Ladies and gentlemen, good day and welcome to the Q4 FY 2024 earnings conference call of Happy Forgings Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Garg, Managing Director from Happy Forgings Limited. Thank you and over to you, sir.
Good morning and a very warm welcome to all. With me, I have Mr. Pankaj Goyal, CFO of the company and our investor relation advisor, Strategic Growth Advisors. For the quarter four results, we have uploaded our presentation on the exchanges and I hope everybody had an opportunity to go through the same. Let me start with a brief overview of the business for the quarter and the year gone by. Financial year 2024 has been an important year in our 45-year-long journey making our entry into public capital markets and I'm pleased to share that we closed this year on a positive note with improvements on three dimensions: growth, margins, and revenue diversification. Despite the slowdown in the key industry segments and the Red Sea crisis, we achieved 16% growth in revenues, 22% growth in EBITDA margin, and 27% growth in our net margin on year-on-year basis.
We managed to improve our gross margin by 300 basis points, EBITDA margin by 150 basis points, and PAT margin by 160 basis points to 17.9% in FY 2024. This was on the back of our conscious efforts over the years to increase the contribution of machined products, changing segment mix towards higher share of industrial products, and increasing exports contribution. For FY 2024, finished goods volume grew by 9% to 55,400 metric tons, while EBITDA per kg improved by 12% to INR 70 per kg from INR 63 per kg. This enhancement in profitability per unit is a testament to our relentless focus on operational efficiency and value creation.
While these metrics provide some insights into our performance, it is essential to recognize that our company is primarily focused on machining of high-precision products which is in 5-10 micron category and operates across a diverse range of product options spanning from 5 kg -250 kg. For FY 2024, contribution of machined products which has higher realization and margin increased from 79%-85%. Share of industrial business increased from 4%-12% leading to further diversification of the business in the non-auto sector. Exports increased from 13%-20%. These efforts over the years along with our leveraging in-house capabilities, fungible production lines, and advanced technology adoption, we are well insulated to navigate challenges. One of the significant highlights of fiscal year was our foray into passenger vehicle sector, both domestically and in export markets.
With the recent order wins from leading global OEMs in the sector, we demonstrated our capability to expand wallet share from existing customers, giving us good visibility to achieve 8%-10% contribution to sales from this segment in the next two years. Furthermore, our commitment to expansion remains steadfast. With planned additions in forging and machining capacities progressing as per schedule, we will be adding 11,000 tons of machining capacities in current fiscal year, an increase of approximately 20%, and expect ramp-up of production on these facilities during this year. I am pleased to report that in line with our commitment to creating shareholder value, the board of directors has recommended a final dividend of INR 4 per equity share on the face value of INR 2, which roughly translates into a 15% payout ratio. Over the medium term, we are confident in our 15%-20% growth projection.
This is driven by rising utilization of our existing units, ongoing capacity expansion, and acquiring new customers globally and domestically. Our price pass-through mechanism ensures stability in margin profiles, reinforcing our growth trajectory. We have built strong foundations of a business that focuses on complex and safety-critical components, heavy forged, and high-precision machine components, and we shall continue to focus on leveraging our capabilities and strengths to increase the business. Attract new sectoral mix. To conclude, our engineering capabilities coupled with machining capabilities and advanced technologies that we deploy as part of our manufacturing operations position us to capitalize on the opportunity presented by the growing market globally. Now I would like to hand over the call to Mr. Pankaj Goyal for financial performance during the quarter.
Good morning, everyone. We are pleased to report the financial performance for quarter four and FY 2024. Starting with the financial year 2024 performance, we would like to highlight here that in FY 2023, the company recognized government grants in relation to refund of eligible and net SGST incentives pertaining to earlier years sales amounting to INR 23.75 crore. Adjusting for the same in FY 2023 period, the figures for the current financial year will be revenue stood at INR 1,358 crore, growth of 16% on a year-on-year basis. EBITDA stood at INR 388 crore, growth of 22% on a year-on-year basis. EBITDA margin stood at 28.5%, growth of 150 basis points on a YOY basis.
Profit after tax for the quarter stood a t INR 243 crore, growth of 27% on a year-on-year basis. On the front of Q4, FY 2024 performance, revenue stood at INR 343 crore, growth of 14% on a year-on-year basis.
