See Some Green Shoots Of Recovery In CV & Farm Segment: Happy Forgings | CNBC TV18

Summary

Happy Forgings has announced a capital investment of up to 650 crores to expand its heavyweight forged and machined components, aiming to enhance its industrial sector capabilities. This move will enable the company to serve markets in power generation, marine, railways, and defense. The investment is expected to improve return ratios and gross margins, with exports projected to increase. The company anticipates a revenue boost from this expansion by 2028, while also addressing slowdowns in some key markets. Happy Forgings aims for single-digit growth in 2025, with positive prospects in machining and new projects.

Takeaways

• 😀 Happy Forgings announced a capital investment of up to 650 crores to expand its heavyweight forged and machine components, focusing on industrial applications.
• 😀 The investment will allow Happy Forgings to forge and machine components ranging from 300 kg to 3 tons, targeting new verticals like power generation, marine, railways, and defense.
• 😀 The company expects a typical asset turn of 1 to 1.2x and better return ratios (ROSI) compared to its existing business, although the testing periods for the new facilities may take 2-3 years to fully capitalize on.
• 😀 Industrial applications are expected to make up 25-30% of Happy Forgings' total business mix upon full capacity utilization, a significant increase from the current 10-11%.
• 😀 The company's export percentage, currently at 20%, is expected to increase due to the new investments, driving up both export volume and profit margins.
• 😀 Gross margins for the new machine components are projected to be 10-12% better than the company's existing average, with ROSI expected to exceed 25% once fully operational.
• 😀 Happy Forgings is currently in a net cash position with 250 crores of cash on hand, and it plans to fund the majority of the 650 crore capex internally, with no immediate need for additional debt.
• 😀 The company plans to allocate an additional 300-350 crores for capex in its existing line of business over the next 2-3 years, totaling over 1,000 crores in capex for this period.
• 😀 The company anticipates starting production at the new facility in Q4 FY27 and reaching full capacity by FY28, with projected revenues from the facility reaching 600-800 crores once operational.
• 😀 Despite a slow first half in 2025 with single-digit growth in revenues, Happy Forgings is optimistic about recovery in the second half, driven by new projects and its machining business, which has seen 15% growth.

Q & A

What was the recent announcement made by Happy Forgings?

Happy Forgings recently announced a capital investment of up to 650 crores to expand its heavyweight forged and machine components. This expansion will help the company enhance its capabilities in industrial sectors such as power generation, marine, railways, and defense.

What is the expected revenue potential from the 650 crore investment?

The typical asset turn for this investment is expected to be in the range of 1 to 1.2x, depending on the proportion of material sold as machine components. This move is also expected to result in better margins and return ratios compared to Happy Forgings' existing business.

How does the investment in new machine components align with Happy Forgings' strategy?

The investment aligns with Happy Forgings' strategy to grow its business and diversify its product offerings. It aims to strengthen the company’s position in various industrial verticals, including power generation, marine, and defense.

What is the expected impact on industrials as a percentage of Happy Forgings' total mix?

Industrials are expected to account for 25-30% of Happy Forgings' total business mix once the new facilities are fully operational. This is a significant increase from the current 10-11%.

How will exports be affected by the new investment?

Exports, which currently make up 20% of the company's total business mix, are expected to increase as a result of the new investment. The company anticipates that the export percentage will rise in line with the expanded industrial capacity.

What is the expected improvement in margins and return on sales (ROS) after the investment?

Gross margins are expected to improve by 10-12% compared to the company's current average. On a full utilization basis, the return on sales (ROS) could exceed 25%, a significant improvement over the existing business.

How will Happy Forgings finance the 650 crore capital expenditure?

The capital expenditure will primarily be funded through internal accruals, with the company having a cash reserve of 250 crores on its balance sheet. Additional funding of up to 300 crores will be secured through internal sources over the next 2-3 years, without the need for debt.

What are the expected timelines for the new facilities to contribute to revenue?

Production from the new facilities is expected to start in Q4 of FY27 and continue ramping up in FY28. It will take about 2-3 years to reach full capacity and begin generating significant revenue, potentially contributing 600 to 800 crores once fully operational.

What are the growth expectations for Happy Forgings in the second half of the year?

While the first half of the year saw muted growth in revenue, Happy Forgings expects a modest 4-5% growth for the full year. The second half may show a recovery, particularly driven by new projects and continued expansion of the machining business, which grew by 15% in the first half.

Has Happy Forgings seen any recent growth in new sectors or customer acquisition?

Yes, Happy Forgings recently secured a crankshaft order from a new client in the passenger vehicle (PV) segment, which has been a relatively small part of its business. This marks the company's continued efforts to expand into new markets, including the PV sector.