There is a flood of IPOs now. The Happy Forgings IPO is scheduled to open on 19 December 2023. The company specializes in designing and manufacturing heavy forgings and high-precision machined components in India. According to some leading websites, the GMP is over 55%. Check this article for 10 key things to note about the Happy Forgings IPO.
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Happy Forgings IPO Analysis – 10 Things to Note
Let us check 10 key aspects of this IPO which can help smart investors in making informed decisions.
#1 โ About Happy Forgings Limited
Happy Forgings Limited, established in July 1979, is a prominent Indian manufacturer specializing in heavy forgings and high-precision machined components.
With over 40 years of experience, the company has emerged as the fourth-largest engineering-led manufacturer of complex and safety-critical components in India, boasting the second-largest production capacity for commercial vehicle and high horsepower industrial crankshafts in the country.
Through vertically integrated operations, Happy Forgings engages in the design, testing, and manufacturing of various components, including crankshafts, front axle carriers, steering knuckles, transmission parts, and suspension products.
The company’s diversified product portfolio, coupled with its focus on margin-accretive and value-additive products, has contributed to its transition from a forging-led business to a leading player in the machined components manufacturing industry. Happy Forgings serves a wide range of industries, including automotive, farm equipment, off-highway vehicles, and industrial machinery for oil and gas, power generation, railways, and wind turbine sectors.
#2 – Happy Forgings IPO Details
| IPO Date | IPO Opens on December 19, 2023 and closes on December 21, 2023 |
| IPO Listing Date | December 27, 2023 |
| Issue Type | Book Built Issue IPO |
| Face Value | Rs 2 per equity share |
| IPO Price band | Rs 808 to Rs 850 per equity share |
| Lot Size | 17 Shares |
| Listing at | BSE and NSE |
| Total Issue Size | Rs. 1008.59 Crores |
| ย ย ย Fresh issue | ย ย ย Rs. 400 Crores |
| ย ย ย OFS | ย ย ย Rs. 608.59 Crores |
#3 – Happy Forgings IPO Objectives
The IPO size is Rs 1,008.59 Crores, comprising both a fresh issue and an Offer for Sale (OFS).
- a) Offer for Sale (OFS) for Rs 608.59 Crores โ This benefits the selling shareholders, with no proceeds going to the company.
- b) Fresh issue of Rs 400 Crores โ These funds will be allocated for the following purposes:
- Purchase of equipment, plant, and machinery.
- Prepayment of all or a portion of certain outstanding borrowings availed by the company.
- General corporate purposes.
#4 – Happy Forgings IPO Grey Market Premium
The grey market premium is the premium observed in offline trades. According to 5 Paisa, here are the trending GMP values for the Happy Forgings IPO. It shows that GMP is at 55% higher on the upper price band of the IPO price.
| Date | GMP |
| 15-Dec-2023 | โน 460 |
| 14-Dec-2023 | โน 450 |
| 13-Dec-2023 | โน 25 |
#5 – Happy Forgings IPO Valuation
- The IPO price band is set between Rs 808 to 850 per share
- P/E Ratio Analysis
- Considering the last fiscal year FY23 EPS of Rs 23.3, the P/E ratio works out to be 36x
- If we factor in the weighted EPS of Rs 18.57 for the last 3 years, the P/E ratio works out to be 46x
- Comparison with listed peers
- Bharat Forge Limited is trading at P/E 103x (Highest)
- Craftsman Automation Limited is trading at P/E of 44x (Lowest)
- Industry average P/E is 70x
- Hence, the IPO Price band at P/E of 36x to 46x is attractively priced
#6 – Happy Forgings Limited Financials
Let’s examine the financial summary trend of Happy Forgings Limited:
| Financial Year ending / Period ending (Amt in Crores) | ||||
| Period Ended | 31-Mar-21 | 31-Mar-22 | 31-Mar-23 | 30-Sep-23 |
|---|---|---|---|---|
| Assets | 876.38 | 1,129.87 | 1,326.17 | 1,489.80 |
| Revenue | 590.81 | 866.11 | 1,202.27 | 675.73 |
| Profit After Tax | 86.45 | 142.29 | 208.70 | 119.30 |
| Net Worth | 645.16 | 787.62 | 988.31 | 1,103.33 |
| Reserves and Surplus | 636.21 | 769.72 | 978.66 | 1,088.25 |
| Total Borrowing | 153.47 | 240.35 | 218.52 | 258.97 |
#7 – Happy Forgings IPO Positive Aspects
Investing in the Happy Forgings Limited IPO presents several positive aspects that potential investors may consider:
- Established Track Record: With over 40 years of industry experience since its incorporation in 1979, Happy Forgings Limited has built a strong reputation as the fourth-largest engineering-led manufacturer of complex and safety-critical components in India.