EBITDA stood at INR 97 crore, growth of 13% on a year-on-year basis. EBITDA margin was stable at 28.3%. Profit after tax for the quarter stood at INR 66 crore, growth of 30% on a year-on-year basis. On the balance sheet side, return on equity after adjusting for FDRs and post-tax interest therein was 20.6%. ROCE after adjusting for FDRs and interest therein, capital advances and CWIP was 26.9%. On the cash flow side, we would like to draw your attention to disclosures in the cash flow statement in the financial results. In the computation of cash flow from operations due to oversight, changes in non-current financial assets, which actually was investment in FDRs, have been included. Rectifying this, cash flow from operations after tax will be INR 189 crore instead of INR 29 crore as reported in the results.
As of 31st March, we are a net cash company and we would like to reiterate that we are supported by a robust balance sheet and we are well positioned to seize growth opportunities, optimize our returns, profit profiles for strategic capital deployment. That is all from our end. We now leave the floor open for questions and answers. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use the handset while asking a question. Ladies and gentlemen, we'll wait a moment while the question queue assembles. The first question is from the line of Nishit Jalan from Axis Capital. Please go ahead.
Yeah, hi. Hi, Ashish. Congratulations on good set of numbers. My first question is, I just wanted to I have seen that you have disclosed three more new orders. I'm assuming this is for this quarter. So cumulatively now, how do you see a ramp-up of new orders in FY 2025? What kind of growth would come purely from new orders? And how do you see the end-user industries in both India and in the overseas markets in both your two key segments, commercial vehicle and tractors?
Thank you, Nitesh. So I'll start with the sectors first and then we'll come to the new orders. So looking into the farm equipment sector as well as the CV sector, we are aware that both the sectors are slightly down. Farm equipment is not performing for the past 12, 14 months now. But looking into the opportunity now, post-election, we are looking at a CAGR growth of almost 8.5% from FY 2024 to 2029. And there is still potential to add more customers for us. So we are still working on new customer addition in farm equipment side as well as on the CV side that we have added in the last couple of years. So for us, market share is definitely expected to grow in both these sectors on the domestic side.
Even on the export side, we are working on new customers as well as new projects which we have taken over in the last three years for which ramp-up is expected in current financial year and next financial year. When it comes to the industrial business, the business is increasing for us because of our 14,000-ton press line which started almost 12 months back where we started forging parts up to 250 kg. That has given us an opportunity to enter into industrial mixed range of businesses. We are able to do heavy wind profile parts as well as heavy axle parts which are in a range of 200-220 kg.
On the new order wins, we have received some fresh orders from PV sector in the domestic market as well as on the brake flanges as well as on the e-axle programs which are going to start from this financial year. So on the PV side, we are quite bullish. Already, we expect around 5%-6% revenues to come in this year from PV and this will further grow to 7.5%-8% going forward in next year. So the ramp-up on these orders for the fresh is already the testing has been completed. We are just waiting for the new lines to set up and we are expecting ramp-up to start from the month of June. Whereas on the export side, on the e-axle program, we are expecting the ramp-up to start from last quarter. So that's on the PV side.
Hello?
Yeah, hope I'm able to answer you, Nishit.
Yeah, yeah. Ashish, just wanted to understand good to get the long-term growth expectations. Just wanted to understand how are you looking at FY 2025, 2026 from an industry perspective? Because multiple OEMs are giving a different varied kind of guidance. For example, on commercial vehicle side, Tata Motors is slightly cautious while Ashok Leyland seems to be bullish. So just wanted to understand how are you seeing FY 2025 in terms of end customers? And one more thing which I wanted to check was that on order side, there are multiple new orders that you have won. Cumulatively, what is the quantum of orders which will translate into revenues in FY 2025 or FY 2026? Whatever data you can share over here will be pretty helpful.
Definitely on the TV side, yes, we are getting a mixed view, but we are expecting a low single-digit growth even in the CV space. There was some correction in CVs and yes, Tata Motors was they have given a conservative view, but as of now, we are seeing a single-digit growth even in the CV space. On the farm equipment side, as the industry is down for the last 12-14 months now, we are in fact expecting 8%-10% growth in this financial year. In terms of when we have discussed on the market share, at the same time, we are expecting increase in our market share as we have added new clients based on this.
So last year, if you see our new order book stands at INR 600 crore, out of which INR 250 crore we have executed in last year from the new orders. And now, as of now, if you see, it is again to the tune of INR 650 crore if we exclude that INR 250 crore that we have executed in the last year. So order book as well, it's increasing for us and we are working on new and new projects.
Got it. Got it. Got it. Ashish, on CapEx side, how should we look at because while on machining side, you are operating at high capacity utilization, but on the forging side, I think you have enough capacity for the next two years. So are we looking at further capacity expansion on the forging side also?
