formula is pretty simple. It’s made up of three ingredients. Strong execution, business development and capex. And that’s how we achieve our growth in critical areas. So I had introduced this formula last quarter. This time I will delve a little deeper into what it means. So these are the major moving parts or very critical factors in our growth formula. In strong execution we are doing a lot of cost control, working on product profitability, lean production lines, superior machine capabilities, digitized shop floor, superior PPC as production planning, cash flow management and building a high performance culture. In business development we work on lifetime order book growth. So we’re looking at the entire program of all our businesses. We had in the last two years we had some businesses which were coming towards end of life and so we worked to build that pipeline of new businesses and strengthen our business development efforts. So now we are taking a more longer term view of this audible growth which will help us to plan and strategize capex as well as capacity planning and so on. Strong APQP execution is a very critical ingredient of business development. Once we get our orders we have to produce samples PPAP which is pre production part approvals especially this is for automotive and industrial OEMs and then we move towards SOP and safe launch of our components in our customers engines or their sub assemblies and vehicles. So APQP execution is very very important and we are strengthening this process. We have also been building a strong exports pipeline. We have been touching geographies in Europe, US and Japan as well as Thailand and connecting with our existing customer base and their global counterparts. We’re working with all the leading OEMs in India as well as global MNCs who are present in India and have strong export potential in for Europe, US and the Far East. So that is a big major area of focus. Increase India market share is one of our objectives here. We’re looking at a program based or total customer level market share as well as segment level market share increase. New customer acquisition is. Another important activity. It takes several often takes a couple of years to acquire a new customer. But I’m happy to announce that we have made major strides this quarter and I will show that in the later slides. Leading Product Roadmap this involves building our defining the next level of value addition for each of our products, I.e. conrods, driveline crankshafts, the wheel hubs and so on. We have started identifying the next stage of our product roadmap which may include either more machining, more value addition and in some cases sub assembly sort of offerings. CapEx is our third ingredient in the growth formula. So here we look at high return investments. So for every CapEx project it is linked to a particular business development program and we have a threshold level of returns and we look at optimizing our existing capacities and very judicious CAPEX execution capacity management Looking at the bottlenecking various parts of our production process and unlocking additional capacity CAPEX programs these are making more sense of combining the building capacity ahead of demand as well as being agile enough to take new business in in a more opportunistic way. When sometimes customers have a urgent need to, you know, they they need our support to start launching a product and we want to be we always aim to be ready to deliver and finally sweating assets. So a lot of our focus is on improving o of our equipment utilization and getting the most value add the most contribution from each asset by putting the right product on the right asset on the right machinery. So this delivers our growth objectives. And these are along the following lines. We’re looking at growth in driveline components, in axle components. Both of these are X EV and so they are a natural hedge against any sort of electrification threat. Engine components are still a big part of our business and they’re primarily in the truck segment or. In the industrial segment we believe this will be a pretty resilient market in the long term as well with the introduction of flex fuels, alternative fuels as well as concepts like hydrogen engines. So we have a good balance of all both ICE and XEV businesses in our growth growth roadmap flagship OEM programs is what we’re focusing on so that we are working on the core high volume or high runner programs which are longer life and therefore the order book remains growing or resilient. There’s also focus on growing exports with the global trends of China +1 and companies looking towards India more and more in in a lot of my travel as well as interactions with overseas customers, there’s a lot of effort going on in the background to build a case for manufacturing out of India, for sourcing out of India and sourcing more value added components or entire platforms and engines or vehicles from India. So this is very heartening to see and we are working on catching these opportunities for the long term. Value addition involves growth in our contribution for each product or contribution margins, so more value addition processes that we are able to do, more Philly furnished finished products we supply. It will expand our bottom line and finally profit expansion is the ultimate growth objective. So we are looking at very sustainable growth as well as reducing costs and improving our margins through all the initiatives I’ve mentioned here. So coming to our Q3 results, I’ll take you through each of those growth levers for Q3 particularly so the financial results. We have achieved total income of 59 crores. This was marginally lower than in the previous quarter of 62.8 crores and same quarter last year 61.45 crores. The major reason was some decline in the automotive market as there have been typically after the festive season. Season in Q2 when there was a lot of buildup. Q3 the production volumes of the OEMs had reduced to control inventory and overall costs. That was the main factor. But we are quite aware that this is a cyclical aspect of the industry and our focus is on bringing in the new business programs to tide over any such cyclicality. So we made a lot of progress in new business order wins which are under development and those will kick in in Q4 and the next year. At the same time, our EBITDA was 6.83 crores and we have maintained the EBITDA momentum that we picked up in last quarter. So we are at 11.5% and our target EBITDA is 15%. So we are working on a lot of cost improvement activities on material cost as well as conversion costs to improve this margin. Another factor is the product mix which plays a big role in EBITDA margins. So we have also worked on reducing some non profitable businesses very consciously and that’s why our top line has been more of a steady trajectory in the last few quarters. Our pat is at 1.82 crores. This is also higher than same quarter last year of 1.52 in spite of the lower income and this is largely due to the growth in ebitda. Another part of strong execution is strong shareholder returns. I’m happy to share that our share price reached an all time high of 823 rupees in the last quarter and this is the latest price as of yesterday, 607. We understand that the market overall is also in a challenging period, but as a company we are always focused on long term shareholder value growth. So I’d like to take this