IPO listed on 27 Dec'23
Happy Forgings Ltd
Minimum Investment
₹ 14,450 / 17 shares
Grey market premium
₹ 415 (49% premium)
Issue price
₹ 850
Listing price
₹ 1,000
Listing day %
21%
Listing on
Dec 27, 2023
Our Verdict:
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- Happy Forging Ltd (HFL) is the fourth-largest manufacturer of complex machine components. With a diversified business model, the firm has exhibited impressive performance over the past three years, evidenced by substantial increases in both revenue and profits.
- With a PE multiple of 33.5x on projected earnings for FY24, the issue seems reasonably priced. Additionally, the grey market premium for the issue suggests a premium listing.
- Taking these elements into account, it is recommended for investors to consider subscribing to this offering from a medium-term perspective.
About the company
Founded in
2 Jul'79
Managing director
Paritosh Kumar
- HFL specialises in the creation and production of heavy forgings and precision-engineered components. Its product portfolio encompasses a wide range of items including crankshafts, front axle carriers, steering knuckles, differential housings, transmission parts, pinion shafts, suspension components, and valve bodies, catering to diverse industries and client bases.
- Operating three production sites, with two in Kanganwal and one in Dugri, all situated in Ludhiana, HFL has established a significant international presence. Its customer base spans several key global markets, including Brazil, Italy, Japan, Spain, Sweden, Thailand, Turkey, the United Kingdom, and the United States of America.
STRENGTHS
- Market Dominance: HFL is recognized as India's fourth largest manufacturer specializing in engineering-driven production of complex, safety-critical, heavy forged, and high precision machined components.
- Robust Track Record: The firm demonstrated notable growth from FY21 to FY23, achieving a compound annual growth rate (CAGR) of 43% in revenue, 47% in EBITDA, and 55% in net profit.
- Improving Margins: In FY23, HFL reported a profit after tax (PAT) margin of 17.44%, which further improved to 17.73% by September 2023. The EBITDA margin was equally impressive at 28.49%, rising to 29.01% by September 2023.
- Outstanding Returns: The fiscal year 2023 saw HFL achieve a remarkable Return on Equity of 21.12% and a Return on Capital Employed of 24.24%.
- Prestigious Clientele: HFL's client base boasts prominent names such as Ashok Leyland, International Tractors, JCB India, Mahindra & Mahindra, Meritor HVS AB, SML ISUZU, and Swaraj Engines, among others.
- Dividend Policy: Demonstrating its shareholder-friendly approach, HFL declared a 65% dividend for the period starting April 01, 2023, and instituted a dividend policy in July 2023, based on its financial achievements and future potential.
RISK FACTORS
- Revenue Concentration: HFL's revenue is significantly reliant on its top 10 customers, contributing ~70% to its operational revenue in fiscal 2023. The loss of any major customer could significantly impact its business performance and overall financial health.
- Product Line Vulnerability: A significant 45% of HFL's revenue comes from crankshaft sales, which are not used in battery-electric vehicles. A decline in demand for crankshafts could materially harm the firm’s performance, financial health, operational results, and liquidity.
- Debt Obligations: As of October 31, 2023, HFL’s total debts stood at Rs 259.94 crore. Failure to meet repayment terms and other obligations under their financing agreements could negatively affect the firm’s business operations, profitability, cash flow, and financial stability.
- High Working Capital Requirements: HFL's working capital needs in fiscal 2023 were Rs 232.7 crore. Given the capital-intensive nature of the business, there might be a need for additional capital. Raising further funds through debt could lead to increased interest and repayment burdens, impacting profitability and cash flow, and could bring additional operational restrictions.
- Dependence on Steel: Over 59% of HFL's expenses are attributed to steel, a key raw material. Any supply disruptions or price fluctuations in steel could adversely affect the firm’s business operations, profitability, cash flow, and financial condition.
Issue details
Issue type
Mainstream
Issue size
₹ 1,008.59 crore
Fresh Issue
₹ 400 crore
OFS
₹ 608.59 crore
Price range
₹ 808 - 850
Lot size
17 shares
Issue Objective
The company intends to utilise the proceeds from the net issue towards:
- Purchase of equipment, plant and machinery;
- Prepayment of certain outstanding borrowings; and
- General corporate purposes.
Dates
Bidding open
19 Dec'23
Bidding close
21 Dec'23
Allotment date
22 Dec'23
Refund date
26 Dec'23
Listing
27 Dec'23
IPO Reservations
Qualified institutional buyers
<50%
Non-institutional investors
>15%
Retail individual investors
>35%
Read the Offer Document
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