Happy Forgings Limited, one of the leading manufacturers of forged and machined components in India, is launching its initial public offering (IPO) today. The IPO will close on December 21, 2023. The company is looking to raise Rs 1,009 crore from the public issue, which comprises a fresh issue of Rs 400 crore and an offer for sale of Rs 609 crore by the existing shareholders. The price band for the IPO is set at Rs 808 to Rs 850 per share. Here are some compelling reasons why you should subscribe to the Happy Forgings IPO.
About Happy Forgings Limited
Happy Forgings Limited was incorporated in 1986 and has grown to become one of the leading manufacturers of forged and machined components in India. The company has a diversified product portfolio, catering to various sectors such as automotive, oil and gas, power, railways, defense, aerospace, and industrial. The company has a strong customer base, comprising domestic and international OEMs and Tier-I suppliers. Some of the prominent customers include Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Ashok Leyland, Bajaj Auto, Hero MotoCorp, Honda, Hyundai, Ford, Caterpillar, Cummins, GE, Siemens, and Alstom.
The company has a state-of-the-art manufacturing facility in Ludhiana, Punjab, with an installed capacity of 1,20,000 metric tonnes per annum (MTPA) of forgings and 36,000 MTPA of machined components. The company has also invested in advanced technologies such as robotics, automation, artificial intelligence, and machine learning to enhance its operational efficiency, quality, and productivity. The company has a strong research and development (R&D) team, which focuses on developing new products, processes, and solutions to meet the evolving needs of the customers and the industry.
Financial Performance and Growth Prospects
Happy Forgings Limited has delivered a consistent and robust financial performance over the years. The company’s revenue from operations increased from Rs 1,038 crore in FY19 to Rs 1,224 crore in FY21, registering a compound annual growth rate (CAGR) of 8.6%. The company’s earnings before interest, tax, depreciation, and amortization (EBITDA) increased from Rs 262 crore in FY19 to Rs 333 crore in FY21, registering a CAGR of 12.6%. The company’s profit after tax (PAT) increased from Rs 113 crore in FY19 to Rs 152 crore in FY21, registering a CAGR of 15.8%. The company’s return on equity (ROE) and return on capital employed (ROCE) stood at 23.5% and 25.4%, respectively, in FY21, which are among the highest in the industry.
The company has a strong growth potential, driven by the increasing demand for forged and machined components in various sectors, especially in the automotive sector, which accounts for 88% of the company’s revenue. The company is well-positioned to benefit from the recovery in the automotive industry post the COVID-19 pandemic, as well as the shift towards electric vehicles (EVs), which require more forged components than conventional vehicles. The company is also expanding its presence in other sectors such as oil and gas, power, railways, defense, aerospace, and industrial, which offer significant opportunities for growth. The company is also planning to use the proceeds from the IPO to augment its manufacturing capacity, repay its debt, and meet its working capital requirements.
Valuation and Peer Comparison
Happy Forgings Limited is offering its shares at a price band of Rs 808 to Rs 850 per share, which implies a price-to-earnings (PE) ratio of 33.9 to 36.1, based on the annualized earnings of FY21. The company’s PE ratio is lower than its listed peers such as Bharat Forge, Ramkrishna Forgings, and MM Forgings, which have PE ratios of 54.8, 38.4, and 37.9, respectively, as of December 17, 2023. The company’s PE ratio is also lower than the industry average of 39.4, as per the Capitaline database. The company’s price-to-book value (PBV) ratio is 5.5 to 5.8, which is also lower than its peers and the industry average.
The company’s lower valuation reflects its attractive pricing and reasonable valuation. The company’s strong financial performance, diversified product portfolio, loyal customer base, advanced manufacturing facility, and growth potential justify its premium valuation. The company also has a healthy grey market premium (GMP) of Rs 150 to Rs 160 per share, as per the market sources, which indicates a positive sentiment and high demand for the IPO.
Conclusion
Happy Forgings Limited is a leading manufacturer of forged and machined components in India, with a consistent and robust financial performance, a diversified product portfolio, a loyal customer base, an advanced manufacturing facility, and a strong growth potential. The company is offering its shares at a reasonable valuation, which is lower than its peers and the industry average. The company also has a healthy grey market premium, which indicates a positive sentiment and high demand for the IPO. Therefore, we recommend subscribing to the Happy Forgings IPO for long-term gains.
Also Read: 10 Key points about Happy forgings IPO
