'Buy' Happy Forgings Maintains Motilal Oswal On Attractive Valuations, Sees 21% Upside

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Motilal Oswal Report

Happy Forgings Ltd.’s stock has corrected 34% from its peak over the past six months, driven by slower-than-expected revenues (9M FY25 growth was just 4% YoY), largely due to the ongoing slowdown in its core segments. However, we believe there are multiple growth drivers for Happy Forgings moving forward that will help offset the underlying demand weakness, including:

1. new order wins in the Industrials segment, which will increase its contribution to 18-20% over the next two-three years from the current 14%, and further to 30% post-peak revenues from the new Rs 6.5 billion capex;

2. new order wins in the passenger vehicle segment, which will help increase the segment’s contribution to 8-10% of revenues over the next three years;

3. a gradual revival in both domestic and European CVs; and

4. recovery in domestic tractors, while exports are expected to stabilize at lower levels.

While we have maintained our FY25 estimates, we have lowered our FY26 EPS estimates by 5% to factor in the adverse global macro. Backed by its new order wins and an improving mix, we expect Happy Forgings to post a 19% PAT CAGR over FY25-27. Following the correction, valuations at 24.2 times FY26E and 20.7x FY27E appear attractive.

We reiterate Buy with a target price of Rs 980, valued at a 26x Dec’26E EPS.

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