Happy Forgings Limited — Q2 FY26 earnings call

Call held 7 Nov 2025

Management summary

Happy Forgings delivered a strong Q2 FY26, marked by record-high gross and EBITDA margins, driven by a favorable product mix and new business wins. While domestic demand remained healthy across all major sectors, export markets faced significant headwinds from global weaknesses and US tariffs. The company is actively progressing its INR 650 crores strategic capex program and exploring inorganic growth opportunities to sustain its growth momentum amidst a challenging global environment.

Highlights

  • Achieved highest ever quarterly gross margin of ~60% and EBITDA margin of ~31%, demonstrating strong operational resilience.

  • Profit growth outpaced revenue growth, supported by approximately 150 basis points expansion in both gross and EBITDA margins.

  • Strong cash generation with nearly 100% operating cash flow conversion in H1 FY26, contributing to robust liquidity of ~INR 315 crores.

  • Diversified segment portfolio and product mix, with value-added machining contributing around 88% of the share.

  • Robust balance sheet with total net worth of ~INR 1,900 crores and debt-equity ratio below 0.1.

Concerns

  • Export market volumes remained low due to global market weaknesses, customer side destocking, and US tariffs, leading to a 35-40% decline in US-related business in Q2.

  • Subdued demand in international Commercial Vehicle, Off-Highway, and Farm Equipment sectors, particularly in North America and Europe.

  • Uncertainty regarding the sustainability of current high margins, which are dependent on product mix and raw material cost dynamics.

Key financials

4 periods

Q2 FY26

  • Revenue
    ₹377 Cr
    YoY +4.5%
  • Gross Profit
    ₹228 Cr
    YoY +7.1%
  • EBITDA
    ₹116 Cr
    YoY +9.9%
  • Gross Margin
    60%
  • EBITDA Margin
    30.7%

Q2 FY26, adjusted

  • PAT
    ₹73 Cr
    YoY +10.2%

H1 FY26

  • Revenue
    ₹731 Cr
    YoY +4.1%
  • Gross Margin
    59%
  • EBITDA Margin
    29.7%
  • ROCE
    18.1%
  • ROE
    14.6%

H1 FY26, adjusted

  • PAT
    ₹139 Cr
    YoY +6.7%

What they filed

Q1 FY27: revenue up 26.8%, net profit up 37.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue361 354 352 354 377 +4%391 +10%424 +20%449 +27%
EBITDA105 101 102 101 116 +10%120 +19%133 +30%141 +40%
Net profit71 65 68 66 73 +3%79 +22%84 +24%91 +38%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Commercial Vehicles
    37% Share of H1 FY26 Revenue
  • Farm Equipment
    34% Share of H1 FY26 Revenuehigh single-digit qualitative Q2 FY26 YoY Growth
  • Passenger Vehicle
    5% Share of H1 FY26 Revenuemid double-digit qualitative Q2 FY26 YoY Growth
  • Off-Highway
    10% Share of H1 FY26 Revenue
  • Industrials
    13% Share of H1 FY26 Revenue

Order book

high confidence

Inflow this quarter

₹80 Cr

Composition

Mix 2 geographies
  • Domestic share of INR 350 crores new orders 15%
  • Export share of INR 350 crores new orders 85%

Share of order book by geography

Pipeline

other

Annual orders already in hand for new capex lines

Cancellations & deferrals

  • deferred: US-related business (direct/indirect) declined due to tariffs and destocking
  • deferred: Volume from a key UK customer declined significantly
The company has a healthy order book, with INR 80 crores of new orders in H1 FY26, and INR 350 crores of annual orders already secured for the new capex lines, which are predominantly export-oriented and highly machined.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹650 Cr
    • Strategic capex program for heavy segment, precision components, and future growth ₹650 Cr
    • Capacity expansion for Passenger Vehicle segment ₹80 Cr
    • Machining lines (planned in 2 phases) ₹250 Cr
    • First phase of capex (wind, farm, heavy hammer line) ₹550 Cr
    • Wind and farm (part of first phase capex) ₹150 Cr
    • Heavy hammer line (part of first phase capex) ₹400 Cr
    Looking ahead, we remain steadfast on executing our INR 650 crores strategic capex program, which is progressing well on schedule.
  • Debt Debt disclosed
    Our total net worth stands at INR 1,900 crores approximately and our debt-equity ratio as on 30th September continues to be below 0.1.
  • Liquidity Cash ₹315 Cr Ample financial flexibility to pursue long-term growth opportunities.
    Cash liquidity stood at approximately INR 315 crores, providing ample financial flexibility to pursue long-term growth opportunities.

