Happy Forgings Ltd Management Discussions

economic overview

Global Economy

The global economy has displayed resilience amidst several challenges, including the aftermath of the COVID-19 pandemic and geopolitical tensions such as the Russia-Ukraine conflict. After experiencing a peak in 2022, inflation has had a milder impact on employment and economic activity. This positive trend can be attributed to supply-side improvements and proactive measures by central banks to stabilise the effects of inflation.

The growth of the global economy is expected to remain steady at 3.2% in 2024 and 2025. This will be further augmented by the concomitant growth of the United States and other key emerging markets along with continued fiscal stimulus in China. However, there is likely to be a fall in the global growth projections to below the historical average. Some reasons for this include high central bank rates, reduced fiscal support amid high debt levels, and slow underlying productivity growth.

Globally, inflationary pressures are easing due to the resolution of supply constraints and tighter monetary policies. As a result, global headline inflation is projected to decrease from 6.8% in 2023 to 5.9% in 2024 and further to 4.5% in 2025.

In the latter half of 2023, the United States and several major emerging markets experienced stronger-than-expected economic growth. This was fuelled by robust government and private expenditures, due to increased real disposable income and a gradual easing of tight labour markets. Households accessing their savings from the pandemic period also contributed to economic activity. Some other factors that played a major role in the economic upswing include supply-

side improvements, higher labour force participation, resolved supply chain disruptions, and improved delivery times.

Despite all this, there were disparities in global economic growth with the euro area facing subdued growth. This can be attributed to factors such as weak consumer sentiment and sluggish manufacturing and business investment. Low-income economies encountered significant output losses, exacerbated by high borrowing costs. Even in the face of disinflationary trends and stable growth, there is a reduced risk of a severe economic downturn, with global growth risks balanced overall.

It is imperative for policymakers to focus on steering inflation toward target levels while implementing fiscal consolidation to strengthen budgetary resilience and address potential future shocks. There is a need for enhanced coordination among nations to tackle debt challenges and mitigate the impacts of climate change effectively.

Outlook

Looking forward, the rate of economic growth is expected to stabilise as the effects of favourable developments wane, alongside rising yields and stricter credit conditions. The moderation of inflation may be constrained by persistent supply disruptions and shifting inflationary sentiments, with the business sector experiencing pressure on margins that could result in decreased hiring and expenditure.

A major concern is the possible resurgence of consumer price inflation, which has the potential to significantly impact the economic trajectory in 2025. The latter largely depends on central banks addressing economic constraints as inflation moves closer to their targets. Given their current high real policy rates, the US and the euro area are particularly at risk, which could suppress economic activity if sustained, potentially exacerbating mild recessions.

Indian Economy

Indias economy has been resilient over the past three fiscal years despite global challenges, and this trend is expected to continue into the next decade. This has resulted from significant investments in emerging sectors, ongoing government initiatives, and efficiency improvements due to digitalisation and physical connectivity advancements.

Indias GDP growth is expected to moderate to 6.8% in the upcoming fiscal year, following a better-than-expected expansion of 7.6% in the current fiscal year. Factors such as high-interest rates and reduced fiscal deficit (to 5.1% of GDP) are likely to moderate demand. The normalisation of net tax impact is also likely to play a role. However, external factors like uneven economic growth among key trading partners and geopolitical uncertainties could dampen export prospects.

Despite this, there are some positive factors to consider. Continued disinflation will support consumer purchasing power, and a healthy monsoon season is expected to boost agricultural incomes. A gradual increase in private capital expenditure will also contribute to more widespread investment growth. Apart from this, governmental initiatives such as budgetary support for rural incomes and infrastructure spending are expected to provide additional support to economic activities.

India is poised to maintain its position as the fastest-growing large economy, with CRISIL projecting an average annual growth of 6.7% between fiscals 2025 and 2031. This growth trajectory is expected to propel Indias economy towards the US$ 7 trillion mark, making it the third-largest economy globally during this period. With this economic expansion, Indias per capita income is forecasted to enter the upper middle-income category.

India is poised to maintain its position as the fastest-growing large economy gt

While capital will continue to play a pivotal role in driving this growth, we also anticipate significant productivity gains. These gains will be an outcome of the integration of physical and digital connectivity, as well as ongoing economic and process reforms. India will be thriving in both the manufacturing and services sectors, which supports the argument that it is on a more robust growth trajectory.

Outlook

Looking forward, the industrial sector is set to experience rapid growth, drawing investments in both conventional and emerging fields, while infrastructure expenditure continues to rise. Over the next four fiscal years, overall capital expenditure (capex) is forecasted to grow between 9-11% annually, with a balanced focus on industrial and infrastructure segments. This growth is supported by three key factors.

