Rationale

The ratings reaffirmation for Balu Forge Industries Limited (BFIL) consider the extensive experience of its management in the machined forgings industry, spanning over three decades. Such long experience of the promoters and well-established operational track record resulted in BFIL’s ability to acquire a reputed clientele across multiple end-user segments and countries over the years. ICRA also notes the company’s growing scale of operations, as reflected by the consolidated revenues growing at a robust compound annual growth rate (CAGR) of 60% between FY2021 and FY2025. The said revenue growth was supported by segmental diversification undertaken by the company over the years, and also through its focus on higher valueadded products, resulting in higher realisation levels. BFIL’s capital structure remains healthy, with a gearing of 0.1 times as on March 31, 2025, as well as September 30, 2025, at a consolidated level. Equity infusion of around Rs. 470 crore made over the last two fiscals supported the capital structure while also helping the company reduce its reliance on external borrowings, strengthening the leverage and the coverage indicators. With marketing presence in over 80 countries and substantial revenue share through exports, BFIL demonstrates a high degree of geographical diversification. The company also exhibits low customer concentration, with its top five customers contributing around 37% to the standalone revenues in FY2025 (35% in H1 FY2026). Such high degree of customer and geographical diversification safeguard the company’s operations against any customer-specific or geography-specific slowdown risks to an extent. The ratings, however, remain constrained by the working capital-intensive nature of operations, characterised by elongated receivables, resulting in a high working capital intensity (41.0% and 44.3% in FY2025 and H1 FY2026, respectively). While there has been a gradual moderation in the receivables position in the recent years, the company’s ability to effectively manage its working capital profile amid a rapidly growing scale of operations remains a key rating monitorable. ICRA also notes the susceptibility of BFIL’s profit margins to adverse fluctuations in foreign exchange rates as the company derives more than 90% of revenues from export markets. BFIL’s business operations also remain susceptible to the risk of shift towards electric vehicles to a large extent as a considerable portion of its revenue is derived from engine components (mainly crankshafts supplied to tractors and commercial vehicles). However, the company’s efforts to diversify into new product segments such as empty artillery shells, turbine blades, locomotive wheels, etc. through its new facility in Karnataka can help mitigate the risk over the medium term. BFIL has significant investment plans in the near-to-medium term for new business verticals such as defence, aerospace, heavy engineering and industrial machinery, among others as a part of its strategy to diversify and reduce dependence on the existing line of products. The funding mix adopted by the company, and timely execution of the project along with profitable ramp-up in operations are critical to the company’s growth and will be closely monitored, going forward. ICRA notes the search operation conducted by the Income Tax (I-T) Department at some of BFIL’s offices and manufacturing units between January 7, 2026 and January 13, 2026. Vide a stock exchange disclosure dated January 13, 2026, the company has clarified that its promoters and key managerial personnel have fully cooperated with the officials and provided all documents/clarifications/details sought by the officials, and that no incriminating documents were found or seized by the I-T Department during their operation. ICRA understands that the business operations and production of the company continued as usual and were not impacted due to the search. While BFIL has further stated that there has been no adverse impact on the financial position of the company due to the said search, ICRA will continue to monitor developments in this regard. The Stable outlook on the long-term rating reflects ICRA’s expectation that the revenue growth momentum demonstrated by BFIL in the recent past, aided by healthy volume off-take across segments, is likely to be maintained over the near-to-medium term. Further, the outlook underlines ICRA’s expectation that the entity’s incremental capex to further expand the capacity will be funded in a manner that it is able to durably maintain its debt protection metrics commensurate with the existing rating