opportunity to thank all our shareholders once again for reposing their faith in us and encouraging us. With with this with their investments. We are working on a cost reduction program which involves console consolidating supplier base and improved procurement that was the main focus of last quarter. We also worked on ramp up programs of machine tulips, machine conrods and wheel hubs and we have been working on our internal culture which we’ve defined as strong products, fast service and this is a catch all phrase within our organization for which which guides everything that we do. So these are the various efforts that we are we have been taking in the last quarter to work on strong execution and there is much more to come on Business Development New Orders Won There is a lot of good news from last quarter. We acquired three new customers. In Q3 we acquired one new tier one automotive customers. Sorry the slide is incomplete. There’s a new MNC customer as well acquired in XCV in the XEV product group and a new export customer for transmission parts. These are new customers who we have not done business with before and therefore we are quite positive for long term growth where there would be many more programs that we would like to grow along with them and deepen the accounts. Additionally, we won a new large order from a leading passenger car OEM who is also one of our existing customers. This was after a gap of several couple of years and therefore it’s a very important achievement for Kalyani Forge and perfectly in line with our strategic direction of engaging with OEMs especially in passenger car segment and supplying fully finished ready to assemble products. As you know, Kalyani Forge enjoys an entrenched position with multi decade relationships with OEMs and that is what is reflecting in our business development performance. Finally we come to CapEx, our third ingredient of growth. So in Q3 our total fixed assets have grown marginally. To crossing 70 crores. We are at around 71 crores. There is some CWIP of 8.4 crores and fixed assets. Net fixed assets of 61.9 crores. These are under the CWIP, is under installation and is more recent. So this involves machining expansion phase two, which is underway for the growth program. Last quarter I had discussed about phase one, about completing our machine expansion phase one of the CapEx program. And now phase two involves multiple product lines like Conrods, Driveline and axle products. We have also taken a more structured approach to our forging modernization program, which is initiated for profitability improvement. This involves replacing old machinery, upgrading a lot of the forging machinery in the forging divisions where we have capacity available. But to improve the utilization as well as, you know, profitability, we need to modernize some of the equipment or upgrade or recondition the equipment. So that’s a structured program. We have kicked off. Third program that we kicked off last quarter is a utilities modernization project for energy efficiency as well as OEE improvements. So what I’d like to just highlight to our shareholders is that in the forging industry, electricity is a very key ingredient. And, you know, transmitting that electricity to the various machines is. Is a pretty complicated structure and it needs to be continuously upgraded. And there’s a lot of improvement potential and it’s an often underlooked area. So this is a area that we are taking up with a totally fresh perspective and looking at our latest technologies available in the market to improve utilities, which will therefore have create a very strong foundation for both the forging plants and the machining plants. Our board has also set up a capital allocation policy framework which is revamped. So we are much more critical about our CAPEX decisions and judicious in order to get the biggest bang for the bulk. Another milestone achieved is a rooftop. Solar project which we commissioned at PAD Precision Auto Component Division, which is our unit in Saraswati. So as you can see in the image there, three of our sheds are pretty much covered with rooftop solar panels. And this is catering to about 40% of the electricity consumption for those units. So we look forward to getting a lot of savings or substantial savings in the power cost as well as achieving sustainability goals which is becoming a pretty important topic for us. Another part of CAPEX is the machining capacity expansion that I spoke of. Latest updates involved driveline machining cells which have increased. All machining units are shifted to one site for lean efficiency gains. So earlier we had some. The MCD2 which I mentioned earlier, in the five plants, MCD2 was in a different location and we shifted it near to McD1. So the entire machining team is in one place. There’s much better coordination, faster execution and we are seeing a lot of benefits of that which will accrue in the quarters to come. And in this process we have also achieved more than 50% of existing shop floor space freed up for new expansion. So that’s it for our Q3 updates. Thank you very much for your patience and for listening through the entire presentation. I look forward to your questions and interacting with you. Thank you.
Questions and Answers:
Rachana Agarwal
Thank you. Virat sir, thank you very much. We will now begin with the question and answer session. As we can see, Mr. Rahul Jain has raised his hand for a question.
Rahul Jain
Hello. Am I audible? Yes. Yes sir. Thanks. Thanks to the management for a very detailed presentation including the strategy. What we have talked about in earlier calls also and in the annual report also. Sir, I have some questions. So first of all, in last 12 years, our gross margins, excluding just three years of FY15, 22 and 23, they have been steady at around 50%. And in the previous call and also in the current initial commentary, you did mention about working towards better raw material. Cost chain. So how do these what efforts are being put over there? If you could give some more details. And also how do we see this gross margin moving ahead given the product mix changes and also our efforts on reducing raw material cost? That is my first question.
Viraj G. Kalyani
Yes. Thank you Rahul. So raw material is a very big factor in our cost structure. It accounts for almost 50% of our costs. Last last quarter we were at 47%. The we are taking a very conscious three multi pronged effort in raw material costs. First is in the procurement cost itself. We are working with a stronger supplier base, consolidating the supplier base of raw material vendors. We have done audits at our various steel mills, strengthened our metallurgy team to help our vendors to improve quality. So just by improving the quality of the raw material it has a lot of knock on effects on our operational costs and our cop Q that’s cost of poor quality. We’re also negotiating better rates and you know, allocating share of business accordingly. Apart from that there are some mandated or directed buys. So where we work more on the efficiency improvements with the steel mills as well as our own internal processes. The next part of raw material cost improvement is in our yield. That is the gross weight to net weight of our parts. So our engineering team has a set of projects to improve yield and to improve the process quality which will improve the raw material cost. Does that answer your question?