Firstly, the financial flexibility Indian companies enjoy will allow them to pursue expansion initiatives. This will be further augmented by enhanced profitability and strategic deleveraging efforts, resulting in healthier balance sheets across the board. Secondly, consistent revenue growth of Indian companies, expected at 9-10% in the next fiscal year, indicates sustained health and utilisation of existing capacities. Lastly, benign commodity prices forecasted for the coming fiscal year will positively impact investment decisions.

Source: growth-marathon.pdf - www.crisil.com

business environment

Forging Industry

Global

The global forging market has experienced robust growth in recent years, with a projected increase from US$ 94.74 Bn in 2023 to US$ 101.93 Bn in 2024, representing a compound annual growth rate (CAGR) of 7.6%. Some factors fuelling this growth include expansion of the automotive industry, growth in the aerospace sector, oil and gas exploration activities, defence and military applications, as well as developments in railway and transportation systems. However, economic challenges in Europe, such as geopolitical threats and supply shocks due to oil price increases, have slightly dampened this trend. Despite this, recovery is expected with stabilisation by 2025.

The global forging market is forecasted to continue its strong growth trajectory, reaching US$ 132.06 Bn by 2028 with a CAGR of 6.7%. This growth will be driven by factors such as increased adoption of lightweight materials, infrastructure investments in emerging markets, expansion of the wind and solar energy sectors, and global initiatives toward carbon neutrality. Some key trends in this forecast period include advancements in closed-die forging technology, integration of industry 4.0 technologies, emphasis on sustainable forging practices, collaborative efforts in research and development, and customisation for defense and aerospace applications.

Source - Metal Forging Market Research Analysis And Industry Demand 2024-2033 - thebusinessresearchcompany.com

Indian

As of 2022-23, the medium forged components market accounted for 8.7L MT (US$ 3.2 Bn), while heavy forged components contributed 4.2L MT (US$ 2.0 Bn) to Indias forging market. Together, they represented 45% of the total Indian forging market by volume and 76% by value. This segment experienced steady growth until 2018-19, driven by infrastructure development, advancements in road transport, and increased sales of passenger vehicles in India. The market is projected to reach 17.6L MT (US$ 7.7 Bn) by 2028-29, with a CAGR of 5.4% during the period 2024 to 2029. The automotive sector holds a significant share of about 61.8% for forged components within Indias forging market in terms of volume for the year 2023. In terms of value, the automotive sector contributed approximately US$ 3.6 Bn in 2022-23, and this is expected to grow to US$ 5.4 Bn by 2029 at a CAGR of 7.6%. The market volume is also set to expand to 38.7L MT (US$ 10.2 Bn) by 2028-29, driven by increased demand for automobiles due to a rising working population and higher per capita income.

The farm equipment sector is anticipated to experience the fastest growth in terms of the value of forged components, with a CAGR of 8.4% leading to US$ 0.4 Bn by 2028-29. The industrial sector is also poised for growth, particularly with the automotive Production Linked Incentive (PLI) scheme expected to attract investments totaling ^ 748.5 Bn over the next five years, boosting demand and production in the forging industry.

Source - SEBI IHappy Forgings Limited Prospectus - "Industry Report on Global and Indian Forging and Machining Markets" by Ricardo

Key Opportunities for Forgings in Non-Automotive and Industrial Sectors

Industrial Equipment

Large forgings play a vital role in a wide range of industrial equipment and machinery across sectors such as steel, textile, paper, power generation and transmission, chemical, and refinery industries. These forgings are commonly utilised in various configurations such as bars, blanks, blocks, connecting rods, cylinders, discs, elbows, rings, Ts, shafts, and sleeves. Their versatility and strength make them indispensable for the efficient and reliable operation of industrial processes and equipment.

Wind Turbine

The wind turbine gearbox is a complex assembly comprising several key components. Forged and machined parts such as planetary and planetary carriers, pinion shafts, ring gears, and differential gears form the core of the gearbox. These are precision-engineered to meet stringent performance requirements. On the other hand, the gearbox housing is typically casted to precise dimensions suitable for accommodating these critical components and ensuring optimal functionality of the wind turbine system. This combination of forged, machined, and casted parts ensures wind turbines efficient and reliable operation, contributing to sustainable energy production.

Renewable Energy

Forgings also provide durable and reliable parts for renewable energy systems. High-quality forgings play a vital role in this sector, ensuring that components can withstand the rigorous conditions inherent in renewable energy production and operation. For instance, hydro power plants rely on forged components such as rotors, while wind power plants utilise shafts and gearboxes. These forged parts contribute significantly to the efficiency, longevity, and performance of renewable energy infrastructure, highlighting their importance in advancing sustainable energy solutions.

