- 18 Dec 2023
- ICICI Securities
-
Share
-
-
-
-
-
IPO OF A LEADING INDUSTRY PLAYER
News: Happy Forgings Ltd, an Indian forging and machining company catering to automotive (~80% of sales; primarily commercial vehicle and tractor segment) and non-automotive segment (~20% of sales; primarily industrials), is coming out with an IPO in the coming week i.e.; Dec 19-21, 2023, at an IPO price band of ₹ 808-850/share. The total IPO size pegged at ~₹ 1010 crore comprising of ~₹ 400 crore as fresh issue (proceeds will be utilized for acquisition of plant and machinery, repayment of debt, and general corporate purpose) and ₹ 610 crore as OFS by promoter’s (~₹ 420 crore from promoter family and ₹ 190 crore from PE Investor). At the upper price band, the company will command a market cap of ~₹ 8010 crore.
Views: As of FY23, the company reported a revenue of ₹ 1196.5 crores, EBITDA of ₹ 340.9 crores (EBITDA Margin of 28.5%) and PAT of ₹ 208.7 crores (PAT Margin of 17.4%). At the upper price band range, it commands a valuation of ~6.7x P/S and ~38.4x PE on an FY23 basis with ~24% ROCE. As per the RHP, company claims to be the fourth largest in heavy forged and high precision machined components in terms of forging capacity. Crankshaft forms major ~45% of its product profile and is susceptive to EV risk, however the risk is not imminent given its prime exposure to CV and Tractor space. Given its consistent high EBITDA margin profile of 27%-29% and increasing focus on value addition, we hold a positive view on Happy forging and expect it to list at a premium to its IPO price band. We also foresee MM forging as potentially re-rating candidate operating in the similar profile and inexpensive on the valuation front.
Impact: Positive