Rahul Jain
So can we expect a 200 to 300 bps kind of improvement over next two years in gross margins?
Viraj G. Kalyani
Nilesh, would you like to highlight, I mean take that up. I can add on.
Nilesh Bandale
Yeah. Our future forecast is very positive and as explained by gross margin will be higher in upcoming years on account of product mix. Those products which are having higher material cost. And those products which are having lower material cost, we are making a proper product mix. So the raw material cost will be under control and there will definitely increase in gross margin in upcoming two years.
Rahul Jain
Sure. And sir, our machine connecting rod business touched almost 80 crores plus in FY24. Highest till date. Almost. Now that is about 35% of sales. So typically who are our competitors year over year? Because this is supposed to be one of the core strengths of Kalyani Forge. So who are our competitors over there? And how do we see this particular machine rod sales to increase over next two, three years? Also, whether this machine rod would have much better margins compared to the other.
Viraj G. Kalyani
Yes, the. We have a number of competitors. Although it’s. Since it’s a very critical component, the it’s not very easy for anybody to make a connecting rod. And Kalyani Forge has decades of experience in connecting rod forging as well as machining. Our competitors are based in India as well as some competitors in Germany or the US in terms of our strategy of for this product line. Yes, you are right to point out that it is a higher value product and it is one of our highly profitable businesses. That’s how we intend to grow in our connecting rod business. We in the last year we installed two new machining lines with state of the art equipment for connecting rods. And that really helped us to take on additional business of our customers and serve their growing needs. That is the strategy that we would continue to take up going forward.
Rahul Jain
Sir, a question regarding our segmental sales.
Viraj G. Kalyani
Okay, this is. This will be your last question because we need to take.
Rahul Jain
Sure. This will be my last question and I’ll come back for my present question. Okay. So sir, with regards to the segmental sales where commercial vehicles and passenger cars in last two, three years they have remained steady or in fact commercial vehicle sales have improved from 40 crores to 60 crores. The major growth driver in last two years has been industrial which has gone up from 18 to 23 to 60 crores in FY24. We don’t have the numbers for the current year. So what has led to this improvement on the industrial side and typically what is contributing to this increased sales? Can we expect about 100 crores in what. Time frame from the industrial part and on the opposite side where your focus is also on agri side. But what I we have noticed from your annual report is both in power and turbocharger and agro the business has sharply fallen. In FY24, turbochargers fell from about 75 crores to roughly 30 crores and the agro side fell from about 35, 38 crores to 19 crores. So on industrial side, what has helped us to record from 23 to 60 and how sustainable is this and in what time frame do we can we touch 100 crores and on the opposite side, agro powertouble, what has caused this fall and can we recoup that and how do we see the time side for these two segments?
Viraj G. Kalyani
Okay, yeah. Thank you for your thorough analysis of the segments. Yes, you rightly observed these shifts in our market segment figures over the last two years. The industrial segment growth to 64 crores has come from new programs that have been launched in the last year as well as market share or share of business increases with our existing customer base, particularly in the genset market. There have been growth in the overall volumes over the last two years, although currently there is some cooling off taking place there. I just want to point out that the, the power and turbo which has reduced from 75 to 30 and the industrial from 23 to 64. If you take them together you’ll get a overall picture. What we did is some reclassification where we separated out turbo completely and we moved the power to the industrial segment. So some of that reclassification is also causing swing in these numbers. And the, the reason is because the turbo segment is a very, it’s a very niche business and there’s not much growth potential there. So we are just going to work on harvesting that business in terms of improving profitability and so on. But our growth efforts will not be on the turbocharger business. It will move more to the industrial and agro segment. On the agro segment coming down, what we had in the agro segment was a very sort of scattered mix of businesses, some in agro and some in rural applications. They were not very core agriculture machinery based. Businesses. So we have taken a conscious call to phase out some of these businesses which I spoke about earlier and hence there is a dip there. Whereas going forward we are our strategy for the agro segment, our market strategy is much more focused. We are working with OEMs, tractor manufacturers, both India based leading OEMs and global OEMs. And there’s a lot of pipeline of new business under negotiation in this area. So you will see the agro segment growing in the next couple of years. It was a segment that we were not focused on earlier. We were more looking at automotive and industrial segments.
Rahul Jain
Okay, thanks, that is quite helpful. Thank you so much and wish you all the best.
Viraj G. Kalyani
Thank you. Thank you.
Rachana Agarwal
Now Mr. Ankit Gupta, please raise your questions.
Ankit Gupta
Thanks for the opportunity and thanks for the detailed presentation as well. So I have some basic questions on the company, you know and pardon me for my ignorance. So basically if you look at last 1011 years of the company, you know in FY13 we were around 261 kind of sales and FY24 we are around 237 crore of sales. And even this year will be like going by the numbers it should be around that number as only. So if you can talk about in past decade what has been like, like why haven’t we grown over the years and what has changed now and how are we expected to grow now?
