Happy Forgings

Happy Forgings delivered a robust Q3 FY26, with revenue from operations reaching INR 391 crores, marking a 10.4% YoY increase. Profitability significantly outpaced revenue growth, as PAT surged by 22.3% YoY to INR 79 crores. The company achieved its highest ever EBITDA margin at 30.8% for the quarter and crossed 30% for the nine-month period, demonstrating strong operational efficiencies and product mix benefits.

The company is actively investing in capacity expansion to support future growth. Machining capacity increased by 9,800 MT in Q3 FY26, reaching 68,000 MT. Further forging capacity additions include a new 10,000 ton press in Q4 FY26 and a 4,000 ton press in H1 FY27, targeting 150,000 tons forging and 82,000 tons machining capacity by end FY27. These expansions are in anticipation of the INR 800 crores new business pipeline.

For 9M FY26, commercial vehicles contributed 37% and farm equipment 33% to operating revenue, both showing healthy domestic growth. Industrials (14%) delivered stable performance, while off-highway (11%) experienced some softness. Passenger vehicles, though a smaller segment at 5%, demonstrated strong YoY growth of approximately 37%, with significant scaling expected in the coming years due to strong visibility on incremental business.

Direct exports were subdued in Q3 FY26 due to global demand weakness and tariff uncertainties. However, combined direct, deemed, and indirect exports, representing about one-fourth of finished goods sales, showed a modest sequential increase. Management anticipates meaningful improvement in export percentage from Q2 FY27, driven by new programs for U.S. industrial, EV, and PV sectors, with U.S. revenue contribution targeted to increase from 7-8% to 15-16% in 2-3 years.

The company maintained a robust balance sheet, generating INR 315 crores in cash flow from operations for 9M FY26 and holding over INR 400 crores in total liquid assets. To enhance cost efficiency and support ESG commitments, Happy Forgings has leased 80 acres for a captive solar power plant, expected to reduce annual power costs by INR 25-30 crores, with benefits commencing partly in FY28.

Gross margin improvement was primarily driven by product mix changes and better realization rates for new products, despite softening steel prices. While steel prices are largely pass-through (85% of business) with a 1-3 month lag, scrap prices are not pass-through, impacting margins. Forex exposure is managed through hedging for 1-1.5 years or pass-through mechanisms in contracts.