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Happy Forgings’ (HFL) 1QFY25 revenue was 3% below JMFe. EBITDA margin at 28.6% was in-line with JMFe. Management indicated that domestic CV / Tractor industry is est. to grow by single-digit during FY25. HFL has been consistently outperforming growth of the underlying CV / Tractor industry led by addition of new customers and increase in wallet share with existing customers. While outlook for EU has turned muted, new order wins in Industrial and PV segments (in both US and EU) are expected to drive growth and diversification. We expect HFL’s revenue / EPS momentum to remain strong (17% / 21% CAGR over FY24-27E) led by healthy order backlog. Net cash balance sheet and healthy FCF (INR 4bn+ over FY24-27E) provides comfort. We maintain our BUY rating with Sept’25 TP of INR 1,300 (30x Sept’26E EPS). Any slowdown in underlying CV / Tractor demand remains a key risk to our estimates.

* 1QFY25 – Muted growth performance; margin remains healthy: HFL reported revenue of INR 3.4bn (+3.5% YoY, flattish QoQ) 2.5% below JMFe. Adjusted for one-off, YoY growth stood at c.7%. EBITDA came-in at INR 976mn (-4%YoY, flattish QoQ). EBITDA margin stood at 28.6% (-220bps YoY, +30bps QoQ), in-line with JMFe. Adjusted PAT stood at INR 638mn (-0.4% YoY, -3% QoQ), 5% below JMFe owing to higher than expected interest and depreciation.

* Operational update: During 1QFY25, HFL’s volumes grew by c.3% YoY to 13,933 MT. Adj. for one-off realisation grew by c.4% YoY to INR245/kg. Contribution of machined products (value-added business) increased from 82% in 1QFY24 to 87% in 1QFY25 (85% in 4Q). HFL continues to outperform the underlying industry. Against MHCV trucks / Tractor production of (1%) / +1%, HFL’s CV / Tractor revenue stood at +14% / (6%). Its overall revenue growth of c.7% for 1QFY25 was led by ramp-up of new orders in PV and CV segment. Share of industrials business decreased from 14% in 1QFY24 to 12% in 1QFY25 owing to slowdown in EU Wind segment (down 30-35%). Revenue share of exports stood at 18% in 1QFY25 (21% in 1QFY24).

* Demand outlook: The Company indicated that domestic CV / Farm segment is expected to grow in single-digit during FY25. And, has guided for continued outperformance over the medium-term led by increase in wallet share from existing customers and addition of new customers, both in India and globally. This is expected to be led by a) ramp-up in industrials / exports (backed by orders) and b) recent order wins in passenger vehicle segment (expects revenue share to increase to 8-10% over next 2yrs).

* Margin outlook: HFL has guided for a sustainable margin of ~28% going forward. The company indicated that recent order wins in PV segment are for fully-machined components where profitability is similar to current margin level. Rising mix of machined components and positive operating leverage remains additional levers for margin.

* Other highlights: 1) Capacity utilisation for 1QFY25 stands at 56% / 85% for Forging and Machining. The company plans to expand machining capacity of 4.5k MT in 2Q and 5k MT in Q3, taking total capacity to 62k MT by FY25 end. It also plans to add 6.3k ton and 10k ton forging press during FY25/26 to cater to PV and farm segment. 2) Capex guidance for FY25/26 stands at INR 2-2.5bn each. 3) During the qtr, HFL received approval from customers for certain orders on which it was working for last 2 years. 4) In the railway segment, HFL is focusing on specialised tenders where realisations and profitability is high. The company has also started working on Defence and Aerospace segments and will update on the same over next 2-3 qtrs.

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SEBI Registration Number is INM000010361