Viraj G. Kalyani
Yes, as I took you through the company history, the decade of say of the 2000 and tens, we took a very conservative approach. We did not invest too much in additional capacity and we the focus was more on preserving the business for long term sustainability. This was a time when electrification was of vehicles was a very hot topic and there was a lot of uncertainty in terms of what direction the market will go. We, we realized that you know there will be some competitors who would race ahead of us if we do not continue our pace of investments. But this was a conscious call and we strongly believe in being the last man standing in the market. Be it for engine ice components as well as for just in general in the forgings industry resilience is is topmost priority as we have a very long term approach being a promoter driven enterprise. That is the you know we, we take a lot of care in in that area. And what we have seen in the last decade is that there were a couple of major players or competitors who went, you know who got into a lot of trouble because of very aggressive expansion. And so now we are working on getting the right timing and I think the last few years we are much more clear about the picture regarding our product portfolio. We’re much more confident about the long term potential of our businesses after interacting with various customers and seeing the market movements. So what’s going to be different is our is a more aggressive approach now based on our lessons learned from the last decade.
Ankit Gupta
But you know Vidant as you have been saying there have been some failures in the industry but we have had a lot of other competitors also who have become four or five where it’s for even bigger in size in that past decade. Yes. So it’s not that you know there have been some failure but there have been a lot of successes also where companies have you know become 4 or 5x or even more in the past decade. So my second question is on the so so now how do you see the growth ahead, you know next two, three years? How, how do you see what can be the growth rate for the company going forward?
Viraj G. Kalyani
So as we we have been discussing we I I cannot give you an exact forward looking statement but we are looking at doubling our revenue over the next few years. We have had a record number of order wins in this year itself so our pipeline next year looks pretty strong.
Ankit Gupta
Can I ask one more question? Yeah. Okay. On the margins front, you know if I look at our history are one of the major like even in 2000 and 1314 we were around low teens kind of operating margins which because we did not grow our employee cost just kept on increasing and employee cost which. Used to be around 9% of sales has become 16, 15. 16% of sales. So going ahead, how do you like what is the roadmap for improving margins from the existing base to let’s say as you have been saying, we want. We are targeting 15% kind of margins. So what is the roadmap for the same? If you can talk about that.
Viraj G. Kalyani
Yeah, sure. Maybe Nilesh, you can talk about it.
Nilesh Bandale
Yeah. For improving the margins we are working deep means. We are planning for optimization of manpower cost, optimization of resources. As explained earlier by Virasar. We are also working for electricity reduction. Cost reduction. So these are some actions which will help us to improve the margin.
Ankit Gupta
So optimization of employee cost. Do you mean like will be you know for there will be certain employees who might be given BRS or you know, might or, or we’ll be increasing scale without adding more employees. Is that the right thing to understand?
Nilesh Bandale
We are trying to improve the scale without adding the employee and optimization is not always reduction. It is also addition of cannot good employee having good that will help us to improve.
Ankit Gupta
And hopefully as you’re saying, you know, our plan for doubling sales will also help us, you know, at least as with increasing sales the percentage of both manufacturing cost and employee cost should come down is what we say. Yeah. And you said that you know we want to double our sales in next few years. By few years. Do you think it will be like it’s a five year journey which it will happen in next two, three.
Viraj G. Kalyani
We’re expecting it to be sooner but we cannot give an exact forecast.
Ankit Gupta
Thank you. Okay, thank you.
Rachana Agarwal
Thank you Mr. Gupta. Now moving ahead with Mr. Sahib Saket Kapoor’s question.
Saket Kapoor
Namaskar sir. Just to take take forward what Ankit Bhai was alluding to. So they say when we look at revenue, revenue twice they’re the component of what are you factoring in in terms of the RN prices and the conversion into today constant factors are there. And what kind of addition capacity addition are we emphasizing when you are looking at a number of doubling the size in terms of the revenue profile.
Viraj G. Kalyani
Okay. In. So as we are looking at our doubling revenue roadmap, raw material prices are, you know, are market driven and we generally pass on to the customers. It’s a straight pass on from suppliers to customers. What we can control is the value addition. So as we increase the value addition on our product, that would reduce the raw material percentage and that is the direction we are going in with more machined product sales and machine condor sales. In terms of capacity growth required for this, it’s more on the machining side in terms of new capacity additions. On the forging side, we have quite a few number of presses. So adding more presses is not on the, on the plan. But the more important aspect is to recondition our presses and to, you know, replace some sub assemblies or some parts of the press line like induction heaters and so on, which have finished their sort of 10 year or 15 year cycle of machine life. So that’s the two pronged approach for forging and machining capacity enhancement or capacity addition.
Saket Kapoor
Sir. So currently utilization levels, existing order booked in terms of revenue, how to extrapolate it in terms of, in terms the order book in terms of tonnage. And first question is this, sir. And. Yeah, come and then come to the next question.
Viraj G. Kalyani
Yeah, the order book in terms of tonnage. I don’t have the exact numbers on hand. So utilization level. Yeah, on the machining side, our utilization is pretty high. It’s almost reaching, you know, target levels of utilization. So there we need to be adding more capacity or optimizing our process and freeing up some machines. On the forging side, we have some available capacities, especially. In the like thousand ton and 2500 ton press lines we have identified products for these press lines and in fact the new order wins that we got last quarter Many of them are going to fill up the forging capacities because some of them are as forged businesses as well.