Power

The global power generation market is poised for significant growth, driven by the increasing demand for reliable backup power solutions across healthcare, telecommunications, and manufacturing sectors. This is expected to further fuel the demand for a wide range of forged and machined components in the power generation industry. These include engine blocks, cylinder heads, crankshafts, and generators, among others. Forged power transmission components are particularly crucial for critical load and safety applications. They help extend the product life and minimise the risk of failure. Some examples of these components include braking yokes, steering components, shafts, shifting forks, driveshaft yokes, axles, collars, pinions, spindles, and clutch hubs. They play a vital role in ensuring power generation systems efficient and reliable operation.

Aerospace

The production of commercial aircraft is experiencing growth due to factors such as population increase and expanding trade. A typical commercial aircraft incorporates approximately 450 structural forged parts along with numerous forged engine components. Forged parts are favoured in aircraft construction due to their excellent strength-to-weight ratio. Moreover, these parts have demonstrated resilience in handling varying temperatures and atmospheric pressures experienced at different altitudes.

Nuclear Power

The nuclear power industry extensively relies on forged metal parts for various critical applications such as reactors, nuclear waste storage, and transportation of raw materials and waste. Forged components are particularly crucial in manufacturing pressure vessels due to their ability to withstand high temperatures and pressures. The utilisation of forged parts in machines within the nuclear power sector, which operate under extreme conditions, is a significant driver of growth in the forging market. The increasing adoption of nuclear power as an alternative to conventional energy sources further contributes to expanding the forging industry.

Defence

The defence industry is a major consumer of forging and machining components from small firearm parts to large components for military vehicles and aircraft. Forged components are integral to various defence equipment, including rifle triggers, nuclear submarine drive shafts, heavy tanks, missiles, armoured personnel carriers, shells, and other heavy artillery. This highlights their critical role in ensuring defence systems robustness, reliability, and performance across different platforms and applications.

Global Commercial

Vehicles Market

The global commercial vehicles market size reached US$ 803.6 Bn in 2023. Looking forward, IMARC expects it to reach US$ 1,114.2 Bn by 2032, exhibiting a CAGR of 3.6% during 2024-32. The market is majorly driven by increasing trade and cross-border transportation. The expansion of e-commerce and last-mile delivery services contributes significantly to the market. Other factors influencing the growth of this market include rising demand for efficient goods movement in urban areas; growing infrastructure development and road network expansion; rapid industrialisation and manufacturing activities; escalating replacement demand due to ageing commercial vehicle fleets and the increasing need for temperature- controlled transport in the food and pharmaceutical industries are stimulating the market; and the growing demand for specialised vehicles like refrigerated trucks and tankers.

(Source - Commercial Vehicles Market Share, Size, Report 2024-32 - imarcgroup.com)

Global Tractor Market

Global tractor sales are poised to exhibit a robust growth trajectory, with a projected CAGR of 5.0% by sales volume from calendar year 2023 to calendar year 2029. India is anticipated to lead this market expansion with an even higher CAGR of 6.3% during the same period. Currently, India holds a substantial 44% share of the global tractor market as of calendar year 2022.

This share is expected to increase to 48% by calendar year 2029 in terms of volume. Over the 2023-29 period, minimal electrification is projected in the agricultural machinery sector.

The two of the largest global economies which are the United States and China are also expected to contribute significantly to the growth of tractor sales. They are projected to achieve CAGRs of 4.3% and 4.1%, respectively, during the period from calendar year 2023 to calendar year 2029. Factors such as farm mechanisation and the integration of telematics with agricultural tractors are driving this growth in these regions.

Source - SEBI IHappy Forgings Limited Prospectus - "Industry Report on Global and Indian Forging and Machining Markets" by Ricardo

Global Off-Highway Vehicles Market

The global off-highway vehicle (OHV) engine market is expected to witness substantial growth, from US$ 23.59 Bn in 2023 to US$ 35.79 Bn by 2030, representing a robust CAGR of 6.1% during the forecast period. This growth is primarily driven by the rising sales of agricultural and construction machinery worldwide.

The rise in infrastructure projects driven by rapid urbanisation and heightened government efforts, particularly in emerging economies, to improve agricultural mechanisation, are pivotal factors driving the demand for off-highway vehicle engines.

As the adoption of construction and agricultural machinery continues to rise, the demand for OHV engines is expected to follow suit across various regions globally.

Source - Off-Highway Vehicle Engine Market Trends j Forecast (2030) - fortunebusinessinsights.com

Global Industrial Engine Market

The global industrial engine market is poised for significant growth, with an estimated value of US$ 18.6 Bn in 2024 and a projected CAGR of 6.3% through 2034. By 2034, the market is forecasted to reach a substantial valuation of US$ 34.28 Bn. This growth is being driven by a surge in demand due to ambitious government projects aimed at developing industrial zones, manufacturing facilities, and urban centres worldwide. These initiatives necessitate the use of heavy equipment and machinery, which heavily relies on industrial engines for power generation and supply.