Guidance & targets

Market Share

  • Passenger Vehicle segment contribution to total revenues Market Share · within 2 years · High confidence 8% to 10%
    We expect this segment to contribute 8% to 10% of our total revenues within 2 years, driven by a robust domestic and export demand.

    — Ashish Garg, Managing Director

Capex

  • Passenger Vehicle capacity expansion budget Capex · FY26 · High confidence INR 80 crores
    To fuel this growth, we have budgeted INR 80 crores capital outlay for FY '26 for capacity expansion.

    — Ashish Garg, Managing Director

Growth

  • Overall growth trajectory Growth · from next year onwards · Medium confidence better, back on a full trend
    So, on the growth side, we expect that from next year onwards, the growth trajectory should be better, and we should be back on a full trend.

    — Ashish Garg, Managing Director

Inorganic Growth

  • Closure of inorganic opportunity Inorganic Growth · next 6 to 8 months · Medium confidence close something
    We are very hopeful that in next 6 to 8 months, probably we should be able to close something on the inorganic side as well.

    — Ashish Garg, Managing Director

Product Mix

  • CV and Farm share of total revenue Product Mix · future · High confidence 50%
    Yes. CV and Farm put together will be 50% what we see, what we estimate and balance 50% will come from Industrial, Passenger Vehicle, Off-Highway and also other sectors which we are working on.

    — Ashish Garg, Managing Director

  • PV, Industrial, Off-Highway, and other areas share of total revenue Product Mix · future · High confidence 50%
    So you can roughly say it will be 50% from Farm and CVs and 50% from PV, Industrial, Off-Highway and other areas.

    — Ashish Garg, Managing Director

Capex Operationalization

  • Infrastructure for new capex lines Capex Operationalization · next 2 or 3 quarters · High confidence in place
    And next 2 or 3 quarters, once the infrastructure is in place, I think the order conversion will be much faster.

    — Ashish Garg, Managing Director

  • PV machining lines Capex Operationalization · Q4 of this financial year · High confidence start
    So we are going ahead with the machining lines and all capex is ongoing for this, which is expected to start from Q4 of this financial year.

    — Ashish Garg, Managing Director

Export Recovery

  • US export market for portable gensets Export Recovery · next coming months · Medium confidence ease out
    And it is expected that things will ease out in the next coming months. It's not a sustained number of 50%. Once things eases out to the level of 20%, I think things will be back on track.

    — Ashish Garg, Managing Director

  • UK customer volume Export Recovery · next year · High confidence 36,000 units

    From 24,000 units today

    In the last 2 years, we have seen numbers declining from almost 48,000 units to almost 24,000 units in this year, where we have seen a major effect. So, we have been discussing with the customer and we are seeing close to 50% improvement in next year, close to 36,000 units.

    — Ashish Garg, Managing Director

  • European CV market Export Recovery · from Jan onwards · Medium confidence back on track
    It should be back on track from Jan onwards on the CV side in these markets.

    — Ashish Garg, Managing Director

Revenue Growth

  • Revenues Revenue Growth · coming quarters · Medium confidence grow
    Akash, we expect revenues to grow in the coming quarters. And the company is working on different projects and different ramp-ups are planned.

    — Ashish Garg, Managing Director

  • Run rate Revenue Growth · from Q4 onwards · Medium confidence better
    So we expect better run rate from Q4 onwards.

    — Ashish Garg, Managing Director

Volume

  • Front axle beam units Volume · this year · High confidence 35,000 units
    The expectation was to do around 35,000 units in this year.

    — Ashish Garg, Managing Director

  • Front axle beam units Volume · next year · High confidence 40,000-45,000 units
    We expect that, yes, next year probably we should be doing close to 40,000, 45,000 units for front axle beams also.

    — Ashish Garg, Managing Director

What to watch in Q3 FY26

Inorganic growth closure

next 6 to 8 months
Current Evaluating 2-3 options
Target Closure of an inorganic deal

Why it matters

Inorganic growth is a key part of the company's strategy to diversify and sustain growth momentum.

We are very hopeful that in next 6 to 8 months, probably we should be able to close something on the inorganic side as well.

