Balu Forge Industries Ltd Management Discussions

Economy

Global Economic Review

In CY 2024, the global economy recorded steady growth despite challenges from geopolitical tensions and elevated inflation. Global GDP rose by 3.3% over the year. Emerging Markets and Developing Economies (EMDEs) expanded by 4.3%, whereas advanced economies saw slower growth of 1.8%. Inflation eased globally, falling from 6.6% in CY 2023 to 5.7% in CY 2024. While growth remained subdued in the euro area, the United States experienced stronger expansion, with the economy growing by 2.8%, supported by robust consumption.

Looking ahead, global GDP is projected to grow from 2.8% in CY 2025 to 3.0% in CY 2026. Further to this global inflation level is anticipated to decline to 4.3% in CY 2025 and further to 3.6% in CY 2026. This fall in inflation is expected to support the revival of economic activity in the coming years.¹

Growth in the Global GDP

Indian Economic Review

The Indian economy retained its position as the fastest-growing economy in the world, recording a growth rate of 6.5% in FY 2024-25. This performance was largely supported by timely policy measures implemented by the Government of India along with monetary interventions by the Reserve Bank of India. The Production Linked Incentive (PLI) scheme contributed to strengthening several sectors, while the China+1 strategy and the Make in India initiative helped drive manufacturing momentum in the latter half of the year. Together, these initiatives played an important role in shaping the growth of the manufacturing sector. Foreign Direct Investment in FY 2024-25 stood at USD 81 billion, compared with USD 71.3 billion in FY 2023-24. This inflow injected capital into the economy, thereby strengthening its domestic activity. Indias economy is expected to continue growing, with GDP projected at 6.5% in FY 2024-25. The Union Budget 2025–26 introduced tax relief measures for salaried individuals, which are likely to support consumption in the coming years. The country is on track to become the worlds third-largest economy by 2028. At the same time, India is monitoring global tariff developments and formulating measured responses to protect future growth.

FDI inflow in FY 2024-25

Industry Overview

Global Automotive Industry

The global automotive industry is a dynamic and competitive sector covering the design, development, production and sale of motor vehicles. Established manufacturers invested in battery technology and electric vehicle infrastructure as the industry shifts towards sustainable mobility. Rapid changes in the industry are being driven by the rise of electric vehicles, autonomous driving technologies and connected car solutions. Consumers are at the centre of this transformation, with evolving expectations of mobility and increasing demand for improved safety features and innovative technologies.

The automotive industry market is projected to grow from USD 2,132.16 billion in 2024 to USD 2,999.03 billion by 2035, reflecting a compound annual growth rate (CAGR) of 3.15 % during the forecast period.² This expected growth will be supported by rising consumer demand for sustainable mobility and advances in autonomous driving technology. Investments in research and development, along with the adoption of electric and connected vehicle solutions, will continue to shape the industry landscape and drive innovation in vehicle design, production and safety features.

In addition to this, the global medium and heavy duty commercial vehicles market size is anticipated to attain a market size of USD 422.60 billion by 2030, highlighting a CAGR growth of 3.40% from 2024 - 2030.³

Global motor vehicle

The global motor vehicles market has demonstrated steady growth in recent years, reaching USD 2614.5 billion in 2024 and is expected to increase to USD 2785.95 billion in 2025. This growth has been supported by improving economic conditions, technological advancements, changing consumer preferences and the impact of globalisation and trade. Looking ahead, rising demand for electric vehicles is expected to drive further expansion of the market.

