Diversified Exports And Precision Components Will Define Future Success

Key Takeaways

• Diversifying exports and expanding high-value components positions the company for sustained growth, improved margins, and premium market opportunities amid evolving global standards.
  
• Capacity expansion, automation, and new supply relationships enhance operational efficiency, revenue visibility, and reduce reliance on cyclical markets.
  
• Heavy reliance on traditional sectors and export markets, combined with industry shifts and capex risks, increases vulnerability to earnings pressure and future structural challenges.

Catalysts

Manufactures and sells forgings and related components in India and internationally.

• Multiple recent large order wins in Europe and the U.S. covering farm equipment, wind energy, and industrial gensets are expected to drive a visible ramp-up in export revenues, providing diversification away from the currently weak domestic commercial vehicle cycle and supporting sustained top line growth over the medium to long term.
  
• Expansion into higher-value, precision-machined components (now 88% of revenue), including E-SUV and EV-ready parts, is increasing overall realizations and margin resilience; as clean energy and stricter emission standards rise globally, the mix shift toward value-added products positions Happy Forgings to capture premium growth and margin expansion.
  
• Significant capacity additions (adding ~20k MT annual capacity with 10,000T and 4,000T presses, plus ₹650 crore CapEx for heavyweight components) and ongoing automation are expected to boost operational efficiency, lower per-unit costs, and enable growth in non-auto segments, lifting future operating margins and earnings.
  
• Established supply relationships and new orders from global OEMs opting for cost-competitive, reliable Indian suppliers in light of supply chain resilience/localization trends will likely continue to benefit Happy Forgings, filling order books and enhancing revenue visibility.
  
• Continued new product development targeting fast-growing adjacent sectors (renewables, data centers, defense) broadens the company's addressable market and reduces end-market cyclicality, supporting both topline robustness and stable long-term earnings.

Happy Forgings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Happy Forgings's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 19.0% today to 18.4% in 3 years time.
• Analysts expect earnings to reach ₹4.0 billion (and earnings per share of ₹40.39) by about September 2028, up from ₹2.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.9x on those 2028 earnings, up from 31.6x today. This future PE is greater than the current PE for the IN Machinery industry at 32.3x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.62%, as per the Simply Wall St company report.

Happy Forgings Future Earnings Per Share Growth

Risks

• Ongoing weakness and prolonged decline in key export markets like commercial vehicles (CV) and farm equipment-especially in the US and Europe-with industry leaders forecasting further 8–15% declines, creates sustained risk to top-line revenue growth and export diversification.
  
• Rising tariff-related uncertainty and shifting global trade regimes could prevent meaningful expansion in the North American and European markets, restricting planned order execution and negatively impacting long-term revenue and margin growth from exports.
  
• Overdependence on cyclical sectors such as commercial vehicles and farm equipment (together nearly 70% of current revenue), exposes the company to market downturns, weak recovery cycles, and changing end-market trends, which could suppress earnings stability.
  
• Global acceleration in electrification of vehicles and shift to lighter-weight materials threatens long-term demand for traditional steel forged components-especially in the automotive and off-highway segments-posing a structural risk to revenue streams and realizations over time.
  
• Although company financials currently show peak margins and strong cash flows, increased capital expenditure commitments (over ₹650 crores) in a weak demand environment and the risk of underutilized new capacity could lead to margin compression, pressured return on capital, and weaker earnings if order ramp-up lags expectations.

Valuation

• The analysts have a consensus price target of ₹1041.571 for Happy Forgings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1150.0, and the most bearish reporting a price target of just ₹820.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹21.7 billion, earnings will come to ₹4.0 billion, and it would be trading on a PE ratio of 36.9x, assuming you use a discount rate of 14.6%.
• Given the current share price of ₹901.65, the analyst price target of ₹1041.57 is 13.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.