Happy Forgings Limited is the fourth largest engineering led manufacturer of complex and safety critical, heavy forged and high precision machined components in India as of Fiscal 2023 in terms of forgings capacity with over 40 years of experience. They, through the vertically integrated operations, are engaged in engineering, process design, testing, manufacturing, and supply of a variety of components that are both margin accretive and value-additive. They primarily cater to domestic and global original equipment manufacturers ('OEMs') manufacturing commercial vehicles in the automotive sector, while in the non-automotive sector, they cater to manufacturers of farm equipment, off-highway vehicles and manufacturers of industrial equipment and machinery for oil and gas, power generation, railways and wind turbine industries. The strength in machining and overall value addition to products has enabled to achieve the highest EBITDA margin among the peers in the last two Fiscals. They recorded an increase in the revenue from operations by 104.55% from Rs 5,849.58 million in Fiscal 2021 to Rs 11,965.30 million in Fiscal 2023. The continued endeavour to increase value addition through focus on products with higher machining intensity, has enabled to increase the realisation and in Fiscal 2023, 2022, 2021 and the six months ended September 30, 2022 and 2023, EBITDA was Rs 3,409.40 million, Rs 2,308.87 million, Rs 1,587.46 million, Rs 1,818.62 million and Rs 1,952.14 million, respectively, and the EBITDA margin was 28.49%, 26.85%, 27.14%, 30.32% and 29.01%, respectively. They manufacture a wide range of heavy forged and machined products which include crankshafts, front axle beams, steering knuckles, differential cases, transmission parts, pinion shafts, suspension products and valve bodies across industries for a diversified base of customers.They are among the few companies in India with the capability to manufacture and supply high precision safety critical components to leading OEMs including manufacturers of commercial vehicles, farm equipment, off highway and industrial equipment and machinery for oil and gas, power generation, railways and wind turbine industries. Company’s customers include AAM India Manufacturing Corporation Private Limited, Ashok Leyland Limited, Bonfiglioli Transmissions Private Limited, Dana India, IBCC Industries (India) Private Limited, International Tractors Limited, JCB India Limited, Liebherr CMC tec India Private Limited, Mahindra & Mahindra Limited, Meritor HVS AB, Meritor Heavy Vehicle Systems Cameri SPA, SML ISUZU Limited, Swaraj Engines Limited, Same Deutz Fahr India Private Limited, Tata Cummins Private Limited, Watson & Chalin India Private Limited and Yanmar Engine Manufacturing India Private Limited. As of March 31, 2023, 2022, 2021 and as of September 30, 2023 and 2022, the customers who have been associated with them for more than 10 years contributed Rs 8,106.38 million, Rs 6,235.28 million, Rs 4,418.70 million, Rs 4,465.72 million and Rs 4,379.85 million in Fiscal 2023, 2022 and 2021 and in the six months ended September 30, 2023 and 2022, respectively, representing 75.98%, 79.38%, 80.67%, 73.07% and 83.05% of the revenues from sale of products during the respective periods. As of September 30, 2023, they served customers across nine countries including Brazil, Italy, Japan, Spain, Sweden, Thailand, Turkey, the United Kingdom and the United States of America. In Fiscal 2023, 2022, 2021 and the six months ended September 30, 2023 and 2022, the revenue from contract with customers outside India was Rs 1,383.51 million, Rs 868.14 million, Rs 481.05 million, Rs 1,278.80 million and Rs 627.12 million representing 12.89%, 10.94%, 8.77%, 20.75% and 11.87% of the total revenue from contract with customers during such periods, respectively. As of the date of this RHP, they own and operate three manufacturing facilities, of which two are located at Kanganwal in Ludhiana, Punjab and one is located at Dugri in Ludhiana, Punjab. The annual aggregate installed capacity for forging and machining has increased from 67,000 MT and 29,500 MT, respectively, as of March 31, 2021 to 107,000 MT and 46,100 MT as of March 31, 2023 and further to 120,000 MT and 47,200 MT as of September 30, 2023, respectively. Average capacity utilization for FY21, FY22, FY23 and upto H1 FY24 is respectively 60.37%, 67.30%, 62.96% and 65.86%. They have automated certain processes in the manufacturing lines by using robots to reduce manpower costs and increase productivity. As of September 30, 2023, they had 10 robots installed across all the manufacturing facilities. The vertically integrated manufacturing facilities are equipped to undertake a variety of processes, including engineering and designing, hammer and press forging, metallurgical testing, heat treatment, machining and dimensional testing among others, enabling them to manufacture a wide range of products weighing majorly between 3 kilograms to 250 kilograms. As per financial performance, Happy Forgings Limited has posted total income / net profits of Rs 590.81 Cr / Rs 86.45 Cr (FY21), Rs 866.10 Cr / Rs 142.29 (FY22), Rs 1202.27 Cr / Rs 208.70 Cr (FY23) and Rs 675.73 Cr / Rs 119.30 Cr (upto Q2 FY24). So as per previous financials data, company has shown good growth. Company has an average EPS of Rs 18.57 and average RoNW of 18.82% for last three fiscals. Issue is priced at a P/BV of 6.89 as per NAV of 123.28 as on 30.09.23. If we attribute latest earnings of FY22, FY23, TTM and annualised FY24 on fully diluted equity post issue, then asking price is at a P/E of around 56.28, 38.37, 37.84 and 33.56 respectively, which looks fully priced. As per RHP, comparison between listed peers is shown in above table. On BRLM's front, four lead managers are associated with this IPO, and have handled around 108 IPOs in last three fiscals. JM Financial Limited : This is 43rd IPO from this BRLM. From last 10 IPOs, one opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, all are trading above issue price or at par. ( As on 12.12.2023 ) Axis Capital Limited : This is 46th IPO from this BRLM. From last 10 IPOs, all are opened above issue price or at par on the day of listing. As of now, from last 10 IPOs, one is trading below issue price and remaining are trading above issue price or at par. ( As on 12.12.2023 ) Equirus Capital Private Limited : This is 11th IPO from this BRLM. From last 10 IPOs, two opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, four are trading below issue price and remaining are trading above issue price or at par. ( As on 12.12.2023 ) Motilal Oswal Investment Advisors Limited : This is 12th IPO from this BRLM. From last 10 IPOs, two opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, four are trading below issue price and remaining are trading above issue price or at par. ( As on 12.12.2023 ) As per financials, Happy Forgings Limited has shown good growth, RoNW is 21.12% and P/E is respectively 56.28, 38.37, 37.84 and 33.56 as per FY22, FY23, TTM and annualised FY24 earnings. So, issue looks fully priced. Company is engineering led manufacturer of complex and safety critical, heavy forged and high precision machined components in India. Performance of BRLM is good. So, we give SUBSCRIBE rating for this IPO. Readers must consult a qualified financial advisor prior to making any actual investment decisions.
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