Good day, and welcome to Happy Forgings Limited Q3 FY 2024 results conference call, hosted by Equirus Securities. 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 your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashim Modi from Equirus Securities. Thank you, and over to you, sir.
Hi. Good morning, everyone. On behalf of Equirus Securities, I welcome you all to the Q3 FY 2024 post-sales conference call of Happy Forgings Limited. From the management side, we have with us today Mr. Ashish Garg, Managing Director, Mr. Pankaj Kumar Goel, the Chief Financial Officer. So without further ado, I hand over the call to Ashish, sir, for his opening remarks. Over to you, sir.
Am I audible?
Yes, sir, you are audible.
Good morning, and a very warm welcome to all of you to Happy Forgings Limited, quarter three, nine-month FY 2024 earnings call. With me, I have Mr. Pankaj Goel, who is the CFO of our, of our company, and Strategic Growth Advisors, our investor relations advisors. Let me start by thanking the investor fraternity for, for our warm reception to Happy Forgings Limited IPO. We are very grateful and humbled. For the quarter three results, we have uploaded our presentation on the exchanges, and I hope everybody had an opportunity to go through the same. Since this is our first earnings call post-listing, we would like to share some brief information about our company and an overview of our business performance, followed by financial performance for quarter three and nine months FY 2024.
Coming to the business overview, Happy Forgings is a 40-year-old, more than 40-year-old Indian manufacturer, specializing in manufacturing and supplying complex and safety-critical, heavy forge and high-precision machined components. Through our vertically integrated operations, we are engaged in engineering, process design, testing, manufacturing, and supply of a variety of components to domestic and global OEMs. This business was started by my father, Mr. Paritosh Kumar Garg, who is our CMD, with the intention to forge bicycle pedal arms, and since then, this business has emerged from a bicycle pedal manufacturing company to the second-largest manufacturer of high-horsepower diesel engine crankshafts in the country. Today, we manufacture safety-critical components with approximately 85% revenues coming from complete machined products, which is the highest in the industry.
Our facilities manufacture a wide range of heavy forged and machined products, which include crankshafts, front axle beams, steering knuckles, differential cases, transmission parts, and other suspension parts, valve bodies across the diversified base of our customers. Over the years, we have expanded our capabilities to offer diverse range of products and serve a wide range of businesses for industries and customers across geographies. In the automotive sector, we cater to the commercial vehicle sector, and in non-automotive sector, we cater to manufacturers of farm equipment, off-highway vehicles, manufacturers of industrial products, machinery for oil and gas, power generation, railways, and wind turbines.
Today, we are the fourth-largest engineering-led manufacturer of complex and safety-critical components, heavy forge and high-precision machined components in India, and have emerged as a leading player in the domestic crankshaft manufacturing industry, with the second-largest production capacity for commercial vehicle and high-horsepower industrial crankshafts. We are a supplier to each of the top five Indian OEMs for market share in the M&HCV space , and four of the top five in Indian OEMs in the farm equipment industry by market share. In FY 2023, we believe that our long-lasting, long-standing relationships with our customers has positioned us as a trusted supplier for several Indian and global OEMs. We own and operate three manufacturing facilities with a total annual capacity of 120,000 tons in forging and total machining capacity of 51,000 tons.
Over the years, we have continuously invested in machinery and equipment to expand our forging and machining capacity to seize growth for growth opportunities in the market. Talking about our business performance for the year, the global forging market is expected to grow to $100 billion at a CAGR of 5.1% by FY 2029. The global machining market is expected to grow to $70 billion at a CAGR of 5% by 2029. At the same time, Indian forging and machining market is expected to grow at CAGR of 7.1% and 8.4% respectively by 2029. At Happy Forgings, we have been able to grow our market share over the years through adding new products and clients, expanding wallet share from our existing customers, and also adding new customers in different geographies.