Global automobile sales

In 2024, global car sales reached 74.6 Million units, representing a 2.5 % increase from the previous year. While supply chain challenges continued to ease, growth varied across regions. Europes car market expanded by 3.9 %, with total sales reaching 16.1 Million units. In North America, car sales remained steady, rising by 3.8 percent, with the United States recording a 3.1% increase to 12.7 Million units. Passenger car sales in South America exceeded 3 Million units, marking a 6.5% growth. Global car production in 2024 totalled 75.5 Million units. Production in Asia continued to rise, reaching nearly 46 Million cars, driven mainly by China, which grew by 5.2%, maintaining its position as the largest car producer. India also contributed positively, with a 4.7% increase in car production.⁴

Indian Automotive Industry

Indias automotive industry is one of the largest and fastest growing in the world. It contributes 7.1% to the countrys Gross Domestic Product and around half of the manufacturing GDP.⁵ As the fourth largest automobile producer globally,

India has the scale and capability to strengthen its role in the global automotive value chain. The market was valued at USD 121.5 billion in 2024 and is expected to grow to USD 247.4 billion by 2033 at a CAGR of 7.13%. Growth is supported by a rising population, increasing disposable incomes, easier access to credit and finance, and favourable government policies.⁶ The sector is also transforming with the adoption of technologies such as Artificial Intelligence, Machine Learning, Internet of Things, and robotics. These enhancements improve production efficiency, reduce costs, and enable greater flexibility. Additionally, digital advancements are reshaping manufacturing practices and encouraging new models based on smart factories and connected vehicles.

Growth in the Indian automotive sector is expected to be supported by increasing foreign direct investment. Rising production and sales of electric vehicles are likely to strengthen this trend. Expanding logistics and passenger transportation industries are also anticipated to drive demand for commercial vehicles. In addition, emerging trends such as vehicle electrification, particularly in three wheelers and small passenger cars, are expected to shape future growth of Indian automotive industry in the coming years.

Indian Railways Industry

The Indian Railways is the backbone of the logistics sector in India, supporting balanced and inclusive socio economic growth across the country. In FY 2024-25, the railways placed emphasis on station modernisation, introduction of advanced trains and adoption of new safety systems, bringing a major transformation in rail travel. The sector also continued to create wide employment opportunities for the youth.

In FY 2024-25, the industry reached an important milestone with the manufacturing of 41,929 wagons, reflecting growth over the previous year. India also emerged as a leader in global railway locomotive manufacturing with the production of 1,681 locomotives, surpassing levels in the US, Europe, South America, Africa and Australia. This reflects the growing strength of India in the global railway sector.

Alongside these developments, the government introduced measures to enhance efficiency and passenger services. These include improved safety systems and better amenities. The launch of the PM Rail Yatri Bima Yojana extended insurance cover to all passengers, offering financial support in case of unfortunate events during travel.

Indias railway sector is set for significant growth with new projects aimed at improving connectivity, sustainability, and efficiency. The sector is expected to maintain a positive trajectory supported by the Government of India. For 2025-26, internal revenue of the railways is estimated at H 3,02,100 Crore, which represents an increase of 8.3% over the revised estimate for 2024-25. Indian Railways is aligning its resources with the long-term vision of Viksit Bharat by 2047.

Indian Defence and Aerospace Industry

Indias defence manufacturing sector is expanding rapidly, supported by government investment, growing exports and policies that encourage self-reliance and technological progress. Over the years, the Indian defence sector has undergone a major transformation shaped by political intent and implementation of a favourable long-term strategy. Policy measures have created momentum across production, procurement, exports, and innovation. The governments emphasis on domestic procurement has further driven output, with both public enterprises and private players contributing to this phase of growth. In recent years, a series of government initiatives have been introduced to strengthen defence production and move towards self-reliance. These steps remained focused on attracting investment, expanding local manufacturing and simplifying procurement processes. Exports have grown sharply from H 686 Crore in 2013-14, they have increased to H 23,622 Crore in 2024-25.⁷

The defence budget has continued to rise from H 2.53 Lakh Crore in 2013-14 to H 6.81 Lakh Crore in 2025–26, reflecting Indias focus on building stronger military foundations. In the Union Budget 2025–26, the Ministry of Defence was allocated over H 6.81 Lakh Crore, marking a 9.53 per cent rise from the current financial year.⁸

In the present geopolitical environment where modern warfare is evolving, the Indian Armed Forces must be equipped with advanced weapons and transformed into a technologically capable and combat-ready force. To achieve self-reliance in defence technology and encourage innovation, it is essential to involve private players and strengthen the start-up ecosystem in the country for technological development and innovation in the defence sector.