- Diversified Product Portfolio: The company’s diversified range of products, including crankshafts, front axle carriers, and suspension components, caters to various industries such as automotive, farm equipment, and industrial machinery. This diversification can contribute to a stable revenue stream.
- Market Position: Happy Forgings holds the second-largest production capacity for commercial vehicle and high horsepower industrial crankshafts in India. This strong market position indicates the company’s competitive strength in its niche.
- Financial Performance: The company’s financial performance shows significant growth, with a substantial increase in revenue and net profit. This growth could be an encouraging sign for investors looking for a company with a solid financial track record.
- Industry Growth Potential: As a player in the manufacturing of heavy forgings and high-precision machined components, Happy Forgings is well-positioned to benefit from the growth potential in industries such as automotive, oil and gas, power generation, railways, and wind turbine sectors.
- Focus on Value Addition: The company’s focus on producing margin-accretive and value-additive products, as indicated by its transition from a forging-led business to a machined components manufacturer, could contribute to higher profitability and sustainability.
#8 – What experts are saying about this IPO?
While majority of the investment websites give details of the IPO without any recommendations, Dilip Davda, SEBI registered Research Analyst believes that this company has posted steady growth in revenue and bottom lines and one can park funds for medium to long term.
#9 – Happy Forgings IPO Risk Factors
Here is the summary of risk factors. Investors should go through all the risk factors indicated in the Happy Forgings IPO RHP.
- OFS goes to selling share holders: IPO objectives has both fresh issue and OFS. The OFS portion goes to to selling share holders andcompany would not get benefitted.
- Dependence on Top Customers: Happy Forgings largely depends on its top 10 customers for revenue. The loss of any of these significant customers could have a material adverse effect on the company’s business.
- Supplier Dependency: The company relies heavily on a limited set of suppliers for its primary material, steel. Any disruption to the supply of steel or volatility in prices could impact the company’s business and profitability.
- Product Concentration Risk: The company depends significantly on revenue generated from the sale of crankshafts, which contribute a substantial percentage to the overall revenue. A shift in market demand or technological changes affecting the use of crankshafts could impact financials.
- Revenue Growth Comparisons: In the six months ended September 2023, Happy Forgings showed lower revenue growth compared to some peers in the industry. This slower growth could impact the company’s competitive position and financial performance.
- Market Trends and EV Adoption: The company’s business may be impacted if there is a significant increase in the adoption of battery-electric vehicles (EVs), especially in commercial vehicles. Changes in market trends and technology could affect the demand for certain products.
- Financial Performance Variation: While the company has shown positive financial performance, variations in EBITDA margin and net profit growth between different periods may indicate some level of financial volatility or sensitivity to market conditions.
- Limited Definitive Supply Agreements: Happy Forgings does not have definitive supply agreements with its suppliers. This lack of contractual arrangements could pose challenges in ensuring a stable supply of raw materials.
- Inorganic Growth Risks: While the company plans to grow inorganically through strategic acquisitions and alliances, such endeavors carry inherent risks related to integration, cultural differences, and unforeseen challenges associated with acquired entities.
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#10 – Happy Forgings IPO โ Should you buy?
With 55% GMP you might be wondering whether this IPO is good or bad for investment.
- Investing in Happy Forgings Limited’s IPO offers potential returns from a seasoned company with over 40 years of experience and the second-largest production capacity for critical components in India. The company’s diversified product range, strong financials, and strategic market position are positives.
- However, risks include customer and supplier dependencies, potential supply chain issues, slower revenue growth, and market trend impacts, especially in electric vehicles.
- IPO price is attractively priced.
Investors who understand all these pros and cons can invest in this IPO.
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