Happy Forgings Ltd. - Large new order security; upgrade to BUY- Company Update

We increase TP to Rs 1,350 (previously Rs1,065) and move to BUY rating on Happy Forgings Ltd. (HFL). 3QFY26 was a resilient performance despite ongoing weakness in global CV and off-highway markets. Margins surprised positively, supported by a rich product mix, higher machining throughput and soft raw material costs. Domestic CV and farm demand remained robust along with support from new orders in PV and industrials, while export demand continues to be impacted by tariff-led uncertainty and customer destocking. We believe HFL remains uniquely positioned due to its large order bookings (Rs8bn over 3years) in CV, PV, industrial and heavyweight forgings, which will further amplify once the export demand improves. We have increased our earnings to account for the new orders, in turn leading to upgrade in TP and rating. Re-iterate BUY.

Stable growth with volume uptick:

HFL delivered revenue of Rs3.9bn (+10% YoY), supported by a strong 13.8% YoY volume growth, while realizations corrected 3% yoy, lower than market correction in steel prices, aided by improving mix. Domestic business continued to drive growth, offsetting weakness in exports, which remain soft due to tariff-driven demand disruption and inventory correction in key overseas markets. A major drag on the revenue was the 12% degrowth in US CV volumes.

Cost decline and Value addition improves margins:

During 3QFY26, HFL reported 30.8% EBITDA margins, +213bps yoy (highest ever); driven mainly by low RM prices and high value addition (machining and industrials) in product mix. The machining content remains high at 88% in 9MFY26 vs 88% in 9MFY25. Effectively, HFL reported PAT at Rs789mn; +22% yoy.

Order addition (new customer, new product) at its peak:

Despite sluggishness in global CV/off-highway cycles, HFL continues to benefit from diversification into PV and industrials. Further, continuous order wins in the PV segment, brake flanges, and e-axle components, both domestically and in export markets, should lift PV contribution to 8-10% of revenues in two years. Industrial (wind, power & data-center applications) remains a strong structural driver, with new orders slated for scale-up from FY27. Domestic CV and farm demand remain supportive, while export weakness is expected to persist for couple of quarters, due to tariff-driven destocking. The new heavy weight forging adds further diversification into industries like marine, defense, mining, nuclear, etc. and expands growth prospects with superior return ratios meant largely for exports. HFL has also added a tier 1 client on the domestic CV side along with few more orders from exports. We have increased our FY27/ FY28E earnings by 13%/ 26% to account for the new order wins (including heavy weight forging), leading to the increase in TP. Remain positive on HFL.

Valuation and risks:

We forecast a Revenue/EBITDA/PAT CAGR of 17%/20%/16% over FY25-28E. We value HFL at 32x Dec’27 earnings to arrive at TP of Rs1,350 (previously Rs1065 – increased mainly on increase in earnings and valuation roll forward) and move to BUY rating. Risks: Elongated down-cycle in export markets, delay in new order execution.

Company website: https://happyforgingsltd.com/

*CMP is as per report published date

Click to download the full Happy Forgings Ltd Q3FY26 Company Update

Analyst:

• Sahil Sanghvi - Research Analyst, Institutional Equities (NISM-201900004744)
• Uvais Khatri - Research Associate, Institutional Equities (NISM-202300049054)

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FAQs on Happy Forgings Ltd Q3FY26 Company Update

Here are key investor FAQs on Happy Forgings.

1. Why is Happy Forgings considered a investment opportunity?

The stock has received a BUY upgrade with a higher target of ₹1,350, supported by strong order inflows, improving margins and earnings visibility.

2. What are the key business triggers for the stock?

Growth is driven by a strong ₹8bn order pipeline across CV, PV, industrial and heavy forgings, along with increasing value-added machining content.

3. How are margins trending for the company?

Happy Forgings reported a record EBITDA margin of 30.8%, supported by a better product mix, higher machining throughput and lower raw material costs.

4. What risks should traders monitor?

Key risks include prolonged weakness in export demand, tariff-related uncertainties and delays in execution of new orders.

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