Growth Drivers

The Indian Government extends consistent support through initiatives such as the Make in India strategy to encourage indigenous design, development and manufacturing of defence equipment

The private sector is increasingly participating in the industry, driving innovation and enhancing overall capabilities

The Government continues to strengthen research and development in the defence sector to support innovation

Foreign Direct Investment in the defence sector is permitted up to 74 per cent and higher inflows are expected to bring advanced technology and improved operations

Indias strong diplomatic position enables collaboration with other nations to enhance defence technology and equipment

The Company began operations in 1989 as a manufacturer and supplier of precision-engineered products, crankshafts and forging components, serving a wide range of end-user industries. Over the years, it has evolved to address the changing needs of its customers. In recent years, focus has been directed towards building a stronger presence in key sectors such as defence, railways and new energy vehicles. The Companys machining facilities are equipped with advanced infrastructure, comprising an in-house tool room, metallurgical laboratories, design and process capabilities, as well as inspection and testing units.

The offerings of BFIL includes a broad range of precision engineering and metal forming products catering to multiple industries such as automobiles (traditional ICE and new energy), industrialvehicles,earthmovingmachinery,windenergy,aerospace, defence, oil and gas, locomotives and railway applications, marine, agriculture and others. Several initiatives have been undertaken to enhance cost competitiveness and strengthen profitability. Over time, the Company has built a strong reputation as a reliable and quality-driven manufacturer of precision-engineered products across a wide spectrum of industries.

Geographically, its presence extends across the Americas, Africa, Europe, Asia and the Middle East. This global reach enables the Company to serve high-value clients worldwide while creating diversified and resilient revenue streams. Competitive pricing, along with a strong focus on quality, has positioned it as a preferred choice for customers seeking both performance and value. The Company also places importance on sustainability, ensuring that its products deliver effectively while being mindful of environmental responsibility.

Measures to Strengthen Efficiency and Productivity

The Company has deployed IoT-enabled CNC machines, robotic handling and anti-vibration systems to achieve high-precision forging and machining.

Machine learning models are adopted to track real-time performance, minimise downtime and extend the life of assets.

Production cycles and resource allocation have been improved, allowing multi-line flexibility and supporting a wider product portfolio

Advanced quality systems and checks are applied to ensure consistency, especially for critical defence and aerospace applications

Competitive advantage

The Company operates four state-of-the-art manufacturing facilities

Its forging operations are integrated for captive consumption

Completely integrated plant serves global clients across the value chain

Advanced forging and machining capabilities enable a broad product range

Growth Drivers

In-house capability enabling the manufacturing of a wide range of products

Extensive product portfolio serves a diverse set of industries

Strong export and distribution network reaching over 80 countries

Skilled R&D team drives continuous innovation

State-of-the-art manufacturing facility, including strong backwards integration capabilities

Human Resource

Human resources of the Company is responsible for managing its employees. The workforce plays a key role in shaping the foundation of BFIL. A healthy and motivated team drives higher productivity, encourages innovation and improves efficiency, contributing to sustained business growth. The Companys HR practices, which focus on attracting, retaining, and developing the right talent, have supported its expansion. The Company provides a positive working environment where all employees are included and encouraged, regardless of their background. Moreover, the Company aims to increase womens representation in leadership roles by 20% by 2030.

Health and Safety Measures

Balu Forge prioritises employee health and safety and maintains a secure and efficient workplace. The safe and healthy working environment is promoted by implementing clear safety policies and providing regular training programmes for its workforce.

