Kalyani Forge Ltd Management Discussions

Global Economic Overview

The global economy demonstrated remarkable resilience in 2025 despite heightened geopolitical tensions and persistent policy uncertainty, expanding by 3.5%. Growth was supported by resilient global trade, a surge in technology investments, particularly in artificial intelligence, and favorable financial conditions. A weaker US dollar, coupled with proactive fiscal measures in major economies such as the US and Germany, further reinforced economic activity.

On the inflation front, global disinflation came to a stall. However, underlying trends varied by region; core stayed stubbornly high in the US, whereas Japan experienced a sharp decline.

Ultimately, trade acted as a critical economic engine, marked by record-breaking merchandise surpluses in China and a boom in Asian tech exports. Overcoming early-year trade barriers and policy shifts, the global economy closed out 2025 with stronger-than-anticipated momentum.

GDP Growth (2025 to 2027P*)

Outlook

The outlook for the remainder of 2026 and into 2027 is shaped by two diverging forces: the war shock and AI-driven technological momentum, with growth projected to moderate to 3.0% in 2026 before recovering modestly to 3.4% in 2027. The ongoing war shock continues to weigh heavily on energy-importing nations and more vulnerable economies. Conversely, countries and industries integrated into the global technology value chain are seeing a significant lift due to robust AI-driven demand. For the broader manufacturing industry, this implies that while traditional segments may face pressure from high energy costs and geopolitical drag, tech-aligned segments are poised for expansion.

(Source: IMF, July 2026; IMF, April 2026)

Indian Economic Overview

India maintained its position as one of the world s fastest-growing major economies in FY2026, with GDP growth accelerating to 7.7% from 7.1% in FY2025. This expansion was anchored by a robust 7.9% increase in Gross Value Added (GVA), propelled by strong performance across the manufacturing and services sectors. Concurrently, macro stability was bolstered by a sharp drop in food and fuel prices, which helped cool headline inflation to an average of 1.7% between April and December 2025.

The Union Budget 2026 27 further strengthens this economic foundation, targeting a 4.3% fiscal while sustaining aggressive public investment. This is supported by strong policy momentum, including over 350 structural reforms such as the simplified GST 2.0 and the implementation of four streamlined Labour Codes. Moreover, the strategic focus has shifted towards frontier industries such as the Semiconductor Mission 2.0 alongside physical infrastructure, highlighted by a 60% expansion of the National Highway network since 2014. Financial inclusion initiatives like PM SVANidhi and expanding digital connectivity continue to ensure this growth remains widespread.

Outlook

India is poised to maintain its global growth leadership, with FY2027 GDP projected to expand between 6.8% and 7.2%. Reflecting potential headwinds from volatile oil prices and geopolitical friction, the RBI maintains a conservative estimate of 6.6%. While headline inflation may experience a minor uptick, it is expected to remain well-managed within the central banks 2–6% target band.

(Sources:EconomicTimes,PIB, Economic Survey 2025-26, India Budget 2026-27) provide essential data and insights.

Indian Automotive Industry

India continues to hold a commanding position in the global heavy vehicles market as the largest tractor producer, second-largest bus manufacturer, and third-largest heavy truck manufacturer in the world. In 2025, the Indian automotive market was valued at $274.93 Billion and is projected to scale to $584.23 Billion by 2034, achieving a CAGR of 8.74% between 2026 and 2034.

The combined production of passenger vehicles, three-wheelers, two-wheelers, and quadricycles contributed to a massive total production of 34.71 million units for the full fiscal year (FY2026). In terms of domestic market structure, two-wheelers and passenger cars remain the absolute pillars of sales, commanding 76.79% and 16.43% of the market share, respectively, in FY2026. Within the passenger vehicle segment, consumer demand continues to be heavily dominated by small and mid-sized car sales.

Number of Automobiles Produced in India

(in million units)

Financial Year	Value
FY2017	25.33
FY2025	31.03
FY2026	34.71

The market s robust expansion is propelled by several critical factors:

• Rising Incomes and Urbanization: Rapid urban development and increasing disposable income have substantially boosted buying power, with India s per capita Gross National Disposable Income (GNDI) increasing over the years.

• Supportive Government Policies: Favourable national programs, including the Make-in-India campaign, the

Automotive Mission Plan, and strategic manufacturing subsidies and tax benefits for electric/hybrid platforms, are driving domestic production capabilities and local R&D investment.