Risks & concerns

  • US tariffs and trade uncertainty

    high

    Ongoing uncertainty because of the U.S. tariffs led to a 35-40% decline in US-related business in Q2, with 50% tariffs making some projects unviable.

    Management acknowledged

  • Global demand weakness and customer destocking

    medium

    Export market volumes remained low due to global market weaknesses, customer side destocking in CV, Off-Highway, and Farm Equipment sectors.

    Management acknowledged

  • Subdued international market demand

    medium

    International markets continue to face subdued demand, particularly across North America and Europe, for CV, Off-Highway, and tractor segments.

    Management acknowledged

  • Sustainability of high margins

    medium

    Management stated that the current high gross and EBITDA margins are dependent on product mix and raw material costs, requiring 1-2 more quarters to assess sustainability.

    Management acknowledged

  • Cautious OEM outlook for tractor market

    medium

    Major tractor OEMs (CNH, AGCO, John Deere) are not bullish for next year, expecting a range-bound market until March.

    Management acknowledged

Q&A highlights

6 direct
Growth outlook and inorganic plans Direct
Regarding the growth outlook, we have generated close to INR 80 crores of new orders, new businesses in H1 of this financial year with even at better realizations. The growth is not being witnessed because of the fall in our old existing businesses, because of the challenging environment globally. So also we have around 10% direct or indirect business to U.S., which fell almost 35%, 40% in second quarter, which also impacted the growth.

Analyst inquired about the company's strategy to return to its historical 15-20% CAGR and inorganic growth, which management addressed by detailing new order wins, current global challenges, and ongoing capex projects in new verticals, alongside plans for inorganic expansion within 6-8 months.

Asked by Pankaj Tibrewal

Future product mix post capex completion Direct
Yes. CV and Farm put together will be 50% what we see, what we estimate and balance 50% will come from Industrial, Passenger Vehicle, Off-Highway and also other sectors which we are working on. So you can roughly say it will be 50% from Farm and CVs and 50% from PV, Industrial, Off-Highway and other areas.

The question sought clarity on the long-term revenue mix across segments once the current capex projects are operational, providing insight into the company's strategic diversification.

Asked by Pankaj Tibrewal

Details on INR 650 crores capex and secured orders Direct
Out of this INR 550 crores of the total capex farm, wind and the heavy hammer side, almost INR 350 crores of annual orders are already there in hand now on which company have started working on. And we are very hopeful once the infrastructure is on stream and is visible to some of the OEMs we will be in a position to take more orders as well.

This question probed into the specifics of the large capex program, revealing its phased implementation, allocation to different product lines (wind, farm, heavy hammer), and the significant portion of annual orders already secured for these new capacities.

Asked by Mitul Shah

US export market recovery and tariff impact Partial
And it is expected that things will ease out in the next coming months. It's not a sustained number of 50%. Once things eases out to the level of 20%, I think things will be back on track. So it's not that we are not working on, we are working on. But certainly at 50% rate, it will not make sense. So, it's kind of a wait-and-watch situation.

Analyst asked about the company's US expansion plans given the tariff situation. Management explained that while PV orders are ongoing, other segments like gensets are on hold due to 50% tariffs, indicating a cautious 'wait-and-watch' approach for a significant market.

Asked by Mitul Shah

Sustainability of high margins Partial
As far as margins are concerned, I can say that realizations improved in this quarter despite a fall in raw material prices. It has improved from almost INR 245 to INR 251 despite of raw material falling from almost INR 10 per kg in this quarter, pushing gross margin to 60.3%, which is an increase of approximately 150 basis points. So it's kind of improvement in product mix, which was there in this quarter and some INR 80 crores of new businesses added in H1 also supported better realizations. And so that's we can say that on a long-term basis, we have to see 1 or 2 more quarters to say what numbers can sustain.

The analyst questioned if the record-high margins were sustainable. Management attributed them to product mix and new business but indicated a need for 1-2 more quarters to confirm sustainability, suggesting potential volatility.

Asked by Sahil Sanghvi

Outlook on tractor OEMs for next year Direct
So, on the commentary that we have seen from CNH, AGCO and John Deere, so they are not too bullish right now for next year. But next 2 quarters, they are saying that it's kind of a range-bound number. So, it's kind of a wait and watch till March. So, we have been seeing -- because ultimately, these are the customers where directly or indirectly these parts are being consumed. And we have seen the numbers. So, there is still a decline that we are seeing.

This question provided a cautious outlook from major tractor OEMs (CNH, AGCO, John Deere) for the next year, indicating a potential slowdown in a key segment for Happy Forgings.