Saket Kapoor
So just to sum it up what would be the nine month utilization levels and when we look at the order book cycle, the execution cycle what should we end the current fiscal and the average utilization levels which we can anticipate or we should factor in for the next financial year taking into account the confirmed order book which you are carrying
Viraj G. Kalyani
We expect healthy growth in the utilization level next year. I can’t give an exact number because I may, I mean give a a wrong figure the utilization can fluctuate you know quarter on quarter based on sales mix or product mix so but we definitely see an increase in utilization next year on the forging side on the machining side we have to expand some capacity.
Saket Kapoor
Okay so since there is sorry to harpen on it so if you could give us some understanding what have been the money, how much capex have we done for the last three years? I think so. We have some capital work in progress Closing balance also on September when will that get capitalized and also on your debt numbers what is the net debt numbers? Our cost of fund and and after this Sir I have one very brief understanding on since you have now opened up to your investors Yes a couple of suggestions on my side if that could be deliberated on
Viraj G. Kalyani
Okay so that will be the last two questions on CapEx and debt
Nilesh Bandale
Yeah from last near about 130 crore capital capital addition or Abhijo day trade to equity ratio Current ratio is near about 0.77 and after doing some more additional capex the ratio will be around 1.3 a comfortable level car long run May 1.3
Saket Kapoor
Is comparable level sir. Okay if you see our asset turnover ratio like earlier explained we have taken the conservative.
Nilesh Bandale
Approach. So our net fix assets are lower Right now if you see our turnover, turnover is near about. If you see the last year turnover also it is near about 250cr. And our net assets are. Netfix assets are near about 70cr. So our turnover is near about 3.5% of Netflix assets. So 3.5 times. Yeah, 3.5 times. So in future it will increase.
Saket Kapoor
Okay sir. Casting markets, machining and all
Viraj G. Kalyani
Process steel rods purchase or ferrus last time. Secondly processes from RM sourcing finished product catering to segment corporate video.
Saket Kapoor
Yeah. Understanding very brief understanding. Bane Niveshakome or Ujan creator Kibai Kisprakarga business company or lastly so going ahead sir, for future growth. Think this was my issue, sir. Yeah. No, I can’t.
Viraj G. Kalyani
Thank you for your suggestions. Presentations or you know, presentations. Update definitely. Kalyani Forge is. A strong, resilient company. We are here for the long term, so there is no question of being acquired by some other company in the long term. We will look at acquiring other companies for our inorganic growth and that is in our long term growth plan. We are a standalone business on the stock market, publicly listed, and we have our own unique strengths, although in a very similar market as some of our peers. But our future trajectory is on a very independent footing. Thank you. Thank you, sir.
Rachana Agarwal
Thank you. Next question is from Daniel Desai.
Dhwanil Desai
Good afternoon, sir. Sir. First of all, thanks for a very detailed presentation. Sir. Most of the questions have been asked, two or three questions still remaining. So one is that, you know, if I look at this space, there are many larger players, you know, serving the same automotive industry, maybe similar or different basket, but generally this is a scale game and those are far more efficient players, you know, as it’s evident from the PNL side of it. So you know, how do we compete with them? And, and even that, you know, general nature of automotive industry is that, you know, you have to pass on the efficiency to the OEMs in terms of the better pricing. So from here on, what is the roadmap to become more efficient? Because you know, with the almost in the similar wage gross margin, you know, lot of over costs are much higher and hence our margin profit anyway is on the lower end. So. So how do we compete with much larger player peers and scale? You know, that is a fundamental question.
Viraj G. Kalyani
Okay, that is a good question. And you know the, the, the forging industry has actually a very large number of players and a very long tail. So in the top five or ten companies there is a lot of high. There’s a lot of difference between each player in terms of size and then the remaining. You know, there’s hundreds of small Ford shops all over the country. That’s typically, you know, the, the nature in many industries, especially in manufacturing. And we are conscious of our position in the market, our current position in the market and our future potential. Our competitive strategy is based on sticking to our core strengths. The important thing is not to get carried away with everything that our competitors are doing. Each competitor specializes in a certain set of products or you know, it could even be one product or few signature products. That is the discipline that we are maintaining increasingly now. We had a few years in the last decade where we were trying, we were exploring multiple avenues of growth, but it was, it was not sort of not very useful. It was more of a risk management exercise in uncertain times. But now we are with more strategic clarity, we focus on fewer products. So as you may see my presentation this time, the product slide and you can compare it with our last times presentation, you’ll see there are lesser products in the presentation. And that is consciously done. And I’m telling this openly because as we reduce the number of products that we are offering to the market, that’s how we build scale. And therefore we are able to compete with even some giant competitors who may be in the same space. In fact, we have won back businesses which initially had gone to some of our larger competitors and we brought it back in the last last year. So we are pretty positive and encouraged by our customer base who have been very encouraging. We have very strong relationships with our customers and they want Kalyani Forge to grow. They have invested a lot in, in our, in our growth over the years and in terms of their relationships with us. So that’s the, that’s the overall approach we take.