• Accessible Financing and Ownership Models:

Partnerships between banks, fintech companies, and OEMs have created highly accessible, and lease-to-own plans, making vehicle ownership far easier in Tier-2 and Tier-3 cities.

• Logistics Boom and Export Strength: The expansion of e-commerce and retail is driving heavy demand for commercial transport fleets. Concurrently, Indian automobile exports grew by a strong 19% in FY2025, exceeding 5.3 million units.

Key Trends

• Smart and Connected Mobility: Vehicles are increasingly integrating advanced IoT-enabled features. This shift is being led by developing production-ready, locally made V2V, V2X, and modular connected platforms.

• Shared and Micro-Mobility: To combat urban traffic congestion and parking shortages, consumers in metro cities are increasingly turning to app-based shared fleets, subscription services, and electric e-scooters.

Outlook

The industry is well-positioned for sustained, technology-driven growth. Future expansion will be heavily shaped by increasing vehicle adoption in rural and semi-urban regions, coupled with rising demand for premium and compact models.

Besides, technological integration will accelerate, focusing on lightweight materials, autonomous safety features, and advanced electric drivetrains. Furthermore, government expressways and smart city initiatives will provide the critical infrastructure required for connected and advanced vehicles.

Indian EV Market

The Indian electric vehicle (EV) market is emerging as a premier industrial growth driver, with sales expanding 30% in FY2026 to 2.66 million units (up from 2.05 million in FY2025) to secure an 8.62% penetration of overall automotive sales. Although two- and three-wheelers continue to command nearly 87% of all EV volumes, adoption is actively widening across all major vehicle classes. Bolstered by H2.23 Lakh Crore ($25.6 Billion) in investments secured between 2020 and 2025, the market s 2025 valuation of H0.31 Lakh Crore ($3.71 Billion) is projected to reach an extraordinary H16.15 Lakh Crore ($191.04 Billion) by 2034.

(Sources: IBEF, IMARC)

Indian Forging Industry

The Indian forging market has entered a phase of rapid modernization and structural expansion. Valued at $5.6 Billion in 2025, the market is projected to reach $10.6 Billion by 2034, growing at a compound annual growth rate (CAGR) of 7.10% during 2026 2034. This growth is fundamentally driven by rapid industrialization, the steady expansion of the domestic automotive and construction sectors, and a rising demand for high-performance, precision-engineered components.

Key macro-drivers, including a transition toward high-tech manufacturing systems, export opportunities, and supportive government policies encouraging indigenous production, are repositioning the domestic industry as a competitive global force.

Indian Forging Market Size

Financial Year	Value (in $ Billion)
FY2025	5.60
FY2034	10.60

Key Trends

Pacing the Automotive and EV Transformation: As India consolidates its position as a global auto manufacturing hub, the forging sector is rapidly scaling up production of highly durable parts like engine components, chassis, and transmission systems. To meet rising demand for lightweight, fuel-efficient ICE and electric vehicles, there is a significant shift toward high-strength steel and aluminum forgings. This EV transition opens high-value opportunities for specialty, lightweight forged parts designed to reduce energy losses, prompting manufacturers to deploy advanced precision forging technologies.

Accelerated Digitalization and Shop Floor Technology:

Traditional forging is evolving into high-efficiency production through technologies like CNC machines, automation, robotics, and 3D printing, which improve accuracy and minimize human error. Advanced processes like precision and isothermal forging are actively deployed to deliver exceptional durability and high strength-to-weight ratios. Additionally, integrating simulation and modelling software during the design phase streamlines development workflows, significantly reducing material waste and enhancing overall product quality.

Aerospace and Defence Import Substitution: Spurred by the Make-in-India initiative and rising national security investments, the aerospace, civil aviation, and defense sectors are driving strong demand for high-performance forged components. To support defense self-reliance, domestic manufacturers are replacing imports with high-strength, locally produced parts for aircraft, missile systems, and heavy equipment. Given the extreme durability and harsh-condition resistance required, forgers are investing heavily in sophisticated, high-precision methods to meet strict safety and performance standards.

(Source: IMARC)

Company Overview

Kalyani Forge Limited is a pioneer in precision engineering and metal forming. Established in 1979, the Company operates five state-of-the-art manufacturing plants in Pune, Maharashtra, supported by a workforce of over 1,000 employees. As a premier supplier of high-performance components, Kalyani Forge possesses a unique dual technology base in both hot and warm forging built over decades. This enables it to be the only Indian forging company to deliver a complete Engine, Driveline, and Axle component portfolio under one roof. Supported by extensive precision machining, heat treatment, and in-house die manufacturing, the Company s capital efficiency is demonstrated by an industry-leading 3.5x fixed asset turnover ratio.