Operational Capabilities

Balu Forge operates a fully integrated forging unit that delivers a wide range of products to meet diverse customer requirements. The facility is equipped with closed die forging hammers and presses, including a 16 Ton Hydraulic Forging Hammer, providing the capability to serve multiple industries and applications such as automotive, off-road and on-road vehicles, high-performance sectors, industrial and heavy-duty machinery, oil and gas, marine, defence, and railways. Efficiency and quality are enhanced through a fully automated system that incorporates advanced technologies, including anti-vibration systems and robotic handling.

Research and Development (R&D)

The R&D facilities of the Company play a vital role in driving innovation while maintaining high quality standards. Their primary focus is to enhance product performance, improve manufacturing efficiency, and ensure that the solutions consistently meet the demanding requirements of critical industries.

Benefits of a Strong R&D Approach

Research and Development can improve forging processes, reducing production time and costs.

A clear R&D strategy ensures that both new and existing products comply with standards, avoiding legal and operational issues.

Forward-lookingR&Ddrivesthedevelopmentoftechnologies that differentiate the company from competitors.

R&D in forging solutions strengthens the Companys reputation as a leading supplier of defence components.

Prioritising R&D enables the development of innovative products and technologies, opening opportunities in new markets and sectors.

A structured R&D approach encourages internal knowledge sharing, leveraging expertise and promoting innovation.

Exploring advanced manufacturing technologies and automation allows R&D to enhance efficiency and scalability.

Ongoing research helps maintain and improve product quality, ensuring forged components meet or exceed industry benchmarks.

Investigating new materials and methods can create more sustainable and cost-effective solutions, benefiting the railway sector

An R&D policy aligns research efforts with strategic objectives, directing resources to projects that support long-term growth.

Collaborations with academic institutions, research organisations, and industry partners provide valuable insights and support advancements.

Investment in R&D enhances product reliability, reducing the risk of failures and ensuring components perform consistently in real-world applications.

Quality

Balu Forge maintains high-quality standards to ensure its products consistently meet the required specifications. The Six Sigma and other quality check mechanisms help identify and eliminate defects while improving processes continuously. Quality measurement is carried out using criteria and methods tailored to the needs of each sector. By implementing effective quality management systems and adhering to standards such as ISO 9001 and IATF 16949, BFIL ensures consistent quality and reliability.

Financial Performance

Consolidated Financial Performance

Profit and Loss Analysis

(H in Lakh)

Particulars	FY 2024-25	FY 2023-24	% change
Revenue from Operation	92,361.74	55,985.58	64.97
Other Income	1,714.30	1,023.45	67.50
Total Income	94,076.04	57,009.03	65.02
Total Expenses excl. D&A & Finance Cost	67,251.01	44,073.50	52.59
EBIDTA (Excluding Other Income)	25,110.73	11,912.08	110.80
Depreciation & Amortization	335.07	205.45	63.09
EBIT	24,775.66	11,706.63	111.64
Finance cost	1,095.70	1,363.80	(19.66)
Profit before Tax (PBT)	25,394.26	11,366.28	123.43
Profit after Tax (PAT)	20,385.54	9,349.32	118.07
Net PAT(After Other comprehensive (profit)/ loss )	20,567.99	9,370.06	119.51

Summary of Balance Sheet

Particulars	FY 2024-25	FY 2023-24
Equity and liabilities
Equity share capital	11,076.69	10,259.19
Other equity	94,244.88	45,037.14
Non-current liabilities	1,724.85	2,577.18
Current liabilities	18,172.60	13,372.55
Assets
Property, plant and equipment*	60,009.92	18,702.57
Non-current assets	68,450.95	21,946.52
Current assets	56,768.07	49,299.54

*includes Right-of-use assets, Capital work-in-progress, Goodwill and Other Intangible assets

I. Total Revenue

During FY 2024-25, the total revenue of the Company is increased by 65% from INR 57,009.03 Lakh in FY 2023-24 to INR 94,076.04 Lakh in FY 2024-25. The growth was primarily driven by higher sales volumes, expansion into new markets, and an improved product mix catering to the automotive, industrial, and high-performance engineering sectors.

