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For years, Balu Forge Industries Ltd (BFIL) operated largely behind the scenes of the automotive and farm equipment supply chain, manufacturing precision-machined components used in engines and heavy machinery. Agriculture, in particular, formed the backbone of the business.

But that dependence is gradually being reduced. BFIL is repositioning itself as a diversified precision engineering manufacturer, expanding into defence, aerospace, railways, oil and gas, marine, wind energy, and electric vehicles. A recently secured artillery shell supply agreement with a NATO-affiliated entity signals how far that transition has progressed.

From tractor parts to global supply chains

BFIL is a global supplier of precision-engineered and forged components, historically focused on precision machining. The company’s model involved machining finished components while procuring raw forged sections from third-party suppliers.

It is a leading crankshaft manufacturer with an annual production capacity of 1.2 million units. These products are supplied across automotive segments—commercial vehicles and agriculture—as well as non-automotive industries such as industrial equipment, railways, and defence. Other products include clutches, brake components, and hydraulic motors.

Automotive applications account for about 80% of total revenue, with the remaining 20% coming from non-automotive sectors.

Agriculture has historically been the company’s largest end-user segment, accounting for roughly 55% of sales in earlier years.

That share is now declining as the company diversifies. In FY25, agriculture contributed 40% of revenue, followed by commercial vehicles (18%), heavy engineering (18%), power (10%), defence (9%), and oil and gas (5%).

BFIL aims to reduce agriculture’s contribution further to 25% by FY28, while increasing the share of defence, railway, and aerospace segments from 10% in FY25 to 25–30%.

The company already has a strong export base. It supplies 25+ original equipment manufacturers across more than 80 countries, with 73.5% of revenue generated through exports. Europe accounts for roughly 45% of sales, followed by the Americas (20%), the MENA region (20%), and the rest of the world (15%).

BFIL’s most visible step into the defence sector came with the commercialization of a dedicated production line for 155 mm large-calibre artillery shells.

Industry analysis indicates a persistent global shortage of 155 mm ammunition, the standard calibre used by NATO field artillery. Demand is expected to remain strong for six to seven years, driven by replenishment requirements.

BFIL has entered into a legally binding five-year memorandum of understanding with a NATO-affiliated entity to supply empty shells, marking its formal entry into the NATO supply chain.

The agreement covers large-calibre ammunition beginning with 155 mm shells (M107 and Extended Range Full Bore variants).

BFIL is contracted to supply 30,000 units of 155 mm M107 shells and 10,000 units of 152 mm shells each month. This exceeds the company’s current capacity of 360,000 units annually, prompting plans to expand production.

The shells will be delivered empty in a “Ready to Fill” condition and priced at $315 (around ₹29,000) per unit, with pricing indexed to the London Metal Exchange.

Supply will begin in April 2026 and ramp up in phases. Initial deliveries will consist of 155 mm M107 shells, along with a 152 mm variant.

At scale, the shell production line alone is expected to generate ₹500–550 crore in revenue, and over ₹1,000 crore at full capacity.

Beyond artillery shells, BFIL has approval to supply over 180 defence products, including gear teeth, axles, connecting rods, small arms components, shackles, hooks, gun barrels, and large tank chassis parts.

BFIL’s expansion into defence and aerospace requires significantly higher levels of precision and materials capability.

To support this shift, the company has been commissioning advanced manufacturing assets at its greenfield campuses, including 7-axis and 11-axis CNC machining lines commercialized in Q3FY26.

These systems allow BFIL to manufacture highly complex components using specialised alloys with micron-level accuracy.

During FY25, the company expanded its precision machining capacity to 45,000 metric tonnes per annum (MTPA) and forging capacity to 100,000 MTPA.

It now plans to increase machining capacity to around 80,000 MTPA over the next 12–18 months, while expanding forging capacity to 150,000 MTPA.

The shift toward in-house forging represents a move toward vertical integration, allowing the company to improve margins, strengthen quality control, and reduce reliance on external suppliers.

Beyond defence, BFIL is expanding into other high-precision sectors.

In aerospace, the company is developing complex jet engine components such as turbine blades and compressor discs, with turbine blades expected to launch by the end of FY26.

In railways, BFIL plans to manufacture wheels, axles, and complete wheelsets, with a targeted capacity of 6,000 wheelsets annually for Indian Railways and markets in the Middle East.

The company is also producing components for electric and hybrid vehicles, including rotor carriers, main drive shafts, toothed shafts, and eccentric shafts.

The diversification strategy is already visible in BFIL’s financial performance.

In FY25, total consolidated revenue rose 65% year-on-year to ₹941 crore.

Ebitda increased 111% to ₹251 crore, with margins expanding 590 basis points to 27.2%, while profit after tax rose 119% to ₹204 crore. Return on capital employed increased to 24% from 20.5% in FY24.

Growth continued into 9MFY26, with revenue rising 29% year-on-year to ₹844 crore, Ebitda increasing 36% to ₹240 crore, and net profit rising 37% to ₹193 crore.

The changing revenue mix reflects the shift underway. Agriculture’s share fell to 36%, while the defence segment increased to 12%.

At ₹455 per share, BFIL trades at a price-to-earnings multiple of 22, below its five-year median of 32 and at a discount to peers including Happy Forgings (43x), AIA Engineering (30x), and AMIC Forging (57x).

For more such analysis, read Profit Pulse

Promoters recently converted 15 lakh warrants into equity shares at ₹360 per share, signalling continued commitment.

If the defence and aerospace businesses scale as planned, the company could potentially be valued closer to specialised forging peers such as Bharat Forge, which trades at 68x earnings.

Madhvendra has over seven years of experience in equity markets and writes detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments.

The writer does not hold the stocks discussed in this article.

The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.

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