K 234.64 Crore

Revenue from Operations

K 31.58 Crore

EBITDA

K 9.32 Crore

Profit After Tax (PAT)

5

Number of Plants

1,000+

Team Size

Automotive Business

This remains the Company s primary volume driver. The Engine business, representing 60% of revenue, serves as a high-volume anchor, predominantly delivering heavy-duty forgings like connecting rods and crankshafts for trucks and commercial vehicles. The driveline (20% of revenue) and axle (10% of revenue) product groups are highly dynamic, fuel-agnostic, and compatible with both ICE and electric vehicle (xEV) powertrains. Growth in passenger vehicles is accelerating, highlighted by marquee wins and ramp-ups of advanced Gen 3-wheel hubs with global Tier-1 manufacturers.

Industrial Business

This segment serves critical sectors including power generation, construction, mining, infrastructure, railways, and marine. The industrial segment leverages the Company s automotive-grade engineering standards to deliver heavy forgings for large-engine applications, acting as an effective hedge against automotive market cyclicality.

Business Outlook

Kalyani Forge enters FY2027 with clear operational and commercial momentum. Commercial strategy is geared toward increasing the share of wallet with target global OEMs by leveraging the unified engine, driveline, and axle offering. Capital allocation is tightly aligned with these growth frontiers; 60% of the planned H30 Crore FY2027 capex is allocated directly to future growth segments like driveline, axle, and ramp-up programs. Operationally, the Company targets sustaining its newly established 15%+ EBITDA margin floor, lowering its cash conversion cycle to 120 130 days, and driving further ROCE improvement (which reached 18% in Q4 FY26) to ensure long-term, capital-efficient value creation.

Financial Overview

Kalyani Forge delivered a highly profitable performance in FY2026, driven by a strategic focus on high-margin contracts. While revenue from operations remained stable at H234.64 Crore (compared to H235.88 Crore in FY2025) due to the deliberate phase-out of approximately H40 Crore in low-margin, non-fit programs, bottom-line profitability expanded dramatically.

The full-year EBITDA rose to H31.58 Crore, representing a margin expansion to 13.3% (up from 11.1% in FY2025), while Profit Before Tax climbed 23.8% to H14.37 Crore. Profit After Tax reached H9.32 Crore the Company s highest profitability in ~14 years with an EPS of H25.60.

This turnaround was highlighted by an exceptional fourth quarter in FY2026, which recorded a robust 15.2% EBITDA margin on H57.00 Crore of operational revenue, establishing a solid profitability floor.

Alongside profitability gains, the Company achieved remarkable capital efficiency and balance sheet discipline. Return on Capital Employed (ROCE) grew sequentially from 14% in Q1 to 18% in Q4 FY26, supported by an industry-leading fixed asset turnover of 3.5x (vs. the 1.5x 2.0x industry benchmark) on Property, Plant, and Equipment of H 86.5 Crore.

Working capital management also improved significantly, with inventories rationalized by H21.7 Crore to H35.5 Crore.

This reduction, alongside a sequential decrease in the

Cash Conversion Cycle from 176 days to 168 days by Q4, freed up valuable cash flow to fund strategic capex and ramp up growth-focused business lines.

Financial Performance, FY2026 vs FY2025

Particulars	FY2026	FY2025	Y-O-Y%
Total Income (in H Crore)	238.22	239.15	-0.39%
Operating Expenses (in H Crore)	206.64	212.64	-2.82%
EBITDA (in H Crore)	31.58	26.51	+19.12%
Other Income (in H Crore)	3.58	2.51	+42.63%
Interest and Finance Charges (in H Crore)	7.66	7.04	+8.81%
Depreciation and Amortization (in H Crore)	9.55	7.87	+21.35%
Profit Before Tax (in H Crore)	14.37	11.60	+23.88%
Tax Expenses (in H Crore)	5.05	3.29	+53.50%
Profit After Tax(in H Crore)	9.32	8.31	+12.15%
EPS (Basic) (in H)	25.60	22.86	+11.99%

Human Resources

Kalyani Forge s workforce of 1,000+ employees is the absolute cornerstone of its sustained operational success and precision manufacturing capabilities. Aligned with its Vriddhi Growth Mission 2027, the Company continues to focus on cultivating a highly transparent, collaborative, and future-ready team.