We believe this strategy will continue to drive growth going forward as well. We have an established track record of consistent revenue growth and profitability over multiple periods. In the last five years, our revenues have grown at a CAGR of 17%, while our EBITDA has grown at a CAGR of 20% and PAT at a CAGR of 29%, and this is all including COVID years. Our EBITDA margins have expanded from 24.9% in FY 2018 to 28.6% in nine months, FY 2024. As of December 2023, our return on capital employed stands at 24.4% and ROE at 22%, which is one of the best in the industry.
What sets us apart from the competition is our focused strategy on adding value to our product offerings and continuously staying relevant to the industry trends. This upward trend owes much to several key factors. Firstly, our shift from forging to complete machine business, from 67% machine components to almost 84% in 9 months, FY 2024, underscores our ability to deliver complex, precision-engineered components. Moreover, our ability to cater to diversified industry has been pivotal. Leveraging in-house design capabilities, fungible production lines , and advanced technology adoption, including robotics, we have diversified our customer base with an increasing focus on industrial applications such as power generation, oil and gas, railways, and turbine sectors, wind turbine sectors. Value-added industrial segment, which contributed just 2% to our revenues in FY 2018, is now almost 14% in nine months, FY 2024.
Our global footprint is expanding rapidly, with exports growing at a remarkable CAGR of 40% from FY 2018, and now contributing almost 20% to our revenues in nine months, FY 2024. With India's burgeoning stature as a manufacturing hub, we anticipate even greater growth, fueled by increased exports and the global shift away from China. Furthermore, our enduring relationships with the top 10 customers, some spanning over 20 years, facilitate increased wallet share and cross-selling opportunities, further solidifying our market presence. Typically, global industry leaders are highly selective in qualifying new suppliers with respect to critical products, given the high cost and risk of switching suppliers, especially where product reliability is critical. We believe that the critical applications of our products, along with their heavy weight, close tolerances, and stringent quality requirements of OEMs, serve as an entry barrier for new players to enter in the market.
Over the medium term, we remain fairly confident to achieve 15%-20% revenue growth, in line with our historic performance, backed by increasing utilization of our existing facilities, addition of capacity with the ongoing CapEx, and addition of new customers, both domestic and in international markets. We have a price pass-through mechanism with our customers, and hence on an annual basis, we remain confident on our margin profiles. To conclude, our engineering capabilities, coupled with machining capabilities and advanced technologies that we deploy as a part of our manufacturing operations, position us to capitalize on the opportunities presented by large domestic and global players. Now, I would like to hand over the call to Mr. Pankaj Goel, who is our CFO, for the quarter.
Thank you. Thank you. I am Pankaj Kumar Goel, CFO of the company. Good morning, everyone. We are pleased to report the financial performance for quarter three and YTD nine months for the current financial year. Starting with Q3 FY 2024 versus Q3 FY 2023 performance. With the volume growth of 20% on a year-on-year basis, revenues stood at INR 342 crore versus INR 294 crore, having a growth of 16% on year-on-year basis. EBITDA stood at INR 95 crore versus INR 73 crore, growth of 30% on a year-on-year basis. EBITDA margin stood at 27.8% versus 24.9%. A growth of 295 basis points is there on a year-on-year basis. Profit after tax for the quarter stood at INR 58 crore versus INR 42 crore, a growth of 39% on a year-on-year basis.
PAT margin also stood at 16.9, or approx 17% versus 14%, a growth of 280 basis points on a year-on-year basis. This is about the quarterly performance. Now, I'll come to the nine-month number. For the nine months, FY 2024 versus nine months, FY 2023 performance, we would like to highlight that, that in nine months, FY 2023, the corresponding previous year's nine months, the company recognized a government grant of SGST incentive. That is one-time income pertaining to earlier years of around INR 23 crore. After adjusting the same in numbers of nine-month FY 2023 period, the comparative figures are: Revenue stood at, current, in the current nine months, INR 1,015 crore, versus adjusted revenue of previous nine months, INR 871 crore, witnessing a growth of 17% on a year-on-year basis.
