Happy Forgings Limited IPO – Get Date, Price, Review and Details

Issue Open Dec, 19 2023 Listing At BSE, NSE
Issues Close Dec, 21 2023 Issue Size 1009 Cr
Issue Type Book Built Issue IPO Allotment Details Dec, 22 2023
Lot Size 17 Shares Refunds Dec, 26 2023
Face Value ₹2 per share Credit of Shares to Demat Dec, 26 2023
Price Band ₹808 to ₹850 per share Cut off time for UPI Mandate Confirmation Dec, 21 2023 5:00 Pm

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In this ariticle, we will discuss:

Introduction

Happy Forgings commenced operations in 1979 primarily as a forging company, and have since evolved into a manufacturer specializing in the manufacturing of value-added machined products.

The firm manufactures a wide range of heavy forged and machined products which include crankshafts, front axle beams, steering knuckles, differential cases, transmission parts, pinion shafts, suspension products and valve bodies across industries for a diversified base of customers.

Product Portfolio

They are the fourth largest engineering led manufacturer of complex and safety critical, heavy forged and high precision machined components in India as of Fiscal 2023 in terms of forgings capacity (Source: Ricardo Report). Through its vertically integrated operations, the company is engaged in engineering, process design, testing, manufacturing, and supply of various components that are both margin accretive and value-additive. It primarily caters to domestic and global original equipment manufacturers (“OEMs”) manufacturing commercial vehicles in the automotive sector, while in the non-automotive sector, it caters to manufacturers of farm equipment, off-highway vehicles and manufacturers of industrial equipment and machinery for oil and gas, power generation, railways, and wind turbine industries.

The company’s focus on producing margin accretive value-added products has led to its transition from being a forging-led business to a machined components manufacturer. They are a supplier to each of the top five Indian OEMs, by market share, in the medium and heavy commercial vehicle industry and four of the top five Indian OEMs in the farm equipment industry by market share, in Fiscal 2023. Some of its customers include AAM India Manufacturing Corporation Private Limited, Ashok Leyland Limited, Mahindra & Mahindra Limited, etc.

Industry Overview

The global forging and machining market is estimated to grow at a CAGR of 5.1% and 5.2% to reach USD 97.0 billion and USD 71.2 billion, respectively, between Fiscal 2023 to 2029.

The global crankshaft market size (by end user) is expected to increase over the period Fiscal 2023 to 2029 at a CAGR of 5.3% to reach US $ 47.1 billion whereas, in India, the crankshaft market is expected to grow CAGR of 8.3% to become US $ 7.73 billion during the same period. The growth in the commercial vehicle and off-highway segment would increase demand for medium and heavy-forged crankshafts backed by investments in the construction sector.

Financials

(Rs in Million)

Particulars

As at September 30, 2023 (Standalone)

As at March 31, 2023 (Consolidated)

As at March 31, 2022 (Consolidated)

As at March 31, 2021 (Standalone)

Equity Share Capital

179.00

179.00

179.00

89.50

Other Equity

10,854.34

9,704.07

7,697.24

6,362.09

Net Worth

11,033.34

9,883.06

7,876.24

6,451.59

Total Borrowings

2,589.74

2,185.16

2,403.52

1,534.70

Revenue from Operations

6,729.00

11,965.30

8,600.46

5,849.58

EBITDA

1,952.14

3,409.40

2,308.87

1,587.46

EBITDA Margin %

29.01

28.49

26.85

27.14

Profit/(Loss) Before Tax

1,592.60

2,800.29

1,920.52

1,170.61

Profit/(Loss) After Tax

1,192.99

2,087.01

1,422.89

864.48

Return on Capital Employed %

12.21

24.24

19.38

16.13

Return on Equity %

10.81

21.12

18.07

13.40

Basic EPS

13.33

23.32

15.90

9.66

Net Debt to EBITDA (In

times)

1.32

0.64

1.03

0.79

The company has established a track of consistent revenue growth and profitability. Its revenue from operations increased from Rs. 5,849.58 million in Fiscal 2021 to Rs. 11,965.30 million in Fiscal 2023 at a CAGR of 43.02% while its restated profit for the year increased from Rs. 864.48 million in Fiscal 2021 to Rs. 2,087.01 million in Fiscal 2023 at a CAGR of 55.38%.

They believe that their continued focus on efficiency, productivity improvements and cost rationalization have enabled them to keep their operating costs under control and improve their margins.

Competitive Strengths:

  • Fourth largest engineering led manufacturer of complex and safety critical, heavy forged and high precision mahined components in India.
  • Integrated manufacturing operations coupled with in-house product and process design capabilities resulting in a diverse product portfolio with continuous value addition.
  • Diversified business model, well placed to take advantage of potential alternative engine technologies.
  • Long-standing relationship with customers across industries.
  • Track record of consistently building capabilities and infrastructure, with focus on capital Efficiency.
  • Experienced Promoters and senior management team.
  • Track record of healthy financial performance.

Risk Factors:

  • High Dependency on Top 10 customers as they contribute 70.08% of their revenue from operations. The loss of any of these customers could have a material adverse effect on the business.
  • No customer agreement to commit to purchasing or place orders. If their customers choose not to source their requirements from them, there may be a material adverse effect on their business.
  • The company relies on a limited number of steel suppliers, its primary raw material, without definitive supply agreements in place.
  • All of the company’s three manufacturing facilities are located in Ludhiana, Punjab which exposes their operations to potential risks arising from local and regional factors.
  • The company's business hinges on specific industries, such as commercial vehicles, farm equipment, and off-highway vehicles, in both Indian and overseas markets. Adverse changes in these industries can negatively affect the business.

Peer Comparison:

As of Fiscal 2023

Company

Revenue from Operations (Rs in Million)

RONW (%)

P/E (In times)

Happy Forgings

11,965.30

21.12

36.95*

Bharat Forge

1,29,102.59

7.88

102.63

Craftsman Automation

31,826.00

18.04

43.92

Ramkrishna Forgings

31,928.95

18.77

49.36

Sona BLW Precision Forgings

26,550.10

17.26

85.56


*Based on upper price band

Conclusion

Happy Forgings operates in a highly promising segment, and the market size for its product offerings is expected to grow significantly in the next five years. With a diversified business model spanning various industries, the company is well-positioned to harness potential alternative engine technologies. Additionally, it continuously assesses new opportunities and adds value-added products to its portfolio to enhance margins and profits. Capitalizing on rising international demand, the company aims to boost its exports. The firm has built a track record of healthy financial performance over the years. In terms of valuation, at the upper price band of Rs. 850, the issue appears reasonably priced at the price-to-earnings ratio of 36.95x. Investors are advised to subscribe to this IPO for the long term.

 

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