The demand for industrial engines is also escalating due to their role in powering standby generators to address frequent power outages in both urban and rural areas. This dual application underscores the critical importance of industrial engines in supporting infrastructure resilience and uninterrupted operations.

Looking ahead, major players in the industry are embracing digitalisation and integrating IoT into industrial engines. This strategic shift is revolutionising the landscape by enhancing monitoring, maintenance, and control capabilities. IoT-enabled industrial engines provide real-time data insights, facilitate predictive maintenance, and optimise fuel efficiency, thereby contributing to sustainability efforts and ensuring energy reliability. This trend towards digital transformation is poised to redefine the performance, efficiency, and environmental footprint of industrial engines in the years to come.

Indian Commercial Vehicles

Market

The Indian commercial vehicle (CV) production market is poised for substantial growth, with an anticipated CAGR of 7.1% from 2022-24 to 2028-29. This growth trajectory is primarily driven by key government initiatives such as the Make in India campaign and the PLI scheme. The scheme aims to provide financial incentives to bolster manufacturing activities and attract investments across the commercial vehicle value chain.

Additionally, the governments steadfast commitment to major infrastructure projects further contributes to the surge in CV demand. The announcement of a significant investment of US$ 2.5 Bn in 2023 by the National Bank for Financing Infrastructure and Development (NaBFID) specifically earmarked for energy, urban infrastructure, and airport-related projects underscores this commitment.

The implementation of the scrappage policy starting from April 2023 is another pivotal factor driving growth. A substantial portion of existing vehicles in the Medium and Heavy CV segments are exceeding 10 years of age. These segments are thus projected to grow at robust CAGRs of 9.4% and 5.2%, respectively, from 2023-24 to 2028-29.

Furthermore, the light commercial vehicle (LCV) segment, particularly in the 3.5 tonnes to 7.5 tonnes range, is poised for significant growth with a projected CAGR of 9.5%. This is attributed to government policies easing axle norms, which enable freight operators to carry an additional 20-25% payload. This enhancement in carrying capacity benefits large fleet operators, especially those transporting dense bulk commodities, by improving their margins and operational efficiencies.

Overall, the confluence of government initiatives, infrastructure investments, implementation of scrappage policies, and regulatory reforms is expected to drive sustained growth and dynamism in Indias CV production market over the coming years.

Source - SEBI jHappy Forgings Limited Prospectus - "Industry Report on Global and Indian Forging and Machining Markets" by Ricardo

Indian Tractor Market

The Indian tractor volume market is poised for significant growth, with an anticipated CAGR of 6.3% from 2023-24 to 2028-29. This growth trajectory is bolstered by key government initiatives, including the easy financing of tractors under Indias National Bank for Agriculture and Rural Development (NABARD) norms. Additionally, several other government initiatives such as the Atmanirbhar Bharat Abhiyan, Animal Husbandry Infrastructure Development, and reforms in Acts related to Essential Commodities, Agriculture Marketing, and Agriculture Produce Pricing are expected to drive this growth.

Specifically, the segment of tractors with less than 20 horsepower (HP) is projected to grow at a robust CAGR of 6.9% during the same period. This growth can be attributed to various concessions and policies introduced by the Indian government, such as the exemption of excise duty and subsidies for purchasing tractors below 18 HP. These incentives are specifically targeted at farmers with irrigated land ranging from 2.4 to 3.2 hectares, aiming to enhance agricultural productivity and mechanisation in smaller farm holdings.

Overall, the confluence of favorable financing options, government incentives, and policy reforms is expected to drive sustained growth and adoption of tractors across different segments in Indias agriculture and rural development sector. These initiatives play a pivotal role in supporting farmers, enhancing agricultural efficiency, and promoting overall economic resilience in the rural landscape.

Source - SEBI jHappy Forgings Limited Prospectus - "Industry Report on

Global and Indian Forging and Machining Markets" by Ricardo

Indian Off-Highway Vehicles

The OHV market in India is poised for substantial growth, with an expected CAGR of 7.8% from 2023-24 to 2028-29.

The Crawler Excavator segment is expected to significantly contribute to this growth, at a robust CAGR of 8.7% during the same period. Additionally, the Backhoe Loader segment is expected to witness a solid growth rate of 7.5% CAGR from 2023-24 to 2028-29.

The rapid demand for OHVs across various applications and sectors is driven by factors such as rapid industrialisation, urbanisation, and increased import-export activities.

Furthermore, the adoption of new CEV-IV emission standards by the Indian OHV industry presents significant opportunities for Indian construction equipment manufacturers to enter developed markets. This not only aligns with global environmental standards but also enhances the competitiveness of Indian OHV exports.

Key countries that import Indian construction equipment include the United States, Australia, Indonesia, Bangladesh, and Nigeria. Notably, the United States has shown the fastest growth in import shipments from India, indicating a growing market demand and acceptance of Indian OHV products in international markets.

