Better margins, lower valuation than peers make Happy Forgings IPO a good bet
Happy Forgings, a maker of forged and machined components used in trucks, is planning to raise ₹1,008 crore through an initial public offering at a valuation of ₹8,000 crore. This comprises new shares worth ₹400 crore, with the proceeds to be used for capacity expansion and repayment of debt, and ₹608 crore of shares offered by the promoter and a private equity investor. After the IPO, the promoter's holding will drop to 78% from 88%.
The share of machined parts — a segment that enjoys higher realisation in forging — in the company's total volume has been consistently increasing and it has been able to source raw materials at a lower rate.
This helped Happy Forgings enjoy the highest operating margin among peers.
The company has strategically increased capacity without compromising on return ratio, although 33% of its gross value of fixed assets was a result of capex incurred between FY22 and FY23. There is ample room for export growth — exports accounted for 20% of revenue in the first half of FY24 and that was significantly lower than its peers. The company offers an attractive value proposition for overseas customers by offering 15-20% lower prices than the current landed cost.
Given these factors, investors may consider the company's IPO.
Business model
Ludhiana-headquartered Happy Forgings is India's fourth largest heavy forged and precision-machined components maker. The company has India's second largest production capacity for high-powered industrial crankshaft. It makes crankshafts of 10-210 kg that are used in diverse application fields.
