Happy Forgings IPO: A Comprehensive Analysis

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Happy Forging Ltd (HFL), the fourth-largest manufacturer of complex machine components, has demonstrated impressive performance in the Indian market. Here's an in-depth look at its market position, financial performance, strengths, risks, and considerations for potential investors.

Happy Forgings IPO Timeline & Details: Everything You Need To Know

  • Happy Forgings IPO Price: The company has set a price band of Rs 808 to Rs 850 per share for its IPO.
  • Happy Forgings IPO Opening Date: Subscriptions for the IPO commenced on December 19.
  • Happy Forgings IPO Size: The firm aims to raise Rs 1,008.59 crore through its initial public offer, comprising a fresh issue of Rs 400 crore and an offer for sale (OFS) of Rs 608.59 crore.
  • How to Apply for Happy Forgings IPO: Prospective investors can bid in lots, with each lot comprising 17 shares of the company. To participate in the IPO, the minimum investment is set at Rs 14,450.
  • Allotment Timeline: As per the IPO schedule, the Happy Forgings IPO share allotment is expected to be finalized on December 22.
  • Happy Forgings IPO Listing Date: The public offer is anticipated to debut on BSE and NSE on December 27, 2023.
  • Happy Forgings IPO GMP: According to market observers, Happy Forgings IPO is commanding a grey market premium of Rs 415 (a premium of 49% over the IPO price) as of today.

Subscription Status

The Initial Public Offering of Happy Forgings Ltd was subscribed 2.32 times on the first day of bidding. The issue received bids of 1,93,44,300 shares against the offered 83,65,639 equity shares, according to the data available on the stock exchanges.

The non-Institutional Investors Portion was subscribed 3.58 times; the Qualified Institutional Buyer Portion was subscribed 0.01 times; and the Retail Portion was subscribed 3.03 times. 

A day before the opening of the issue, the firm had raised Rs 303 crore from 25 anchor investors.

About Happy Forging Ltd

Founded on July 2, 1979, HFL is the fourth-largest manufacturer of complex machine components and it specializes in the creation and production of heavy forgings and precision-engineered components. With three production sites in Ludhiana, the firm has a significant international presence, serving clients in key global markets.

Strengths

  • Market Dominance: HFL is recognized as India's fourth largest manufacturer specializing in engineering-driven production of complex, safety-critical, heavy forged, and high-precision machined components.
  • Robust Track Record: The firm demonstrated notable growth from FY21 to FY23, achieving a compound annual growth rate (CAGR) of 43% in revenue, 47% in EBITDA, and 55% in net profit.
  • Improving Margins: In FY23, HFL reported a profit after-tax (PAT) margin of 17.44%, which further improved to 17.73% by September 2023. The EBITDA margin was equally impressive at 28.49%, rising to 29.01% by September 2023.
  • Outstanding Returns: The fiscal year 2023 saw HFL achieve a remarkable Return on Equity of 21.12% and a Return on Capital Employed of 24.24%.
  • Prestigious Clientele: HFL's client base boasts prominent names such as Ashok Leyland, International Tractors, JCB India, Mahindra & Mahindra, Meritor HVS AB, SML ISUZU, and Swaraj Engines, among others.
  • Dividend Policy: Demonstrating its shareholder-friendly approach, HFL declared a 65% dividend for the period starting April 01, 2023, and instituted a dividend policy in July 2023, based on its financial achievements and future potential.

Risk Factors

  • Revenue Concentration: HFL's revenue is significantly reliant on its top 10 customers, contributing ~70% to its operational revenue in fiscal 2023. The loss of any major customer could significantly impact its business performance and overall financial health.
  • Product Line Vulnerability: A significant 45% of HFL's revenue comes from crankshaft sales, which are not used in battery-electric vehicles. A decline in demand for crankshafts could materially harm the firm’s performance, financial health, operational results, and liquidity.
  • Debt Obligations: As of October 31, 2023, HFL’s total debts stood at Rs 259.94 crore. Failure to meet repayment terms and other obligations under their financing agreements could negatively affect the firm’s business operations, profitability, cash flow, and financial stability.
  • High Working Capital Requirements: HFL's working capital needs in fiscal 2023 were Rs 232.7 crore. Given the capital-intensive nature of the business, there might be a need for additional capital. Raising further funds through debt could lead to increased interest and repayment burdens, impacting profitability and cash flow, and could bring additional operational restrictions.
  • Dependence on Steel: Over 59% of HFL's expenses are attributed to steel, a key raw material. Any supply disruptions or price fluctuations in steel could adversely affect the firm’s business operations, profitability, cash flow, and financial condition.

Final Verdict: Subscribe

Happy Forging Ltd (HFL) is the fourth-largest manufacturer of complex machine components. With a diversified business model, the firm has exhibited impressive performance over the past three years, evidenced by substantial increases in both revenue and profits.

From a valuation standpoint too, the issue seems reasonably priced with a PE multiple of 33.5x on projected earnings for FY24. Additionally, the grey market premium for the issue suggests a premium listing. 

Taking these elements into account, it is recommended for investors to consider subscribing to this offering from a medium-term perspective.

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