Overall, favourable market conditions, technological advancements, and adherence to emission standards position Indias OHV market for continued growth and expansion both domestically and globally.

Source - SEBI jHappy Forgings Limited Prospectus - "Industry Report on Global and Indian Forging and Machining Markets" by Ricardo

Indian Industrial Engine Market

The Indian industrial engines market is poised for steady growth, with an expected CAGR of approximately 4.8% from 2023-24 to 2028-29. Several key factors, including increasing government funding in various infrastructure projects and a rising rate of industrial mechanisation across different sectors in the country drive this growth trajectory.

The development of the power gensets industry is a significant contributor to the growth of the industrial engines market. The demand for reliable and continuous power supply solutions, coupled with technological advancements in power generation equipment, is driving the expansion of this segment.

Indian engine manufacturers are actively expanding their global presence, leveraging Indias strengths such as cost competitiveness, skilled labour force, and favourable government policies. India has emerged as a hub for engine exports, with growing demand for Indian-made engines in international markets. This trend is contributing significantly to the countrys overall growth of the industrial engine sector.

Source - SEBI jHappy Forgings Limited Prospectus - "Industry Report on Global and Indian Forging and Machining Markets" by Ricardo

Automotive Component Industry

Global

The global auto component market is projected to experience a steady growth rate of 3.7% CAGR from calendar year 2023 to calendar year 2029. This growth is primarily driven by an uptick in demand for both passenger cars and commercial vehicles, alongside a rising trend towards personalisation in the automotive industry.

There is a notable shift in auto component manufacturing, with a gradual move towards Asian countries such as China and India. These regions offer higher market potential and cost advantages in manufacturing. In particular, China holds a significant 40-50% share in the global auto component industry. Strong exports and robust domestic sales within the Chinese market support this dominance.

The increasing demand for auto components is closely tied to the automotive sectors overall growth, driven by technological advancements, regulatory requirements, and evolving consumer preferences. As automotive manufacturers focus on innovation and customisation to meet consumer demands, the auto component market continues to expand steadily. Asia is expected to play a pivotal role in shaping global manufacturing and supply chain dynamics.

Source - SEBI jHappy Forgings Limited Prospectus - "Industry Report on Global and Indian Forging and Machining Markets" by Ricardo

Indian

The auto component market turnover is poised for significant growth, with an anticipated CAGR of 10.6% from 2022-23 to 2028-29. This growth trajectory is supported by increasing demand and favourable government policies aimed at boosting the sector. Policies such as allowing 100% FDI under the automatic route and the PLI scheme for auto and auto components are key drivers expected to bring substantial capit expenditure of around US$ 9.58 Bn by 2028-29.

Engine components predominantly dominate the market, commanding a 24% share, followed by suspension, electricals, and electronics, each with a 15% share. Engine component manufacturing is characterised by its technology and capitalintensive nature, serving as an entry barrier, especially for smaller players and the unorganised segment. Components sui as pistons, engine valves, carburettors, fuel injection systems, camshafts, connecting rods, and rocker arms are crucial elements within the engine component segment.

Indias robust manufacturing ecosystem, the availability of skilled labour and essential raw materials, and strong government incentive schemes promoting Make in India, are pivotal factors contributing to Indias emergence as a global manufacturing hub in the auto component sector. These factors collectively foster a conducive environment for growth, innovation, and competitiveness, positioning India as a key global auto component market player.

Machining Market

Global

The market for machined components for industrials and other sectors, including industrial, lawn and garden, marine, power generation, and railways, is forecasted to grow at a steady CAGR of approximately 5.2% by value from calendar year 2023 to 2029, reaching a value of US$ 71.2 Bn by calendar year 2029.

The European market is expected to one of the key areas of growth. Key European suppliers of critical engine parts are facing significant cost pressures due to the transition from internal combustion engines to electric vehicles. Consequently, they are re-organising their unused capacity to cater to nonautomotive applications, where demand is on the rise.

India is poised to become a global hub for manufacturing. This is driven by various factors such as the China plus one strategy adopted by multinational companies, the ongoing Ukraine- Russia crisis affecting global supply chains, high production costs in Europe and the United States, and Indias status as the lowest-cost producer in the world after China. These factors collectively contribute to Indias attractiveness as a manufacturing destination.

Apart from this, India benefits from a robust manufacturing ecosystem, easy availability of skilled labour, access to key raw materials, and strong government incentive schemes such as Make in India. These initiatives are instrumental in promoting domestic manufacturing, enhancing competitiveness, and positioning India as a preferred global manufacturing hub across various sectors, including machined components for industrial applications.

Source - SEBI jHappy Forgings Limited Prospectus - "Industry Report on

Global and Indian Forging and Machining Markets" by Ricardo

Indian

In 2022-23, the automotive sector accounted for approximately 92% of Indias machined components market share by volume. This market is expected to experience substantial growth, reaching 47.2 Mn units (US$ 8.0 Bn) by 2028-29, driven by increased demand in the automotive industry. This demand surge is supported by factors such as a rising working population and an increase in per capita income.