Dhwanil Desai
You mentioned that, you know, we are kind of, you know, not taking or giving up the business, which is not profitable. So, you know, so can you quantify that number? And are we kind of at the end of the journey of kind of shading away the, you know, less profitable business?
Viraj G. Kalyani
Yeah, that’s a good question. Quantifying the number we, I will, I may make some wrong, give you some wrong figures right now, but this is something. Yeah, I think we, we looked at about 20% of our earlier existing business as potential for turnaround, potential for either replacing or phasing out or improving the margins. The bottom 20% of our, you know, of our order book out of this, I think we have, we have come towards 75% of the journey. There is still another 15% left. And then we will, we may move up, you know, we will keep moving up in, in that ladder to the next set of 20% products. So it’s not a one time activity. It’s something we have to continuously work on each time. It may not be as drastic a decision as phasing out the business because we do want to serve our customers for the long term. So the, the ones which were really like unsustainable, those are phased out and the, that activity is pretty much almost 75 to 80% done.
Dhwanil Desai
Okay, so, so the right we could look at let’s say over next three, four years about this entire dynamics is you know, probably, let’s say organically we grow at 20% but 4,5% growth we will share away by moving into higher margin product and hence the growth may be, you know, slightly lower but the margin will continue to get better. Right?
Viraj G. Kalyani
Yes, that is a calibrated approach. We are taking a mix of growth and some, some phasing out of business or business coming to end of life based on the natural life cycle of the program.
Dhwanil Desai
And last question is, you know, if you can talk about customer concentration, maybe top three, the top five or any reliance on a single customer in excess of 20%. Any sense on the customer concentration type?
Viraj G. Kalyani
No, we don’t have any single customer which is more than 25. Percent of the business we have. Our large customers are, you know we have about 10 to 15 large accounts and then another say 20 odd, 20 to 30 small and mid sized accounts.
Dhwanil Desai
So this 10 to 15 large would be around 70% of our.
Viraj G. Kalyani
Let me get back on the exact numbers there. But we are fairly diversified across our customer base.
Dhwanil Desai
Thank you. Thank you.
Rachana Agarwal
Thank you sir. There is one question in the chat box from Mr. Sunny Pote who is asking looking at current international market situation, how our company depends on exports, do we see an extreme rise in demand for the same in future and how we are planning to meet that demand as per expected quality of export.
Viraj G. Kalyani
Yes, currently we are doing about 15% of our business as exports are. We have recently got a new order in Europe which will kick in in the coming financial year. Actually there are two, two or three such programs kicking in in the next financial year. So we will see some healthy growth in exports. This is a. We, we do have a plan of increasing exports to 50% over the long term. So it will. Yes, to answer your latest question, the foreign markets will play a key role in our company’s expansion and long term plans. We do see a lot of these customers are looking at India and suppliers from India and particularly there is a lot of interest with Kalyani Forge. We we have had a record number of RFQs from purely from exports in the last nine months as well as part of last year. So and we have been actively bidding for more exports projects. One thing to keep in mind here is that it’s a long term game in exports and we need to continue bidding and putting conscious efforts and resources in this area. We will do more and more of this. As our profitability increases as our domestic business scales up. So that’s a, you know, parallel growth track. We also have a dedicated team working on exports currently. Okay, thank you.
Rachana Agarwal
Thank you for your insights. He’s further asking foreign market plays a key role in our company’s expansion. Question.
Viraj G. Kalyani
Yes, I answered that as well.
Rachana Agarwal
Yes. Okay. Moving ahead we have Mr. Hemant who is asking next question. Mr. Heman. Yeah.
Hemant
Thank you for the opportunity. I just have two basic questions. If you can just throw some light on the order book. I think last quarter you mentioned that we have an open order book of 384 crores. If you can just let us know the current open order book position and if you can Update about the 4010 press. I think we were in the process of implementing it. These are the two basic questions. Thank you.
Viraj G. Kalyani
Yes, the. The current open order book which includes new business it is, it is around 380 crores where we’re looking at peak volumes over the next coming years of this peak annual volumes of this business. In terms of SOPs, we are seeing a lot of SOPs kicking in in Q4 as well as next financial year over the next four quarters. So a lot of focus now is on the project execution and launch of new businesses that we acquired recently. On the 4000 ton press project we have completed the main press erection. There are now the ancillary equipment which is getting assembled, the supporting trimming press and so on. So we are going to do that in a phased manner as we got certain, you know, certain quick order wins from our customers who wanted very fast turnaround especially in the passenger car segment. We had a new order win so we had to reallocate some of our capex towards these projects on the machining side. And the 4,000 ton press project is being done in. A more phased out manner. So we will take another quarter or and have it ready in Q1 of next year. And this was also a conscious call to take the, you know, grab the market opportunities first and keep the 4,000 ton press as a, as a longer term project.
Hemant
Yes, thank you.
Rachana Agarwal
Yes, we’ll take the next question from Mr. Rahul Jain
Rahul Jain
For the opportunity again sir. So just to understand this order book, 380 crores out of this, somewhere around 60 to 70 crores is has been procured lately. So two parts to that order book. Question one is what is this execution timeline of this order book? Because some of this could be probably forecast for a longer period of time. How does it work? Like is it an order given and you have to execute that order in a fixed timeline? Or these are kind of more forecast which happen on the automotive side in general. And there are margin differential between the new orders being taken in last 12 to 15 months compared to the earlier order book and to what extent.
