Happy Forgings IPO: 10 things to know before you buy into Rs 1,009-crore issue

2. Price Band

The price band for the issue has been fixed at Rs 808-850 per share.

3. Offer Details

The Happy Forgings IPO is a mix of fresh issue components of Rs 400 crore worth of shares and an offer-for-sale of 71.6 lakh equity shares by the existing shareholders. The company plans to raise Rs 1,009 crore through the issue.

The promoter, Paritosh Kumar Garg (HUF), is set to sell 49.2 lakh equity shares, while the remaining 22.4 lakh shares will be sold by the investor India Business Excellence Fund – III. Presently, promoters hold an 88.24 percent shareholding in the company, with the remaining shares held by investor India Business Excellence Fund – III.

4. Objectives of the Issue

Happy Forgings plans to utilise the net proceeds from the fresh issue for the acquisition of equipment, plant, and machinery, with a total cost of Rs 171.1 crore. Additionally, a portion of the funds, amounting to Rs 152.76 crore, will be allocated for repaying debts. The remaining funds will be earmarked for general corporate purposes.

5. Lot Size

Investors can bid for a minimum of 17 equity shares and multiples of 17 after that. Hence the minimum investment by retail investors would be Rs 13,736 (17 (Lot size) x 808 (lower price band)). At the upper price band, the bidding amount will increase to Rs 14,450.

6. Company Profile

Established in July 1979, Happy Forgings Limited is an Indian manufacturer with expertise in designing and manufacturing heavy forgings and high-precision machined components.

The company is involved in the production, design, and testing of a range of products including crankshafts, front axle carriers, steering knuckles, differential housings, transmission parts, pinion shafts, suspension products, and valve bodies. These products cater to diverse industries and clients.

7. Financials

The company recorded a 46.7 percent on-year growth in net profit at Rs 208.7 crore the year ended March FY23, with EBITDA (earnings before interest, tax, depreciation and amortisation) rising 47.7 percent to Rs 341 crore and margin expanding by 170 bps to 28.5 percent during the same period. The business at the topline front also remained strong, rising more than 39 percent to Rs 1,197 crore.

But the same performance was not seen in the current financial year, as net profit grew by 2.5 percent on-year to Rs 119.3 crore for the six months ended September FY24 due to a fall in EBITDA margin

8. Lead Managers

JM Financial Limited, Axis Capital Limited, Equirus Capital Private Limited and Motilal Oswal Investment Advisors Limited are the book running lead managers of the Happy Forgings IPO, while Link Intime India Private Ltd is the registrar for the issue.

9. Risks

(i) Happy Forgings largely depends upon the top 10 customers. In fiscal 2023, 2022 and 2021, revenue from top 10 customers was Rs 838.48 crore, Rs 641.9 crore and Rs 463.4 crore, representing 70.08 percent, 74.64 percent and 79.22 percent of revenue from operations, respectively. In FY23 the company’s top costumes were Dana India, VE Commercial Vehicles, Ashok Leyland, AAM India Manufacturing Corporation, Meritor HVS AB, JCB India and Mahindra & Mahindra. The loss of any of these customers could have a material adverse effect on the business.

(ii) The company depends on a limited set of suppliers for its primary material, steel. Further, Happy Forgings does not have definitive supply agreements with suppliers. The company's business and profitability are dependent on the availability and cost of steel any disruption to the supply of steel or volatility in the prices could impact business.

(iii) The company rely heavily on revenue generated from the sale of the crankshaft contributing 45.29 percent to the revenue from the sale of products. Heavy-duty vehicles require more power and have different operating requirements than passenger vehicles which makes it difficult to switch to EVs. So many heavy-duty vehicles may continue to use ICE or alternative engine technologies that require crankshafts. However, if there is a significant increase in the adoption of battery-electric vehicles, particularly in commercial vehicles, farm equipment, or off-high vehicles it could adversely affect the company’s financials.

(iv) In six months ended September 2023, growth in revenue from operations (12.19 percent) was much lower compared to peers such as Bharat Forge (29.08 percent), Craftsman Automation (52.54 percent), Ramkrishna Forgings (22.97 percent) and Sona BLW Precision Forgings (22.77 percent).

10. Listing Date

Happy Forgings IPO will list on BSE, and NSE with a tentative listing date fixed as Wednesday, December 27, 2023.