IGI Logo

Ludhiana-based Happy Forgings Ltd, the fourth largest engineering-led manufacturer of complex and safety-critical, heavy forged and high precision machined components in India as of Fiscal 2023 in terms of forgings capacity has received final observation from the capital markets regulator, Securities and Exchange Board of India (SEBI), to raise funds through an initial public offering (IPO).  

The company had filed its Draft Red Herring prospectus (DRHP) with capital market regulator Sebi in the month of August 2023. 

The IPO with a face value of Rs 2 comprises of a fresh issue of Rs 500 crore and an offer for sale (OFS) of up to 8.05 million shares by Promoter and selling shareholders. 

The offer for sale comprises of up to 5.37 million equity shares by Paritosh Kumar Garg (HUF), up to 2.68 million equity shares by India Business Excellence Fund - III. 

The Offer is being made through the Book Building Process, wherein not more than 50% of the Offer shall be available for allocation on a proportionate basis to Qualified Institutional Buyers, not less than 15% of the Offer shall be available for allocation to Non-Institutional Bidders and not less than 35% of the Offer shall be available for allocation to Retail Individual Bidders. 

The company, in consultation with the lead bankers to the issue, may consider a pre-IPO placement of specified securities for a cash consideration aggregating up to Rs 100 crore (“Pre-IPO Placement”). If such placement is completed, the fresh issue size will be reduced. 

As per the DRHP, the proceeds from the fresh issue will be utilised to the extent of Rs 213.60 crore towards purchase of equipment, plant and machinery, up to Rs 190 crore for prepayment of all or a portion of certain outstanding borrowings availed by the Company and general corporate purposes. The Auto Component manufacturer employs a vertically integrated approach encompassing engineering, process design, testing, manufacturing, and supply of diverse components. Its primary clientele includes both domestic and global OEMs in the commercial vehicle sector, while also serving non-automotive markets like farm equipment, off-highway vehicles, and industrial machinery spanning oil and gas, power generation, railways, and wind turbine industries. 

Moreover, the company's concentration on the high horsepower (HP) engine sector safeguards it against potential disruptions stemming from the emergence of electric vehicles (EVs), given its engagement in hydrogen, compressed natural gas (CNG), and liquefied natural gas (LNG) internal combustion engines. 

The company's primary emphasis lies in the creation of more substantial, high-precision, critical, and value-added items for diverse end-use sectors. These products often necessitate exceptionally tight tolerances, meaning they must adhere to precise and specific measurement and tolerance criteria. 

With over 40 years of experience, the company holds a prominent position in India's crankshaft manufacturing sector. It ranks second in production capacity for commercial vehicle and high-horsepower industrial crankshafts (Source: Ricardo Report). By prioritizing value-driven products, it successfully transitioned from forging to machined components manufacturing. Its extensive product range covers heavy forged and machined items such as crankshafts, axle beams, steering knuckles, transmission parts, and more, serving diverse customers across various industries. 

The company's unique strength lies in producing high-precision safety-critical components for leading OEMs in commercial vehicles, farm equipment, off-highway, and industrial sectors. Its long-standing relationships with top Indian and global OEMs have solidified its position as a trusted supplier. 

The revenue generated from the sale of machined items has surged from ?3,992.02 million in Fiscal 2021 (constituting 72.88% of the total revenue from product sales in that fiscal year) to ?8,392.33 million in Fiscal 2023 (making up 78.66% of the total revenue from product sales in that fiscal year). This reflects a compounded annual growth rate (CAGR) of 44.99%, highlighting the company's heightened emphasis on machined products. 

Among its notable customers are AAM India Manufacturing Corporation Private Limited, Ashok Leyland Limited, Dana India, JCB India Limited, Mahindra & Mahindra Limited, Meritor HVS AB, SML ISUZU Limited, Tata Cummins Private Limited, and others. Operating in nine countries, including Brazil, Italy, Japan, Spain, Sweden, Thailand, Turkey, the UK, and the USA, it maintains a global reach. With three manufacturing facilities in Ludhiana, Punjab, it has expanded its annual capacity for forging and machining to 107,000.00 MT and 46,100.00 MT, respectively, by March 31, 2023. 

For the fiscal year 2023, the consolidated revenue from operations increased 39.12% to Rs 1196.53 crore against Rs 860.05 crore a year ago and doubled its revenue from Rs 584.96 crore in fiscal 2021 to Rs 1196.53 crore in fiscal 2023. Net profit increased by 46.67% from Rs 142.29 crore in fiscal 2022 to Rs 208.70 crore in fiscal 2023. Its experience of strategically adding capacity coupled with its commitment to capital efficiency has resulted it in recording the highest ROCE among peers in Fiscal 2023. 

The forging and machining markets in India are estimated to be valued at approximately USD 7.30 billion (Rs 60,670 crore) and USD 5.40 billion (Rs 44879.45 crore), respectively, in Fiscal 2024 and is expected to grow at a CAGR of 7.10% and 8.00% to reach USD 10.20 billion (Rs 84,772.30 crore) and USD 8.00 billion (Rs 66,488.08 crore), by Fiscal 2029, respectively, according to a Ricardo Report. 

JM Financial Limited, Axis Capital Limited, Equirus Capital Private Limited and Motilal Oswal Investment Advisors Limited are the book running lead managers and Link Intime India Private Limited is the registrar to the offer. The equity shares are proposed to be listed on BSE and NSE. 

Draft Offer Document in relation to which Observations issued during the week : 

Above views are of the author and not of the website kindly read disclaimer