Viraj G. Kalyani
Yeah, I’ll answer the first question, the second one Nilesh can shed light on it. The order book is we, we typically get a business award or a letter of nomination for a particular program which is, you know, which has a SOP on a certain date in the future and the program runs for about say 5 years or 7 years or 10 years. Typically this is based on the OEM program. So in the first few years it’s a ramp up volumes and then there’s a mature phase where it’s at the steady state volumes and then the last few years are in the declining stage where we may then after that cater to the spares requirements or aftermarket requirements for that oem. So that’s the typical order book cycle. So the, the number that we’ve quoted recently is the peak annual volumes in this, in this entire cycle. And we keep tracking that number and work on increasing that peak annual volumes of order book which will give us confidence into the future of. Our capacity booking and our growth targets. So on the margins of new order book or new programs versus our existing programs. Nilesh, if you can shed some light.
Nilesh Bandale
Yeah, we’re taking the new, the new order book mostly having a good margin and we’re trying to get the order books where we are getting machine business. In machine business we are having slightly higher margins. So the order book is the right, right kind of mix and it will help us to improve the margin.
Rahul Jain
Sure. And so the CapEx program typically what further CapEx is to be done in next 15 months and with the infrastructure build the CAPEX done our objective to double R top line to up to around 500 crores. Will this capex which has been completed till date and the next 15 months capex number will that be sufficient to reach 500 crores?
Nilesh Bandale
No, there will be some additional capex in future also right now we are focusing the recent order books which are we are completing within upcoming one years but there is, there will be some additional capex in future also.
Rahul Jain
And what could that and typically what is the CAPEX number for next 15 months?
Nilesh Bandale
Now I don’t have right capex number exactly but it will be significant
Rahul Jain
Another 30, 40 crores. And last question from my side. So power and fuel cost which is roughly around 10, 11% of our sales. You mentioned in your presentation and the commentary about capex in the utilities. So with regards to saving on the power cost, so what kind of benefits you are anticipating from this capex being done?
Viraj G. Kalyani
Are you asking about capex for power cost?
Rahul Jain
No, no. So you spoke about CAPEX being done on utilities. Right. So and in the previous call also you had talked about the same. So typically what are we doing on the power side, the capex which is being done to what kind of benefits do we expect to derive?
Viraj G. Kalyani
Yes, so the, the we haven’t done major capex yet on the utility side. For example, the solar installation is a purely OPEX model in terms of, you know, we just provide the roof space and we get lower tariffs the electricity generated. So that’s a very beneficial program where we don’t incur any upfront costs. There are more initiatives we have taken in this quarter. We have done a thorough energy audit of our entire. All our plants. We’ve identified power quality as a very important area to work on. Which means the, the, the, the wave structure of the, the power, the electricity that comes into our plants, those have to be very smooth, smooth curves. That ensures that our equipment health is maintained. There is no outages or there’s no short circuiting taking place. So that’s one area that we are working on. This will reduce downtime of equipment, increase oee as well as quality of the products that we are producing. That’s one second is on energy efficiency. We are replacing some old components in our machinery with more energy efficient components which are more of the latest technology, latest capabilities. We are plugging all the leakages in our air and gas and water pipelines which are also required the manufacturing process. So there are many such approaches. We have a dedicated utilities team that we’ve set up to work on all these areas.
Rahul Jain
Thanks and wish you all the best. Yeah.
Viraj G. Kalyani
Thank you Rahul.
Rachana Agarwal
Thank you. Rahul Jain. Mr. Sunil Kumar Ramin is there. Yeah. Yes sir. Sir, please unmute yourself. Sunil Kubarami.
Viraj G. Kalyani
I think he was waiting for some time, so he may not. Thanks. Mr. Amin, did you have a question? Okay, we can move on to
Saket Kapoor
Ms. Yeah. Yes. Yeah. Sir. Sir, they say quarter three performance and in isolation not as a nine month Q on Q lower revenue. Even year on year lower revenue accounts. Or factors. What factors adds to this other income component.
Viraj G. Kalyani
So the nine months revenue has been pretty steady compared to last year. As we phased out some of the non profitable business. That is one factor causing a slight decrease. And in Q3 we had in the automotive segment there was some challenges in the market for the with the OEMs production being less than the previous quarters. These were the two main factors. But our focus has been on first improving the profitability with the existing business and then start the new business programs. In terms of other income, that’s us. This typically comprises of exports, benefits, government incentive schemes and those sort of income sources.
Saket Kapoor
So what should we factor in in terms of sales? What percentage as a percentage of sales? I think so. You mentioned about 25. What percentage is towards export?
Viraj G. Kalyani
About 15%.
Saket Kapoor
Okay. And sir typically do. What are the seasonality aspects Also in our business when RQ4 or Q1 being larger quarter in terms of execution or these are all equally aligned quarters. Just to take the business aspect into in terms of execution
Viraj G. Kalyani
It depends from industry to industry. So Automotive typically has Q3 being slightly less or the quarter in which Diwali falls. That quarter is slightly less the previous quarter before Diwali or before the festive. In the run up to the festive season is when the production ramps up on. In the industrial segment it’s. It’s. It’s different where Q2 is less and Q3 is much more. Especially in like off road construction equipment. In the agro segment it’s the monsoon season where it is less and it’s in the harvesting season where it increases. So each of them have different cycles.
