Happy Forgings Ltd - On a high growth trajectory; fairly priced | Q1FY27 Company Update

1QFY27 was another strong quarter with robust revenue growth and margin expansion led by favorable product mix, operating leverage and strong domestic demand. Domestic CV, tractor, PV and industrial segments continued to witness healthy momentum, while export markets showed signs of stabilization despite ongoing global uncertainty. We believe HFL remains uniquely positioned due to its large order bookings (Rs 9.5bn over three years) in CV, PV, industrial and heavyweight forgings, which will further amplify as export demand improves. Additionally, the new orders are booked on 30% higher realization, ensuring better margins and an improvement in return ratios. HFL is expecting a 4-5% price hike to cover the input cost inflation, which will drive value growth in topline and maintain margins. All these reasons have led to improved earning visibility and forms the reason for upgrade in valuation multiple. We upward revise our target price to Rs 1,875 (Rs 1,680 previously) but downgrade stock to Hold due to sharp rally in share price.

Happy Forgings Ltd. Stock Price Chart

Strong growth supported with recovery in exports:

HFL delivered revenue of Rs 4.5bn (+27% YoY), ahead of our estimates, supported by strong growth in domestic CV, tractor, PV and industrial segments along with ramp-up of new orders. Growth in revenues was largely driven by 23% yoy jump in volumes, while realizations grew by 3% yoy. Domestic business continued to drive growth, while exports witnessed initial signs of recovery.

Favourable mix strengthen margin:

During 1QFY27, HFL reported EBITDA of Rs 1.4bn, +39% yoy (beat to our estimates) with 31.3% margins, +275bps yoy; driven mainly by high value addition (machining and industrials) in product mix. The machining content remains high at 90% in 1QFY27 vs 88% in 1QFY26. Effectively, HFL reported PAT at Rs 915mn; +39% yoy.

Order addition and diversification continue to strengthen growth prospects:

With initial signs of recovery in global export demand, 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 15% of revenues in three years vs. 8% in 1QFY27. Industrial (wind, power & data-center applications) remains a strong structural driver, with new orders slated for scale-up from FY27E. HFL acquired Rs 1.4bn of new orders during Q4FY26 largely from industrial (data centers) and PV applications, taking the executable order book to ~Rs 9.5bn over three years, of which ~Rs 2.5bn pertains to heavyweight forgings. The new heavy weight forging adds further diversification into industries like marine, defense, mining, nuclear, etc. and expands growth prospects with superior return ratios, largely for exports. HFL also commissioned its 4,000-tonne line dedicated toward PV applications in 1QFY27. Further, the company highlighted strong visibility in exports with PV programs in North America expected to commence from Q2FY27E onwards and improving opportunities from Europe driven by favorable forex dynamics. All these factors have led to improved earnings visibility which will shield the company from auto-downcycles, in turn resulting in our upgrade in valuation multiple.

Valuation and risks:

We forecast a Revenue/EBITDA/PAT CAGR of 22%/25%/23% over FY26-28E. We value HFL at 37x Jun’28E earnings (35x previously) to arrive at TP of Rs 1,875 (previously Rs 1,680). However, we downgrade stock to Hold rating due to rich valuations. Upward revision in TP is due to an increase in valuation multiple. 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 Q1FY27 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 Q1FY27 Company Update

Here are key investor FAQs on Happy Forgings.

How did Happy Forgings perform in Q1FY27?

Revenue increased 27% YoY to approximately ₹450 crore, supported by a 23% increase in volumes. EBITDA rose 39% YoY to approximately ₹140 crore, while EBITDA margin expanded to 31.3%.

What is the target price for Happy Forgings?

The research report assigns a Hold rating and a target price of ₹1,875. The target represents an analyst estimate and should not be interpreted as a guaranteed future return.

What is driving Happy Forgings’ growth?

Growth is being supported by domestic commercial vehicles, tractors, passenger vehicles and industrial applications, alongside increasing export opportunities and new product programs.

How strong is Happy Forgings’ order book?

The company has an executable order book of approximately ₹950 crore over three years. It includes orders across passenger vehicles, industrial applications, commercial vehicles and heavyweight forgings.

Why are passenger vehicles important for Happy Forgings?

Passenger vehicles are an important diversification opportunity. The company expects PV contribution to increase over the next three years, supported by new domestic and export programs and its dedicated 4,000-tonne production line.

What are the key risks for Happy Forgings?

Key risks include a prolonged export-market downturn, delays in executing new orders, weaker automotive demand and challenges in scaling newer applications.

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