Happy Forgings Ltd. - Forging a Higher-Margin Future - Company Update

4QFY26 was another strong quarter with robust revenue growth and further 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 early signs of stabilization despite ongoing global uncertainty. We believe HFL remains uniquely positioned due to its large order bookings (Rs9.5bn over  three years) in CV, PV, industrial and heavyweight forgings, which will further amplify as the 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. We have upward revised our estimates by 10%/8% for FY27/FY28E respectively, to account for the new order wins & price hikes, in turn leading to a strong Revenue/EBITDA/PAT CAGR of 22%/25%/23% over FY26-28E. We increase our TP to Rs 1,680 (Rs 1,350 earlier) and maintain BUY rating.

Strong growth supported with recovery in exports:

HFL delivered revenue of Rs 4.2bn (+20% 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 20% yoy jump in volumes, while realizations were largely stable. Domestic business continued to drive growth, while exports witnessed initial signs of recovery. FY26 revenue grew by 10% yoy to Rs 15.5bn.

Low-cost RM and favourable mix strengthen margin:

During 4QFY26, HFL reported EBITDA of Rs 1.3bn, +30% yoy with 31.5% margins, +240bps yoy (highest ever); driven mainly by low RM cost from previous quarter and high value addition (machining and industrials) in product mix. The machining content remains high at 89% in FY26 vs 87% in FY25. Effectively, HFL reported PAT at Rs 836mn; +24% yoy. FY26 EBITDA grew by 16% yoy to Rs 4.7bn, +16% yoy with a margin of 30.4%; +157bps. FY26 PAT grew by 13% yoy to Rs 3bn.

Order addition and diversification continue to strengthen growth visibility:

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 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 FY27E. Domestic CV and farm demand remain supportive, while export weakness is expected to turn around gradually.  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 meant largely for exports. HFL also commissioned its 10,000 tonne forging line during Q4FY26 while the 4,000 tonne line dedicated toward PV applications is expected to commence 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. We have increased our FY27E/ FY28E earnings by 10%/ 8% to account for the new order wins (including heavy weight forging) and price pass on. Remain positive on HFL.

Valuation and risks:

We forecast a Revenue/EBITDA/PAT CAGR of 22%/25%/23% over FY26-28E. We value HFL at 35x FY28E earnings (32x previously) to arrive at TP of Rs 1,680 (previously Rs 1,350) and maintain BUY rating. Upward revision in TP is due to an increase in earnings and 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 Q4FY26 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 Q4FY26 Company Update

Here are key investor FAQs on Happy Forgings.

What drove Happy Forgings’ strong Q4FY26 performance?

Strong domestic demand across CV, tractor, PV and industrial segments along with favorable product mix and operating leverage supported revenue and margin expansion.

How strong is Happy Forgings’ order book?

The company has an executable order book of nearly Rs9.5bn over three years, including heavyweight forging orders across industrial and export-focused applications.

What are the key future growth drivers for Happy Forgings?

Growth drivers include export recovery, passenger vehicle component expansion, industrial applications, heavyweight forgings and new capacity additions.

What risks should investors monitor?

Key risks include prolonged weakness in export markets, delays in execution of new orders and fluctuations in raw material costs.

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