Happy Forgings Ltd. - Strong domestic mix cushion export drag
We increase TP to Rs 1,065 (previously Rs 1,030) and retain our Accumulate rating on Happy Forgings Ltd. (HFL). 2QFY26 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 constructive, while export demand continues to be impacted by tariff-led uncertainty and customer destocking. We believe HFL remains uniquely positioned to benefit as the cycle turns, supported by rising PV and industrial forgings contribution and ramp-up of its heavy-weight forging capacity. Accumulate on dips.
Stable growth with volume uptick:
HFL delivered revenue of Rs3.77bn (+4.5% YoY), supported by 5.2% YoY volume growth, while realizations remained broadly stable despite lower 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.
Cost decline and Value addition improves margins:
During 2QFY26, HFL reported 30.7% EBITDA margins, +151bps yoy (highest ever); driven mainly by declining RM prices and high value addition in product mix. The machining content remains high at 88% in 2QFY26 vs 89% in 2QFY25. Effectively, HFL reported PAT at Rs734mn; +10.3% yoy.
Diversification momentum continues:
Despite sluggishness in global CV/off-highway cycles, HFL continues to benefit from diversification into PV and industrials. Recent order wins in the PV segment, brake flanges, and e-axle components, both domestically and in export markets and should lift PV contribution to 8-10% of revenues over the next 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 until Dec’25 due to tariff-driven destocking. The new heavy weight forgings add further diversification into industries like marine, defense, mining, nuclear, etc. and expand growth prospects with superior return ratios meant largely for exports. While the current slowdown is largely in the export market, we have retained the multiple as we expect HFL to bounce back once the cycle turns favorable.
Valuation and risks:
We forecast a Revenue/EBITDA/PAT CAGR of 12.9%/12.9%/7.6% over FY25-28E. We value HFL at 32x Sep’27 earnings to arrive at TP of Rs1,065 (previously Rs1030 – increased mainly on valuation roll forward) and maintain Accumulate rating. Risks: Automotive down-cycle, delay in diversification & adoption of EVs.
Company website: https://happyforgingsltd.com/
| Rating | Accumulate |
|---|---|
| CMP | INR 1,014 |
| Target Price | INR 1,065 |
| Upside | 5% |
Click to download the full Happy Forgings Limited Company Update
Analyst:
- Sahil Sanghvi - Research Analyst, Institutional Equities (NISM-201900004744)
- Uvais Khatri - Research Associate, Institutional Equities (NISM-202300049054)
Frequently Asked Questions (FAQ)
1. How did Happy Forgings perform in Q2FY26?
HFL reported revenue of ₹3.77 billion, growing 4.5% YoY, supported by 5.2% volume growth. Domestic demand remained strong, offsetting weakness in export markets affected by tariff-led disruptions and customer destocking.
2. What supported margin improvement this quarter?
The company achieved its highest-ever EBITDA margin of 30.7%, driven by lower raw material costs, richer product mix, and strong machining throughput with 88% machining share.
3. Which segments are driving diversification for Happy Forgings?
HFL is expanding into PV forgings, industrial applications such as wind, power and data centers, and heavy-weight forgings for marine, defense, nuclear, and mining. These are expected to scale meaningfully from FY27 onward.
4. What is the revised target price and rating?
The target price has been revised to ₹1,065 (from ₹1,030), mainly due to valuation roll-forward. The stock retains an Accumulate rating with an estimated upside of 5% as per the report.
5. What risks were highlighted in the company update?
Key risks include an automotive down-cycle, delays in diversification plans, prolonged export weakness, and potential impact from faster EV adoption trends.
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