Within the machined components market, the farm equipment sector is expected to exhibit the fastest growth, with a CAGR of 9.8% during 2023-24 to 2028-29, reaching a market size of US$ 1.4 Bn by 2028-29.

The automotive machining market in India is segmented as follows: Passenger Vehicles (PV) contribute approximately 44% by volume, followed by Two-Wheelers (2W) at approximately 40%, and CVs at approximately 13% as of 2022-23. By value, PV contributes about 40%, followed by 2W at approximately 33%, and CV at approximately 23% of the overall share as of 2022-23.

Indias contribution to global machined components exports stands at about 4%, with an all-time high recorded in 2023. India exports around US$ 1.3 Bn worth of machined components, primarily to North America and Europe. Exports constitute around 20% to 23% of the total production volume. Despite challenges, such as the dip in the market during 2019-20, Indian exports have remained resilient and are expected to steadily increase due to rising manufacturing costs in other geographies like North America and Europe.

Source - SEBI jHappy Forgings Limited Prospectus - "Industry Report on Global and Indian Forging and Machining Markets" by Ricardo

Key Trends and Growth Drivers

The global machining market is accelerated by factors such as industrial expansion, rising demand for precise components, improving economies and technological advancements. The growing oil and gas sector needs will majorly propel the metal machining markets expansion. The requirement for oil and gas increased due to the quick industrialisation and urbanisation of developing nations like China and India and rising energy consumption.

The automotive industry category was the primary source of market growth for metal machining. Given the extensive use of metal parts in the automobile industry, it is one of the most significant end-user segments of the worldwide metal machining market. The fastest-growing market for machining is in the Asia-Pacific region, which will provide market vendors with several chances for expansion over the estimated time frame.

f Increasing Opportunities in Non-

V Automotive and Industrial Sector

Major non-automotive and industrial sectors which require machined components are Construction, Mining, Power Transmission, Nuclear, Industrial Equipment, and Aerospace.

Industrial Equipment

Large machined forgings can be found in various industrial equipment and machinery utilised by the steel, textile, paper, power generation, transmission, chemical, and refinery industries. Commonly used configurations include bars, blanks, blocks, connecting rods, cylinders, discs, elbows, rings, Ts, shafts, and sleeves.

Power Transmission

Forged and machined power transmission components are used in critical load and safety applications to provide the longest possible product life and to reduce the risk of failure. Components include braking yokes, steering components, input/ output shafts, shifting forks, dogs and pawls, driveshaft yokes, axles, collars, pinions, spindles, input/output shafts, and clutch hubs, among other things.

Renewable Energy

Machined components are essential to provide the strong, durable parts needed to support renewable energy systems. Hydro power plants use machined components like pelton disc and bucket and wind power plants use machined components like shafts, casing, and planetary gearbox.

Aerospace

The production of commercial aircrafts is rising due to increased population and trade. An average commercial aircraft contains almost 300 structural machined parts and numerous machined engine parts. Additionally, machined products provide precision quality in aerospace applications. In defence applications, aircrafts require complex structural machined and forged parts.

jjNuclear Power

The nuclear power industry uses forged and machined parts for reactors, storage of nuclear waste, raw material, and transport. The rise in the use of nuclear power instead of conventional power sources is driving the machining market.

Defence

Machined components are found in every implement of defence, from rifle triggers to nuclear submarine drive shafts. Heavy tanks, missiles, armoured personnel carriers, shells, and other heavy artillery are common defence-related applications of forged components. Machined components used in defence sector are motor housings, gear components and fuel pump.

Crankshaft Market

Global Crankshaft Industry

The global crankshaft market is anticipated to recover and experience growth during the calendar year 2020-23. This recovery will be driven primarily by the governments focus on infrastructure spending and the gradual recovery of consumer demand and businesses from the impacts of the pandemic. Beyond 2023, the global crankshaft market is expected to continue growing due to increased investments in the development of powertrain technologies by major original equipment manufacturers (OEMs) and the expected growth in the construction industry of Southeast Asian countries.

The growth in Southeast Asian construction industries is expected to promote crankshaft exports from key manufacturing countries such as India, China, the United States, and Europe to these regions. This indicates a broader trend of global supply chain dynamics and market expansion.

The overall growth of the global crankshaft market from calendar year 2023 to 2029 will be driven by factors such as an increase in demand for automobiles (Passenger Vehicles (PVs), CVs, Two-Wheelers) supported by GDP growth worldwide.

