Happy Forgings - Growth-Centric Capability Expansion: Yes Securities

Yes Securities Report

Happy Forgings Ltd.'s management value proposition:

1. significant market share gains from Happy Forgings’ best-in-class engineering capabilities, marked by rapid diversification and delivery of complex forged/machined components to auto/industrial segments

2. Constant focus on complex/critical parts and recent product additions to unlock new avenues: capability step-up from addition of 14k ton press line (in Q3 FY23) helped expand product offerings from up to 90kgs to complex parts up to 250kg.

3. Brownfield capacity expansion projects on track in FY25; ramp up of 14k-ton press line for front axle beams (expected run rate for FY26 ~50k units) and large crankshafts. Further, a new 6.3k-ton press lines in Q2 FY25, focused on farm and passenger vehicle, is under trials. In FY26, another 10k-ton press line will help rebalance production and augment capacity.

4. Indicative order book of ~Rs 6.5 billion-7 billion of which ~Rs 1.5 billion for PVs, ~Rs 2.5 billion for industrial, and ~Rs 2.5 billion for commercial vehicle (of which ~90% orders are for machining).

New order wins in PV and industrials will help de-risk dependance on CV/tractors (~73% of revenues). Structural demand drivers like opening of Indiacentric global supply chain, and low revenue share of industrials and exports (versus peers) should trigger outperformance.

The street has built in revenue/Ebitda/adjusted profit after tax compound annual growth rate of 18.8%/21.3%/28.7% for FY24-26E. Although execution and sustained revenue diversification are key success factors, we believe valuations at 37.3 times/26.7 times/20.6 times FY25/26/27 bloom standalone EPS and partially price in the positives. Not rated.

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