Employee engagement and a grassroots culture of continuous improvement were heavily championed through the Company s Kaizen Awards initiative, which unleashes cost-effective, innovative shop-floor ideas directly from the team. To ensure world-class execution, Kalyani Forge s operator training curricula have been refined to integrate advanced safety protocols, lean manufacturing processes, and strict quality control.

Complemented by expanded employee welfare programs, Kalyani Forge remains deeply committed to fostering a supportive, inclusive, and high-performance work environment where individual development fuels its collective strategic growth.

Information Technology

Kalyani Forge views technology as a vital strategic enabler that drives long-term digital innovation, operational excellence, and sustainable business growth. Following the successful deployment of its core customer relationship management (CRM), recruitment management, and project management software platforms, the Company s primary focus remains on optimizing these systems.

By focusing on deeper integration and driving higher user adoption across all business divisions, the Company has successfully enhanced workflow efficiency, eliminated operational silos, and strengthened collaborative networks across its offices and plants.

A key operational milestone in this journey is the Company s Digital Shopfloor Project, developed in partnership with its technology vertical, Kalyani Studio, to bridge physical shop-floor operations with real-time digital intelligence.

To ensure this digital ecosystem remains highly secure and resilient, Kalyani Forge maintains a rigorous focus on knowledge management, advanced cybersecurity protocols, data integrity, and continuous user training, thereby establishing a secure, future-ready digital infrastructure.

Corporate Social Responsibility

Kalyani Forge Limited is committed to inclusive and sustainable development, with a focus on creating meaningful and lasting value for society. The Company s CSR initiatives emphasize skill development and employment opportunities, particularly for youth and aspiring professionals.

The Company s support for technical education encourages innovation, engineering excellence, and teamwork while nurturing future talent. It also supports initiatives aligned with its CSR policy across community development, environmental sustainability, and health. All programs are undertaken under the guidance of the CSR Committee, with a focus on transparency, accountability and meaningful impact.

Risk Management

At Kalyani Forge Limited, proactive risk management is integral to achieving its strategic objectives and driving long-term sustainability. Operating in a dynamic market environment, the Company employs a structured risk management framework to continuously identify, assess, mitigate, and monitor operational, financial, strategic, environmental, and social risks, fully embedded within its internal control and governance systems.

Key Risks Identified and Monitored

The Company s Risk Management Policy provides a structured mechanism to periodically evaluate and manage key enterprise exposures, including:

Supply Chain and Operational Risks

Managing potential disruptions caused by raw material shortages, press breakdowns, die and tooling failures, or power outages to preserve seamless production continuity.

Strategic and Market Risks

Navigating regulatory landscape shifts, evolving global trade policies affecting export competitiveness, and the emergence of new market entrants or industry disruptions.

Geopolitical and Environmental Risks

Mitigating international supply chain vulnerabilities arising from geopolitical instability, alongside logistics or operational impacts caused by severe weather and natural disasters.

Technological and Innovation Risks

Adapting to rapid technological shifts to maintain product relevance while driving continuous innovation to meet evolving industry standards.

To safeguard business continuity, Kalyani Forge Limited actively monitors these risk factors and deploys proactive contingencies, including supplier diversification and predictive maintenance frameworks. Supported by continuous oversight from the Board of Directors and senior management, mitigation strategies are regularly reviewed to maintain an institutional culture centered on transparency, accountability, and resilience.

Internal Control Systems and their Adequacy

Kalyani Forge Limited maintains a robust internal control framework to safeguard assets, drive operational efficiency, ensure precise financial reporting, and maintain strict regulatory compliance. Tailored to its advanced precision forging and automated manufacturing environment, this dynamic control ecosystem actively mitigates enterprise risks while enabling the execution of long-term strategic goals.

Key components of the internal control system include:

• Accurate authorization, recording, and reporting of transactions

• Safeguarding of assets from unauthorized use

• Compliance with statutory and regulatory requirements

• Provision of reliable financial and operational information

Kalyani Forge integrates automated systems, standard operating procedures, and manual oversight into its core business processes to maintain a robust internal control environment. In FY2026, the Audit Committee thoroughly assessed internal findings and confirmed no material control failures. To support long-term expansion and deepen stakeholder trust, the Company continues to invest in enhanced automation, governance, and control processes.