Source - (SEBI jHappy Forgings Limited Prospectus - "Industry Report on Global and Indian Forging and Machining Markets" by Ricardo)

Indian Crankshaft Industry

The crankshaft market is poised for steady growth across various automotive verticals, with projections indicating an increase in demand. By 2029, the automotive vertical is expected to grow to 30.7 Mn units, farm equipment to 1.5 Mn units, and OHVs to 0.1 Mn units, reflecting an overall CAGR of 6.4% during 2024-29 in terms of volume.

In terms of market value, the crankshaft market is forecasted to grow from US$ 4.92 Bn in 2023 to US$ 7.73 Bn by 2028-29, exhibiting a CAGR of 8.3% over the period from 2023 to 2029. This growth trajectory is underpinned by an expected increase in demand for medium and heavy forged crankshafts, particularly driven by construction sector investments, which are anticipated to boost demand in the CV and off-highway segments.

As of 2022-23, the market segmentation by value indicates that Two-Wheelers (2W) contribute approximately 40%, followed by PVs with approximately 33%, and CVs with approximately 23% of the overall share. The projected rise in demand for automobiles is anticipated to expand the market size to US$ 6.14 Bn by Fiscal 2028-29, with a CAGR of 8.4% during 2024-29.

Source - (SEBI jHappy Forgings Limited Prospectus - "Industry Report on Global and Indian Forging and Machining Markets" by Ricardo)

company overview

Happy Forgings Limited (HFL or The Company), headquartered in Ludhiana, is a renowned company specialising in diversified forging and machining services with a rich legacy spanning appx. 45 years. Established in 1979, the Company has built a strong reputation for manufacturing and delivering top-quality, intricate components across various industries. Happy Forgings stands out as the fourth-largest engineering-led manufacturer in India, particularly excelling in complex and safety-critical heavy forged and high-precision machined components.

The Companys expertise and focus are well-aligned with the industries and customer segments it serves, including Commercial Vehicles, Farm Equipment, Off-Highway Vehicles, Industrial Equipment for oil and gas, power generation, railways and wind turbine segments and Passenger Vehicles. Its operations are based out of Ludhiana, Punjab, where the Company operates three vertically integrated manufacturing facilities.

With a solid foundation and a strong foothold in its target markets, Happy Forgings is well-positioned for growth in the coming years. The Companys growth strategy revolves around several key pillars, including expansion through increased capacities to meet rising demand, product diversification to cater to evolving industry needs, client acquisition to expand its customer base, and tapping into emerging opportunities in industrials and exports.

Through its commitment to quality, innovation, and customer satisfaction, HFL is poised to continue its success story and contribute significantly to the

Performance Overview

Analysis of Financial Performance

Particulars	For the year ended 31st March, 2024	For the year ended 31st March, 2023*
Revenue from operations	1,358.24	1,196.53
Gross profit	761.64	645.47
Employee costs	114.46	87.78
Other expenses	259.64	216.76
Earnings before Interest, Tax, Depreciation & Amortisation (EBITDA)	387.54	340.94
Depreciation	64.73	54.18
Earnings before Interest & Tax (EBIT)	322.81	286.75
Finance costs	11.78	12.48
Other income	13.35	5.75
Profit before tax	324.39	280.03
Profit after tax	242.99	208.70
EPS (Basic)	26.78	23.32
EPS (Diluted)	26.75	23.32

Key Financial Ratios

Particulars	2023-24	2022-23*
Gross margin	56.1%	53.9%
EBITDA margin	28.5%	28.5%
PAT margin	17.9%	17.4%
Return on Equity (RoE)	18.7%	23.5%
Return on Capital Employed (RoCE)	21.8%	25.7%
Debt/Total Net Worth	0.1x	0.2x
Net debt / EBITDA	0.1x	0.6x
Gross fixed assets turnover	1.3x	1.4x
Inventory turnover	3.0x	3.1x
Trade receivable turnover	4.0x	4.4x
Trade payable turnover	14.8x	13.8x

I Business Risk

Impact

Mitigation

Dependence on the top 10 customers poses a considerable risk, as any reduction in orders or termination of contracts could lead to significant business loss.

Our top 10 customers contributed to 68% of our revenues in 2023-24, however over the years share of top 10 customers has decreased significantly. We are proactively taking steps to mitigate potential concentration risk by actively diversifying our customer base by pursuing new contracts while also placing a strong emphasis on nurturing and strengthening relationships with our existing customers. Through these strategic actions, we aim to enhance the sustainability and resilience of our business in the long term.

I Financial Risk

Impact

Mitigation

Our Company is exposed to financial risk stemming from indebtedness, which could impede our ability to meet repayment obligations and adhere to financing agreement covenants. This situation can adversely affect our business operations, financial health, and cash flows.

Weve implemented a sound approach to fortify our financial position. By ensuring that our business generates favorable returns and cash flows, weve upheld a conservative financial structure with minimal reliance on external financing. Our current debt levels are modest, with long-term borrowings being addressed using funds from our IPO. Moreover, our low debt / equity ratio of 0.1x, and a net cash position serves as a significant buffer against risks, positioning us well to navigate and mitigate any financial hurdles.