II. Employee benefits expenses

The Employee benefits expenses increased by 74.5% from INR 1,348.33 Lakh in FY 2023-24 to INR 2,352.37 Lakh in the reported year. This increase reflects a larger workforce to support expanded operations, higher compensation costs, and investments in training and skill development.

III. Finance Cost

The finance cost decreased by 19.7% from INR 1,363.80 Lakh in FY 2023-24 to INR 1,095.70 Lakh in the reported year. The reduction is attributable to efficient debt management, repayment of borrowings, and optimization of working capital.

IV. Other Expenses

During FY 2024-25, the other expenses of the Company were INR 4,634.26 Lakh in FY 2024-25 whereas INR 5,093.65 Lakh in FY 2023-24. The reduction was largely due to improved cost efficiencies, better procurement practices, and tighter control over discretionary spending

V. Net Profit

PAT rose by 118%, from H 9,349.32 Lakh in FY 2023-24 to H 20,385.54 Lakh in FY 2024-25. The sharp increase is the result of strong revenue growth, improved operating leverage, and effective cost management.

VI. Non-Current Liabilities

The non-current liabilities of the Company were INR 1,724.85 Lakh in FY 2024-25, whereas in FY 2023-24 it was INR 2,577.18 Lakh, reflecting repayment of long-term borrowings and strengthening of the balance sheet position.

VII. Current Liabilities

In FY 2024-25, the current liabilities of the Company was H

18,172.60 Lakh in comparison to H 13,372.55 in FY 2023-24. This growth was primarily driven by higher trade payables and accruals linked with the scale-up of operations.

VIII. Non-Current Assets

The non-current asset increased from INR 21,946.52 Lakh in FY 2023-24 to INR 68,450.95 Lakh in FY 2024-25. This significant increase was mainly on account of capital expenditure for capacity expansion, new equipment installation, and long-term investments in infrastructure.

IX. Current Assets

The current asset increased from INR 49,299.54 Lakh in FY 2023-24 to INR 56,768.07 Lakh in FY 2024-25 supported by higher receivables and inventories in line with the revenue growth.

Details of key financial ratios

In compliance with the listing regulations, the key financial ratios have been reviewed in comparison with the immediately preceding financial year. The details are provided below, along with explanations for any changes observed.

Key Financial Ratios	FY 2024- 25	FY 2023- 24	Reason for Significant Change, if any
Inventory Turnover Ratio (days)	37	40	Mainly attributable to higher sales growth and more efficient inventory management practices.
Debt Service Coverage Ratio (times)	14.96	7.26	Strong growth in operating profits with reduced finance costs improved coverage significantly.
Current Ratio (times)	3.12	3.69	Slight decline due to higher current liabilities from trade payables and tax provisions.
Debt-Equity Ratio (times)	0.03	0.09	Reduction in borrowings with stronger equity base improved leverage profile.
Net Profit Margin	22.07%	16.73%	Improved operational efficiency, cost management, and higher revenue contribution.
Return on Net Worth (RoNW)	19.36%	16.94%	Significant growth in profitability enhanced returns to shareholders.

Outlook

Balu Forge plans to scale capacities, strengthen its presence across sectors, and enhance technological capabilities over the next three to five years while following a capital efficient approach. The capital expenditure roadmap and funding strategy follow a prudent low leverage model. Funds are directed towards machining and forging lines, Industry 4.0 automation and advanced defence and aerospace production. Exposure remains limited and well distributed globally with no dependence on any single region or country as well as no impact expected from tariffs.

Risk Management

The Company integrates effective risk management strategies by anticipating potential challenges and safeguarding operations to ensure business continuity. The risk assessment and management are carried out at multiple levels, combining both top-down and bottom-up approaches to address risks comprehensively.

