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    Happy Forgings

    HAPPYFORGE
    Capital Goods·10 Feb 2025
    Management Summary

    Happy Forgings reported robust adjusted financial growth for 9M FY25, driven by strong performance in the Industrial segment and strategic diversification into new product lines and geographies. The company announced a substantial INR 650 crore capex for a heavyweight component facility, positioning itself for future high-margin growth. Despite ongoing challenges in the domestic and international CV and Off-Highway sectors, management expressed confidence in a positive uptrend following inventory corrections and new order wins.

    Highlights

    5
    • 9M FY25 Adjusted Revenue grew by 5.5% YoY to INR 1,057 crores, with Adjusted EBITDA growing 8.2% to INR 304 crores and margin at 28.8%.

    • 9M FY25 Adjusted PAT grew by 14.3% YoY to INR 195 crores, with margin at 18.4%.

    • Industrial business share increased from 11% to 14% in 9M FY25, being a higher margin and ROCE contributor with significant growth potential.

    • Secured a new INR 140 crore order for Passenger Vehicles from a leading Indian OEM, with deliveries starting FY26 and expected peak annual revenue of INR 30-50 crores.

    • Commenced deliveries of e-axle components for North American clients, expected to contribute 8-10% of overall revenues in the next few years.

    Concerns

    4
    • Domestic CV sector saw muted growth with a 7% YoY decline in the medium and heavy truck segment for 9M FY25.

    • International heavy-duty truck sales projected to decline 10-15% for calendar year '24 in EU and North America, impacting export-dependent sales.

    • Off-Highway segment faced significant headwinds in export markets with double-digit decline, leading to a mid-single-digit decline in sales YoY.

    • Steel price decline impacted Q3 revenue by INR 10 crores and 9M revenue by INR 34 crores, with no immediate signs of price recovery for next 1-2 quarters.

    What Changed2

    vs Q4 FY25

    Guidance items13 → 10 (-3)Risks discussed6 → 5 (-1)
    Key financials

    Metrics

    12

    Periods

    2

    Headline

    5
    • Revenue
      ₹354 Cr
      YoY+3.6%
    • EBITDA
      ₹101 Cr
      YoY+6.6%
    • EBITDA Margin
      28.6%
    • PAT
      ₹65 Cr
    • PAT Margin
      18.2%

    9M FY25

    7
    • Adjusted Revenue
      ₹1,057 Cr
      YoY+5.5%
    • Adjusted EBITDA
      ₹304 Cr
      YoY+8.2%
    • Adjusted EBITDA Margin
      28.8%
    • Adjusted PAT
      ₹195 Cr
      YoY+14.3%
    • Adjusted PAT Margin
      18.4%

    Segment breakdown

    Domestic Business
    81% Revenue Share7.0% YoY Growth
    Direct Exports
    19% Revenue Share4% YoY Growth
    Industrial Business
    14% Revenue Share (9M FY25)11% Previous Revenue Share
    Passenger Vehicles
    4% Revenue Share
    List

    Order Book

    medium confidence

    Inflow this qtr

    ₹ 140 crores

    Composition

    Direct Exports to North America(geography)
    3.0%

    Pipeline

    deal pipeline tcv

    Potential revenue from large orders for heavyweight components

    "The company secured a new INR 140 crore order for the PV segment and has ongoing discussions for large orders in the heavyweight component segment, with potential revenues of INR 100-150 crores."

    Source:
    Prepared remarks

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Capex

    ₹400 crores

    new plan — New heavyweight component facility · primarily through internal accruals and partially through debt

    Guidance & targets

    10
    CategoryTargetPriority
    Market Share
    Industrial Sector Contribution to Overall Sales
    18-20%
    High
    Market Share
    Industrial Sector Contribution to Overall Sales (with new capex)
    beyond 30%
    Medium
    Capacity Utilization
    Heavyweight Component Facility Asset Turns
    0.8x
    High
    Profitability
    Heavyweight Component Facility ROCE
    upwards of 30%
    High
    Profitability
    Heavyweight Component Facility EBITDA Margin
    over 30%
    High
    Revenue
    E-axle Components Revenue Contribution
    8-10%
    High
    Revenue
    PV Order Peak Annual Revenue
    INR 30-50 crores
    High
    Capacity
    Machining Capacity
    62,000 tons
    High
    Realization
    Industrial Side Realization
    INR 300-350 per kg
    High
    Volume
    Volume Growth from New Businesses
    10-12%
    High

    Clarity on Heavyweight Component Facility Asset Turns and Ramp-up

    next 1-2 quarters
    CurrentDiscussions ongoing, 0.8x asset turn targeted in 3 years
    TargetMore clarity on faster ramp-up and specific orders

    Why it matters

    This is a major capex, and faster utilization directly impacts revenue and profitability.

    0.8x is what we are expecting, but this can happen even faster because the discussions are ongoing, and we have recently announced this. So we'll have more clarity over it in the next 1 or 2 quarters.

    How to verify

    guidance_and_targets[metric='Heavyweight Component Facility Asset Turns']

    Risks & concerns

    5
    RiskSeverity

    Slowdown in Domestic CV Sector

    The domestic CV sector experienced muted growth with a 7% YoY decline in the medium and heavy truck segment for 9M FY25 due to delays in fund releases and slower financing approvals.Management acknowledged

    medium

    Slowdown in International Heavy-Duty Truck and Farm Equipment Markets

    S&P Mobility projects a 10-15% decline in heavy-duty truck sales in EU and North America for calendar year '24, and leading OEMs reported a 9% drop in truck deliveries for 9-month calendar year 2024.Management acknowledged

    medium

    Headwinds in Off-Highway Export Segment

    The Off-Highway segment faces significant headwinds in export markets with double-digit decline, leading to a mid-single-digit decline in sales over the previous year.Management acknowledged

    medium

    Steel Price Volatility and Decline

    Steel price decline impacted Q3 revenue by INR 10 crores and 9M revenue by INR 34 crores, with no immediate signs of price recovery expected for the next 1-2 quarters, also leading to INR 15-18 crores hit on scrap prices.Management acknowledged

    medium

    Potential US Tariffs

    Current direct exposure to the North American sector is low (~4%), and it is too early to determine the impact of potential tariffs on India-sourced products, though testing for new products is proceeding as planned.Both downplayed

    low

    Q&A highlights

    8

    “See, as of now, it will be too early to say because things are not very clear, whether it is because what we are seeing is that the imposition can happen on Mexico, Brazil and Canada. But for India, it's still not clear that what type of tariff we will be seeing so may be too early to actually comment on this.”

    Addresses a macro risk (tariffs) and clarifies the company's current low direct exposure to the US market, while acknowledging uncertainty.

    asked by Abhishek Jain

    3 min read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

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