Yes, we are looking at because on the PV side, we are bringing in 3,000 tons and 6,000 tons press lines largely to cater to the CV growth that we are seeing. The 6,000-ton press line is expected; it's already received in our plant. It is expected to start at the beginning of third quarter of this financial year. On the machining side, we are adding 11,000 tons of capacity. So the capacity will increase from 51,000 tons to 62,000 tons. And 50% of that capacity will probably come in beginning of second quarter. So we are already operating at 87%-90% utilization levels on our machining capacities. So as soon as the new capacities are in place, we'll be starting to ramp up. So there is a delay by two months because of the Red Sea crisis.
We were expecting these capacities to be in place in the month of March, but now we are expecting it to start from the month of June onwards. We are already waiting to do the PPAP on these new lines.
Okay. Okay. Thank you so much.
Thank you.
Thank you. The next question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.
Hi, Ashish. Congrats on good set of numbers. Quickly, with respect to industrial segments, we have seen a very good evolution in FY 2024 with share going up to 12%. So what were the drivers of such a sharp increase in industrial segment in FY 2024? And particularly if I take a step forward, how do you see this 12% evolving over FY 2025, 2026? I believe a couple of large orders are getting into serial production in FY 2025. So if you can talk about that.
Yes, Dinesh. So Jinesh, at the moment, we are classifying our industrial sector as an off-highway sector separately. But many companies, if you see, are kind of classifying it together. So currently, the share of industrial as well as off-highway sector put together is around 25%, which has grown from 20%. Going forward, we are seeing this to grow to 30%, which will include new businesses coming from heavy large axle products, which will go for material handling solutions and as well as used in military axle programs. And also, we are looking at increase in this business from wind sector, which are the wind gearboxes. So these are the two areas where we are largely seeing our business growing.
Also the 19-liter segment of business where the firm will be supplying forgings for the 19-liter application, which is on the higher side and will be used for marine application.
When is that starting?
That will be starting instead of it will be starting from third quarter.
Third quarter. Okay. Got it. Got it. And second question, on, so we used to share the crankshaft contribution to the revenues of fourth quarter. We haven't shared. So how much would be the contribution from crankshaft in fourth quarter for the fully FY 2024?
Yeah, just to check, Dinesh. So Dinesh, it was 48% for the entire year.
Okay. Got it. And lastly, when we look at our business mix, how it is evolving, clearly industrial side growing definitely seemed to be more value-added business. But PV usually experienced for the players that have been at relatively lower margin business as compared to CVs or highway vehicles that way. Is that different in our case given the beneficiary we are doing? How has been your experience on that side?
So Dinesh, on the PV side, it depends on what type of products we are offering because the type of products actually defines the gross profit. So if we are supplying a simple as forged product, then definitely the gross margin on the business is less and asset turns are more. But if we are supplying a full machined component, then it is totally different. So for us, when we are supplying the crankshaft program in a PV sector or a machined e-axle program that we are doing, our realization and gross margin is upwards of 70%, which shows there is a very high contribution of forging as well as machining in the product, which will kind of help us in improving our margins going forward because the value-added content is very high.
But whereas the as forged program is concerned on the export side on the brake flanges, here we are supplying as forged with little machining, the contribution is less. So it will be close to 40%-45% on that program, but we can expect decent margin and also we can expect a higher asset turn on that program. So it clearly depends on what type of product we are doing within PV as a category.
Right. Right. Right. Got it. Got it. Great. Thanks and all the best.
Thank you.
Thank you. A reminder to all participants, you may press star and one to ask question. I repeat, you may press star and one to ask question. The next question is from the line of Abhishek Jain from AlfAccurate . Please go ahead.
Thanks for the opportunity and congrats for a strong set of numbers. In farm equipment segment, how much share of business from the Mahindra & Mahindra and how do you see business growth here?
Okay. So on the farm equipment side, currently, we have almost 38%-40% market share. For us, we are supplying to Swaraj brand and Mahindra. Mahindra & Mahindra, we have just added in the last year and ramp-up is expected to start in this year. Mahindra is a new client for us and checked it as a brand. On a Swaraj brand, we are very old suppliers to them.
Okay. How much incremental can we see in FY 2025 because of new business wins from Mahindra & Mahindra?
On the product that we will be catering for this, we are expecting around 20%-25% share in that.
Okay. And basically, if I see that cash in the books, that is around INR 400 crores. So what sort of inorganic opportunity are you looking to boost your top line? Now, the top line is only at INR 1,500 crores. So most probably, I would like to acquire some companies in the same area. If you can throw some more light on that part.
