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Happy Forgings Limited - IPO - A trusted supplier for several Indian and Global OEMs - Reliance Securities

Posted On: 2023-12-19 10:41:04 (Time Zone: IST)

About the Company

Happy Forgings Limited (HFL) with over 40 years of experience is the fourth largest engineering led manufacturer of complex and safety critical, heavy forged and high precision machined components in India as of FY23 in terms of forgings capacity. HFL emerged as a leading player in the domestic crankshaft manufacturing industry with the second largest production capacity for commercial vehicle and high horse-power industrial crankshafts in India and manufacture 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.

Diversified revenue segments with value added products

HFL primarily cater to domestic and global original equipment manufacturers ("OEMs") manufacturing commercial vehicles in the automotive sector, while in the non-automotive sector, they cater 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. HFL is a supplier to top five Indian OEMs by market share in MHCV segment and four of the top five Indian OEMs in farm equipment segment by market share in FY23* and has customers with 10+years relationships contributed 75.9% of revenue from sale of products in FY23 and 73.1% in H1FY24.

Strong track record

HFL is the second company in India to have a 14,000 tons or higher forging press as of Mar'23 with an installed capacity of 167,200 MT with a mix of forging and machining capacity and focus on producing margin accretive value-added products with higher realizations as it manufacture heavier and complex products with greater precision and accuracy for a large diversified customer base across Indian and Global clients. HFL strength in machining and ability to forge heavier and complex parts up to 250 kgs to cater to different industries which require heavy and complex parts HFL's significant manufacturing capacities act as an entry barrier for other manufacturers and OEMs that do not have such in-house engineering capabilities and production facilities.

Consistent growth led by newer products and acquisition

HPL will leverage in-house engineering and product development capabilities to grow product portfolio and tap growing business opportunities in the industrial markets, foray into lightweight forging and machining with introduction of aluminum components, Increase wallet share and acquire new business by leveraging existing OEM relationships and adding new customers with a strong focus to grow exports capitalizing the demand from international markets. HPL will continuously explore and consider opportunities that can create synergies and are in line with the company's growth strategies and target entities that expand opportunities in other endmarkets, geographic regions, new customers and new products.

Financials in Brief

HPL has an established a track of consistent revenue growth and profitability with revenues from operations increased from 585 Crs to 1196.5Crs in FY23 at a CAGR of 43% while restated PAT increased from ?86.4Crs to ?208.7Crsat a CAGR of 55.4% for FY 21-23. HPL strengths in machining and overall value addition to products have enabled us to achieve the highest EBITDA margin among our peers in the last two years. The revenues are diversified in both automotive and non-automotive sectors with CAGR growth of 50.8% and 32.5% respectively for FY21-23.

Our View

HFL has transformed from being a forging led player to a leading manufacturer of machined components in India and consistently grew its product basket with a strong focus on manufacturing margin accretive value-added products to achieve higher margins improving its share. With a high entry barriers business, lengthy customer and product approval process, its in-house design capabilities & fungible production lines have led to a diverse product offering and continuous value addition to its long standing relationships with customers across industries and countries would drive growth for the company. HFL will continue to grow better than the industry able to diversify its product basket, with a focus on capital efficiency building healthy financial metrics. Therefore we recommend a SUBSCRIBE to the issue.

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