Saket Kapoor
Okay. You also mentioned about our EBITDA margins improving going ahead with the type of. Product mix which we are take which we have taken in the with the new order and some percentage you have mentioned trajectory going ahead is that a good understanding
Viraj G. Kalyani
We are not tracking that kind of a metric although we we do look at it on an annual basis the EBITDA per kg but I don’t have it readily available it is a useful measure
Saket Kapoor
So next time a presentation may or 15% number mention percentage of sales in terms of that say power savings absolute number pay quantified
Viraj G. Kalyani
We do have a target which we are taking into our budget for next year but I cannot disclose that right now because it’s very it’s based on many assumptions but it is a significant number which will create some margin improvement
Saket Kapoor
Okay sir and lastly sir expenditure infrastructure and projects they have increased the amount but sir dependent because commercial vehicles and agri machinery yes government infrastructure facing say dependent if if my understanding is correct no especially in terms of improving reviving consumption so Jesse market may consumption baregi vehicles key Joe demand ot passenger cars will be bhajaigi that will have a major impact.
Viraj G. Kalyani
Positive impact in our business on the infrastructure spend especially with more highways and expansion of expressways there. The the truck market, commercial vehicle market is growing and we are fairly confident that with this budget there will be a good growth in the CV segment for the long term. That directly gives a, you know, positive impact to our business. And thirdly as I mentioned agriculture is also a focus for the government so it’s an area that we are going to target.
Saket Kapoor
Question unanswered if we compare our company in the listed space could one on one peer comparison or clients client concentration?
Viraj G. Kalyani
No, we cannot disclose our client names because that is a sort of proprietary information and it can also the rankings can change but it is major OEMs Top 10 OEMs of India in both passenger car commercial vehicles, industrial segment and agro segment
Saket Kapoor
And and PR comparison Listed space Listed space
Viraj G. Kalyani
We are, I mean you can check in different markets, different portals online but we are looking at typically we, we look at the publicly listed purging companies in India and there are some private limited companies as well which are smaller or around the same size.
Saket Kapoor
No sir, just in terms of. I just want to conclude in terms of the market share part Joe Aspect if you could give the name of the competitor in the listed space that will give a understanding how to value your company. And the growth trajectory part that is the only reason why I’m asking it. So if you could just name them
Viraj G. Kalyani
I think we’ll, we’ll share this with you offline because it’s not something we as a policy we don’t disclose in a public platform. So we’ll have a, we can have a one on one discussion.
Saket Kapoor
We will expect that there will be a continuity of these type of forums to have better understanding going ahead. Yes, thank you. Thank you sir. For the extended time also.
Rachana Agarwal
Thank you. Thank you. Yeah, thank you. I request all the participants, if they have any questions, any comments, please put forward it.
Viraj G. Kalyani
I think we can take the final questions now. Yes. Ask one or two questions if there are any.
Rachana Agarwal
If anyone is not able to connect their voice, you can post in chat box also. Yeah, I don’t think there are any more questions. Yes, Sunil Kumar. Sir, it’s available now.
Sunilkumar Amin
Okay. Audible. Yes, yes, yes. Great. It’s a wonderful meeting. I absolutely. I’m so happy that you saved the company in a turbulent water very efficiently.
Viraj G. Kalyani
Thank you. Thank you, Mr. Amin. And good to see you back again on this watch.
Sunilkumar Amin
Surely it’s a pleasure only and we’ll see each other again. Yes, yes. Surely.
Viraj G. Kalyani
I think we couldn’t connect earlier. I don’t know if you had any question.
Sunilkumar Amin
No, sir, it’s a wonderful going. I appreciate you and your team. Absolutely great work.
Viraj G. Kalyani
Thank you. Thank you. That’s very encouraging. Yes, sir. Okay. Thank you for have being on our.
Rachana Agarwal
Thank you for your appreciation, Mr. Amin. As there are no further questions we are seeing coming up from the participants, I now hand over the conference over to the management for closing comments.
Viraj G. Kalyani
Okay. Thank you, Rachna, for moderating this session. Thank you, Nilesh for participating and taking the question as well. I’d like to thank all the participants for joining us today. It was a very important conversation. We had many questions, lot more questions compared to the last quarter. This was our second investor call and as I said that this is a. Exercise we are doing every quarter so it’s very encouraging to see the interest in the market and the questions that you ask also gives us a lot of clarity in terms of what is important to our shareholders. So I look forward to more such participation in the next quarter and we’ll share more progress of the company as well as the long term plans. We will upload this presentation on the on our website as well as the stock exchange portals so you can refer to it. And if you have any further questions please be in touch with our secretarial department with Rachna and her team and we will. We can set up follow up questions or calls based on mutual availability. Thank you everyone. Have a nice day and see you next quarter. Thank you.
Rachana Agarwal
Thank you sir. On behalf of Kalyani Force Ltd. Now we conclude this conference call. Thank you for joining us and you may disconnect your lines. Thank you so much. The recording has stopped.