As of now, we are looking at certain opportunities where there is an edge where we can get some business within our current company and we can also improve the margin with that particular company. So we are open for looking at certain businesses on the machining space and within India. So as of now, we are looking at opportunity, but we have not narrowed down.
Okay. How much cash in books now? Hello?
We have a cash of INR 277 crores as of FY 2025.
Okay. And how much CapEx is expected in FY 2025?
INR 250 crore of CapEx is planned in this year in the overall outflow, but overall outflow will be around INR 200 crore as balance is already paid by the way of advance s.
Okay. My last question on the export side.
I'm sorry to interrupt. I just request you to return to the question with you. Please.
Okay. I come on with you. Thank you.
Yeah. Thank you. A reminder to all participants, you may press star and one to ask question. The next question is from the line of Sahil Sanghvi from Monarch Networth Capital Limited. Please go ahead.
Yeah. Thank you for the opportunity and congratulations, Ashish and Pankaj, for a very good set of financials and delivering what you have guided. My first question is regarding the machining capacity you want to set up in J&K for which you have set up a subsidiary. So any kind of progress on that timeline on that, that will be helpful.
So thank you, Sahil. So Sahil, we are in the process of acquiring land for this new subsidiary. And we need to have land which is CLU which has been granted CLU because then only we can go ahead with the CapEx. So probably we'll have more clarity in the next quarter. But I can throw some light on this acquisition and on this new subsidiary. We'll be planning around INR 200 crore of CapEx including land and building in this facility and will be largely to cater to domestic sector and majorly in the machining space where forging will be supplied from our own existing facilities. And there are certain government incentives which will definitely help us increasing our market share in both CV as well as farm business.
Right. Right. And at this stage, would you be able to quantify is it a proportion or a percent of the CapEx that you're putting up over there, the incentives I'm asking?
This CapEx will probably be a INR 200 crore CapEx which will come in two phases. First of all, we need to have eligibility from the government probably which will take another two to three quarters. Once we have the eligibility, we'll be going ahead. This CapEx will largely come in next year where we expect to complete our building and plant within this financial year. But in terms of incentives, I think we'll wait for another couple of months to give more clarity on it.
Sure, sir. Thank you so much. And my last question is, like you said that you're starting this year with a new order book of INR 650 crore, this will all be executed in FY 2025 itself or will it be split?
Oh, sir. There are certain projects which we have recently acquired which will go in a development phase. There are certain orders which will come in a ramp-up phase. So the total new order book can get this level, but the execution will happen in the next 18-24 months.
Got it. Got it. Thank you very much and all the best.
Thank you.
Thank you. A reminder to all participants, you may press star and one to ask questions. The next question is from the line of Abhishek Jain from AlfAccurate Advisors. Please go ahead.
Thanks for the opportunity again. Sir, in the export, what is your mix of sales across various segments?
On the export side, out of so it is approximately 40%-45% into CV and the balance 50%-55% in industrial sector.
Okay. And this quarter, this five.
New business that we have picked on the export side which will probably add going forward.
Okay. For the next two years, what kind of growth you are looking in the export side and how much would be the mix in terms of Europe versus North America? North America, your presence is very low, but opportunity size is very high. So if you can throw some light over there.
So sir, 60% of the new businesses that we have in hand are from exports today which are from Europe as well as from North American market. The PV orders that we have are from North American market. So it's a mix from U.S. as well as from European market.
Okay. So what kind of revenue phase are you looking for the next two years in the export side?
The exports currently which are at 20% will definitely touch to a level of 28%-30% going forward in next two financial years.
Okay. And sir, despite lower turnover if your revenue and EBITDA moved up quarter-on-quarter basis, so what are the key drivers?
So sir, if you look at last 4-year or 5-year horizon starting from FY21, if I talk about it, so in terms of the realization per kg has improved from almost INR 165 a kg to almost INR 245 a kg whereas steel prices have gone up by only INR 20. So which means there is an incremental realization increase of INR 60 a kg which has come up in the last four years. And if we talk from last 1-year perspective, there is an increase by almost INR 12-13 rupees a kg in terms of realization per kg because of the new businesses which currently company is doing because of the higher machining margin and because of the more contribution towards machining.
Some of the new businesses that we have in the pipeline, the gross margin on those businesses are even higher because of the machining content. The company is largely working on complete machining businesses.
The current mix is 85.
I'm sorry to interrupt, sir. I just request you to return to the question queue, please.