Key risks identified

Risk description	Mitigation strategy
Economic risk
Changes in economic parameters such as inflation level, interest rates, as well as fluctuations in international crude oil, can affect the financial stability and operations by influencing costs, demand and overall operations	The Company continuously monitors economic indicators and adopts flexible pricing mechanisms to balance input cost fluctuations. Strategic sourcing and long-term supplier contracts help stabilize procurement costs, while geographic and sectoral diversification reduces dependency on any single market or economic cycle.
Financial risk
Financial risk arising from cost fluctuations, credit availability, cash flow, foreign exchange and borrowings can impact overall operations as well as the stability of the organisation	BFIL maintains a conservative capital structure with minimal net debt and strong cash flows. Currency risks are managed through hedging policies and natural offsets. Cash flow forecasting and efficient working capital management ensure liquidity, while diversified funding sources mitigate credit risk.
Competition risk
The Company operates in a competitive environment. The presence of established domestic and international players can affect our growth and put pressure on its profitability	BFIL focuses on differentiation through advanced technology, precision engineering, and value-added solutions. Continuous investment in customer service, and product innovation strengthens its positioning. Long-standing OEM relationships and entry into high-value sectors such as defence and aerospace provide a competitive edge.
Operational risk
Operational risks, including pilferage, labour unrest and unplanned facility shutdowns, can disrupt production, reduce efficiency and negatively impact the overall performance of BFIL	Robust internal controls, security protocols, and preventive maintenance systems are in place. Employee engagement initiatives and proactive industrial relations practices minimize labour issues. Business continuity and disaster recovery plans ensure operational resilience.
Cybersecurity risk
Security and fraud risks, including cybersecurity threats, data leaks and physical security issues, can affect information integrity and disrupt operations of the Company	The Company has deployed strong IT security infrastructure, including firewalls, intrusion detection, and data encryption. Regular employee awareness training, and compliance with international cybersecurity standards help safeguard critical information.

 

Risk description	Mitigation strategy
Reputation risk
Negative publicity, product quality concerns and stakeholder dissatisfaction can reduce the Companys brand value and trust, ultimately affect its reputation and undermine its market position	BFIL enforces strict quality assurance processes and adheres to global standards. Transparent stakeholder communication, prompt grievance redressal, and CSR initiatives reinforce trust. Regular monitoring of media and stakeholder feedback helps mitigate reputational concerns proactively.
Environment risk
Environmental risks associated with operational activities can impact the operational efficiency, financial performance and long-term sustainability of the Company	The Company has set ambitious ESG goals, including carbon neutrality by 2040, 100% renewable energy by 2035, and Zero Liquid Discharge by 2030. Investments in clean technologies, waste recycling, and water conservation support sustainable operations and regulatory compliance.
Compliance risk
Compliance risks arising from tax disputes, litigation and shifts in government policies may influence the Companys long-term sustainability and affect its position in the industry	A strong compliance framework supported by internal and external experts ensures adherence to all applicable laws and regulations. Regular legal reviews, proactive engagement with regulators, and transparent disclosures reduce compliance- related uncertainties.

Internal Control Systems and Adequacy

The Company has in place a sound internal control system designed to meet its specific requirements. The effectiveness of this framework is overseen by the Board of Directors to ensure accurate financial reporting, regulatory compliance, and the safeguarding of assets. These controls are aligned with applicable regulations and are subject to regular review by the Internal Audit function. This independent function reports directly to the Audit Committee, identifies potential risks, and ensures that operations are conducted in line with established policies and procedures.

Cautionary Statement

The MDA section includes forward looking statements about the Company and its future prospects. These statements involve certain known and unknown risks and uncertainties that may affect actual outcomes. The Company is also subject to unforeseen and changing risks within its operating environment. The assumptions in this report are based on both internal and external information and form the basis for the facts and figures presented. It should be recognised that such assumptions may change over time which could lead to revisions in the related estimates. The forward looking statements reflect the Companys present intentions beliefs or expectations and are valid only as of the date made. The Company has no obligation to update or revise these statements in light of new information future events or changing circumstances.