Operational Risk

Impact	Mitigation
We acknowledge potential challenges related to meeting quality standards, which could result in liability issues. Furthermore, our reliance on a limited number of steel suppliers poses a risk of supply disruptions. Additionally, the possibility of shutdowns or production issues affecting our operations, coupled with dependence on third- party transport providers, presents potential for delays and increased costs. These factors necessitate diligent management and proactive measures to mitigate associated risks.	To address these challenges, we have implemented comprehensive measures aimed at ensuring the highest quality standards. This includes stringent quality control protocols, ongoing investment in employee training, and maintaining product liability insurance coverage.
	We have taken steps to diversify our supplier relationships and closely monitor the steel market to ensure supply chain stability. In anticipation of potential disruptions, we have developed robust contingency plans, intensified facility maintenance efforts, and prioritised employee safety protocols.
	Moreover, we have diversified our transportation options to mitigate logistical challenges, maintaining open communication with logistics partners, and exploring alternative routes to enhance operational resilience. These proactive measures underscore our commitment to mitigating risks and maintaining the reliability of our operations.

Environmental and Regulatory Risk

Impact	Mitigation
Given the growing emphasis on environmental sustainability and the tightening regulations within the manufacturing industry, it is imperative that we take proactive measures to identify and comply with environmental standards.	We allocate resources towards investing in green technologies to minimise our environmental footprint, thus ensuring compliance with evolving environmental regulations and mitigating regulatory risks.

Technological Risk

Impact

Mitigation

Our operations are vulnerable to technological failures, which have the potential to disrupt business processes and adversely impact financial performance. Any shortcomings or inefficiencies in our IT infrastructure could lead to transaction errors, processing delays, and disruptions that may affect our customers, resulting in financial losses.

To mitigate technological risks, we allocate and efficiently manage resources to maintain and improve our IT infrastructure. We have enacted security initiatives and disaster recovery plans to tackle vulnerabilities and potential interruptions caused by external events, including natural disasters, cyber threats, and telecommunication failures. We consistently review and update these measures to fortify the resilience of our IT systems and minimise the potential impact of technological disruptions on our operations and customer relationships.

Pricing Pressure Risk

Impact

Mitigation

Our profitability is susceptible to pricing pressure from customers, which could have adverse effects on our gross margin, profitability, and ability to sustain prices. This, in turn, could impact our operations, cash flows, and financial condition.

To address this risk, we undertake value engineering activities, negotiate price reductions with suppliers, and continuously enhance manufacturing processes to boost efficiency and reduce costs. Moreover, we negotiate discounts when necessary while concentrating on increasing sales volumes to counterbalance customer price reductions. Through these strategies, we strive to uphold our profit margins and sustain competitiveness in the market.

Human Resources

The Company has always placed high value on its human resources, recognising the optimum potential of each employee. As of March 31, 2024, the Company had 3,017 employees on its payroll. We firmly believe that People are the most valuable resource of any organisation, and their interests and welfare are our prime concerns. We strive to unlock their best by creating opportunities for growth and development, while maintaining discipline and demeanor in line with the culture and values of the organisation. In this endeavor, the company undertakes various initiatives for the betterment of its employees, such as Learning and Development programs, Employee Satisfaction Surveys, Employee Engagement and Welfare initiatives, Health and Safety measures, and more. Additionally, the Company has a comprehensive manual on HR policies, which consolidates and integrates various codes of practices related to specific aspects of Human Resources.

Internal Financial Control System and its Adequacy

Happy Forgings has adequate internal financial control systems in all areas of its operations. The Board of Directors has adopted policies and procedures to ensure the orderly and efficient conduct of business.

These include adherence to the Companys policies, safeguarding its assets, preventing and detecting frauds and errors, ensuring accuracy and completeness of the accounting records, and preparing reliable financial information in a timely manner. From time to time, the Company employs both internal and external auditors to supplement its in-house expertise and resources. The Company continuously upgrades its systems in line with the best practices in the industry. Reports and deviations are regularly discussed with the Management Committee members, and action is taken whenever necessary. An Independent Audit Committee of the Board reviews the adequacy of the internal financial control.

Cautionary Statement

The financial statements appearing above are in conformity with the accounting principles generally accepted in India. The statements in the Management Discussion and Analysis Report, which may be considered forward-looking statements, within the meaning of applicable laws and regulations, have been based on current expectations and projections about future events. The actual results could differ from those expressed or implied. Important factors that could influence the Companys operations include global geopolitical shifts, economic developments within the country, demand and supply conditions in the industry, input prices, changes in Government regulations, tax laws and other factors, such as industrial relations. The Management cannot, however, guarantee that these forwardlooking statements will be realised or achieved.