Okay. Thank you.
Yeah. Thank you. Before we take the next question, a reminder to all participants, you may press star and one to ask questions. The next question is from the line of Suresh Jain from NB Investments. Please go ahead.
So thanks for the opportunity and congratulations on a good performance. Sir, to start with, I have a very basic question. First, that is our forging capacity is 124,000 whereas the machining capacity is only 51,000. So how we are saying that we have reached 84% the machining done on whatever the products that we make. Can you just clarify this?
Yes. Yes. Yes. So sir, basically, these capacities are calculated on the basis of the product weight. When we talk about the machining weight, actually, when we are machining with more and more processes, component weight goes down. So basically, if there are 20 operations, a forged component which is weighing 30 kg will reduce to 20 kg or even 18 kg.
So that is the reason the machining capacity that we talk about is based off of the finished product weight which is forged off of weight which is 30%-35% more than that. That is the reason you are seeing that difference.
Sir, now you said the new orders, many of them have you're having higher gross margin because the machining part is there. Is it possible for a company like us to insist the customers to give this machining also when you're getting the orders?
Sorry, can you come once again? I didn't get the last part.
Okay. Sir, you said for the new orders that you are getting, the gross margins are on the higher side because the machining is also included. Correct?
Yes. See, even within machining, see what happens, sir, on a farm equipment side, the component is not even BS-III compliant. Whereas on an auto side, the product is BS-VI compliant. And when we talk about exports, tolerances are even tighter. So it also depends within machining, the realization can range between INR 220-INR 400 a kg as well. So it will be very difficult to say that on a machining mix that we are already at 87%. But within machining also, the new businesses that we are doing are far more complicated. And in terms of machining, the tolerances are even tighter.
So sir, my question was, is it possible for us to request the customers to give us the machining part also?
Yes, we are giving the machining part only, sir. We are giving them a machined component only.
I know.
But can we insist the customers to give us these machining operations orders also when they are placing the order?
So sir, when they are placing the order, they are placing the order for a complete machined product. So forged and machining is done for them.
Okay. Got it. Sir, now we have achieved a 28% EBITDA margin during the current year. And if you see over the last few years, it has been hovering from 25% or so. So my question to you is, is there any more scope to increase these margins in the coming years?
So sir, going forward, as the realization levels will improve because we tend to add INR 4-INR 5 per kg in terms of realization every year. And if the realization margins will improve going forward, this will definitely improve.
But at the same time, company is also working at adding forging volumes. If the forging mix will improve, then probably we can say that these margins will remain stable. So it depends on what type of businesses are ramping up. If the machining business are ramping up first, then contribution will increase. But if it is a mix of forging and machining business, then probably it will remain at same level. So at the moment, giving a guidance on that will be difficult in terms of improving the margin. But on the gross margin side, we are expecting that the gross margin should improve. But it will be hovering something around 27%-28% is what we can think it. 28%.
Yeah. Okay. Sir, my last question is regarding the export.
Generally, forging companies we have seen in India, many of them exports their proportion in the sales is on the higher side than what Happy Forgings has. Any particular reason why we have not focused on export in the earlier years?
Not really, sir, because you are getting good growth within the domestic sector as well. And today for our product, we are the second-largest manufacturer of fully machined crankshafts. And in India, we have migrated from BS-III to BS-VI application. So in terms of learning process, in the last five years, we have kind of learned a lot in terms of the migration that has happened in the Indian market and with domestic OEMs. And today, we are also exporting it to Japan. And going forward, the know-how that company has gained in the last couple of years is probably helping us to cater to these type of products globally as well. So we are in a very different sector. And going forward, we expect our export business to increase because of the learning curve.
Okay. Okay, sir. Thank you very much for answering all my questions. I wish you all the best.
Thank you. Thank you.
Thank you. A reminder to all participants, you may press star and one to ask questions. A reminder to all participants, you may press star and one to ask questions. Ladies and gentlemen, is there no further questions? I now hand the conference over to Mr. Ashish Garg for closing comments. Over to you, sir.
Thank you. Looking ahead, we remain optimistic about sustaining our positive momentum and driving further growth and profitability. We are confident that improvements in our underlying business sector coupled with our strategic initiatives and operational excellence will pave the way for continued success and value creation for all its stakeholders. With this, I would like to thank everyone for joining the call. I hope we have been able to address all your queries. For any further questions, kindly get in touch with me or Strategic Growth Advisors, our investor relations advisors. Thank you so much.
Thank you. On behalf of Happy Forgings Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.