Asked by Aniket Mhatre

M&A strategy and target characteristics Direct
Certainly, we are not looking at similar capacities because we are building in capacities and are going into different verticals now. So idea is to enter into a different business within forging space, which we are not catering. So that is the idea, which is a niche business. Again, we work on niche side.

The analyst sought clarification on the company's M&A approach. Management outlined a strategy focused on acquiring niche businesses with higher machining content, new customers, and technology, rather than simply expanding existing capacities.

Asked by Jinesh Gandhi

Utilization of 14,000 ton press and front axle beam business Direct
We are doing close to around 55%-65% levels right now. So we can go up to 75% levels. But because of industrial businesses and also the front axle beam business has picked up for us, we have started doing around 2,500 beams a month. The expectation was to do around 35,000 units in this year. We expect that, yes, next year probably we should be doing close to 40,000, 45,000 units for front axle beams also. So the developments are ongoing. So I think it's on track.

This question provided insight into the current utilization of a key asset (14,000 ton press) and the strong growth trajectory of the front axle beam business, indicating potential for further capacity absorption.

Asked by Jinesh Gandhi

3 min read 6 chapters

Detailed narrative

Record Profitability Driven by Product Mix and New Business

Happy Forgings achieved its highest-ever quarterly gross margin of approximately 60% and an EBITDA margin of 30.7% in Q2 FY26. This strong profitability, which saw a 150 basis points expansion in both gross and EBITDA margins, was primarily attributed to a favorable product mix, with value-added machining accounting for around 88% of the share. Additionally, new business wins totaling INR 80 crores in H1 FY26 contributed to better realizations, enabling the company to maintain stable realizations of INR 251 per kg despite falling raw material costs.

Domestic Growth Offsets Export Headwinds

While the domestic market served as a robust growth engine across commercial vehicles, farm equipment, and passenger vehicles, export markets faced significant challenges. The company's direct and indirect business to the US, which constitutes about 10% of its revenue, experienced a substantial decline of 35-40% in Q2 FY26 due to global market weaknesses, customer destocking, and US tariffs. Despite these headwinds, overall Q2 FY26 revenue grew 4.5% YoY to INR 377 crores, supported by a 5.2% operational growth in volumes.

Strategic Capex Program Progressing on Schedule

The company's INR 650 crores strategic capex program is advancing as planned, aiming to establish state-of-the-art forging infrastructure for heavy segments and precision components. The first phase of this capex, totaling INR 550 crores, includes INR 150 crores allocated for wind and farm equipment and INR 400 crores for a heavy hammer line. Happy Forgings has already secured INR 350 crores in annual orders for these new lines, with PV machining lines expected to commence operations by Q4 FY26, and the overall infrastructure anticipated to be in place within the next 2-3 quarters.

Strong Balance Sheet and Active Inorganic Exploration

Happy Forgings maintains a robust financial position, characterized by nearly 100% operating cash flow conversion in H1 FY26 and approximately INR 315 crores in cash liquidity as of September 30, 2025. The company's total net worth stands at around INR 1,900 crores, with a debt-equity ratio remaining below 0.1. Concurrently, the management is actively exploring inorganic growth opportunities, evaluating 2-3 options, with a hopeful outlook to finalize a deal within the next 6-8 months, focusing on niche businesses that offer higher machining content and new technologies.

Segmental Outlook and Diversification

The company's diversified segment portfolio continues to be a key strength. Commercial Vehicles contributed 37% and Farm Equipment 34% to H1 FY26 revenues, with the PV segment expected to grow from 5% to 8-10% of total revenues within two years, supported by an INR 80 crores capex. While Off-Highway (10% of H1 revenue) saw a decline, Industrials (13% of H1 revenue) showed strong domestic demand. The long-term product mix is projected to be 50% from CV and Farm, and 50% from PV, Industrial, Off-Highway, and other new areas.

Cautious Optimism for Export Recovery and Margin Sustainability

Management expressed cautious optimism regarding the recovery of export markets, anticipating an easing of conditions in the coming months, particularly for US-related business, and a potential return to track for European CV markets from January onwards. A key UK customer is expected to see a 50% improvement in volumes next year, reaching 36,000 units. However, the sustainability of the current high margins remains a watch item, with management indicating a need for 1-2 more quarters to assess their long-term viability, as they are sensitive to product mix and raw material cost fluctuations.

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