Detailed Narrative
Q3 & 9M FY25 Financial Performance
Happy Forgings reported adjusted revenue of INR 1,057 crores for 9M FY25, marking a 5.5% YoY growth, with adjusted PAT increasing 14.3% to INR 195 crores. The adjusted EBITDA margin for the nine-month period stood at 28.8%. For Q3 FY25, the company achieved a revenue of INR 354 crores, a 3.6% YoY increase, and a PAT of INR 65 crores, with an EBITDA margin of 28.6%. Total finished goods volume for 9M FY25 grew by 1.5%, and average realizations improved by 4% YoY to INR 248 per kg.
Strategic Diversification and Industrial Segment Growth
The company's strategic focus on diversification has led to the Industrial business increasing its contribution from 11% to 14% of overall revenues in 9M FY25. This segment is characterized by higher margins and ROCE, and the company has secured large orders in the power generation and wind sectors, which are currently under execution. Management aims for the Industrial sector to contribute 18-20% of overall sales within the next two years, with potential to exceed 30% in 4-5 years with the new capex.
Major Capex for Heavyweight Component Facility
Happy Forgings announced a significant INR 650 crore capex investment over 2-3 years to establish a state-of-the-art facility for heavyweight components, including large crankshafts, axles, and gears. This facility, which will be the first of its kind in Asia and the second largest globally, is expected to begin production in FY27. The capex is split with approximately INR 300 crores for forging, INR 200 crores for machining, and the balance for infrastructure. Over 50% of the total INR 650 crore capex is planned for FY26, with routine capex for FY26 estimated at INR 30-40 crores.
Challenges in CV and Off-Highway Markets
The domestic CV sector experienced muted growth in 9M FY25, with a 7% YoY decline in the medium and heavy truck segment due to delays in fund releases. Internationally, S&P Mobility projects a 10-15% decline in heavy-duty truck sales in EU and North America for calendar year 2024. The Off-Highway segment also faced significant headwinds in export markets, resulting in a mid-single-digit sales decline year-on-year, although the company maintained its market share.
New Product Development and Export Initiatives
The company is actively engaged in new product development, including small crankshafts for portable gensets and heavy axle programs for European industrial markets. Deliveries of e-axle components for North American clients commenced this quarter, with this segment projected to contribute 8-10% of overall revenues in the next few years. A new INR 140 crore order for Passenger Vehicles from a leading Indian OEM was secured in December 2024, with deliveries scheduled to begin in FY26, expected to generate INR 30-50 crores in peak annual revenue.
Raw Material Prices and Inventory Correction Status
The decline in steel prices impacted Q3 revenue by INR 10 crores and 9M revenue by INR 34 crores, with no immediate signs of price recovery expected in the next 1-2 quarters. The company also incurred a hit of INR 15-18 crores on scrap prices over 9 months. However, management indicated that inventory correction in the CV segment, both European and domestic, is largely complete, and they anticipate a positive uptrend quarter-on-quarter.