EBITDA stood at around 290 crore versus adjusted EBITDA of previous nine months, INR 232 crore, witnessing a year-on-year growth of 25% with respect to the adjusted EBITDA. EBITDA margin stood at 28.6% versus adjusted margin of 26%, 26.6%, so witnessing a growth of 200 basis points year-on-year basis. PAT stood at INR 177 crore versus adjusted PAT of INR 141 crore, witnessing a growth of 26% on a year-on-year basis. So PAT margin also stood at 17.5% versus adjusted PAT margin of 16.1%, witnessing a growth of almost 130 basis points year-on-year basis. So this is all about the nine-month number. So, in Q4, Q4 is a, generally is a strong quarter for heavy forging.
However, it is pertinent to, I would like to mention that, that current Red Sea crisis will have some bearing on sales due to delay in receipt at customer's end, as most of the delivered are delivered on the, on DDP basis. So, and, a brief about the IPO. The company concludes its IPO on 27 December 2023, just four days before the closing of this quarter, and the, and the quarter is almost closing, you can say. We raised primarily capital of INR 400 crore.
... which is utilized for, first, repayment of certain portion of the borrowing, around INR 153 crore. Same has been utilized in repayment of debts within the quarter, and post such repayment, debt stands of INR 139 crore as at the quarter ending. For the purchase of equipment, plant and machinery, we allocated around INR 171 crore. Since only, it's only been only three or four days, we, we only spent INR 3 crore in the CapEx. Balance is kept in the FDRs with the bank. The unspent money will be used in both forging and machining capacity additions, largely during FY 2024- FY 2025. For the GCP, general corporate purpose, from the balance allocated funds, INR 76 crore, INR 28 crore is being used towards the IPO expense and sundry payments. Balance INR 48 crore is lying with the bank by way of FDRs. That is all from our, our end.
We now leave the floor open for the question and answer. Thanks from my side. 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 their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Lakshmi Narayanan from Tunga Investments. Please go ahead.
Thank you. A couple of questions. In the exports, what is your mix of sales across various types of customers?
So sir, in exports, we have exports coming from commercial vehicle sector, farm equipment, industrials, and off-highway today. The major part of export is coming from Europe today, and this is spread across all the sectors. Industrial is one sector which is growing faster for us in exports.
The mix of this in the exports, is it like 41% to commercial vehicle? What is the mix?
So, sir, out of 41%, 26, roughly around 26%, 27% is domestic, and balance is exports.
Okay. And in terms of the EBITDA, right, if you look at your company-wide EBITDA, what is the machine EBITDA? Is it... I mean, how higher the machine EBITDA is, how will be non-machine EBITDA?
So sir, normally we don't evaluate it separately between forging and machining. It depends, even within the machining, it depends on what type of products we are machining, because, starting from INR 180 per kg, the machining product realization goes up to INR 400 a kg. So it is very difficult to actually, give it, give a number to it. But definitely, the machining, business definitely contains a better margin than the forging business, because the value addition content is more.
Now, usually what it is, like, 30% more, let's say if your EBITDA is around 100 for regular, is it machining there at a blended level, will it be like 130, 140? How, how, how to think about it?
So roughly, if you see, sir, in the, with the realization front, if we can see, it depends on the value addition content, in the, in the business. So if we see that, you know, if the gross margin in the product is 75%-80%, then 50% of the gross margin is converted into EBITDA, which is a thumb rule. So if, if on a INR 1,000 product, if the gross margin is INR 800, so probably on that product, you know, the EBITDA margin will be around 40%.
Okay. It's on the machine one.
Yes, and it also depends on the type of products we are shipping, because product to product, this will also vary.
Okay. Okay. What has been the price of steel in the last nine months on a blended basis per ton for us at a procurement level?
It is around INR 70-INR 73 a kg.
Okay, okay. When compared to last year?
There is INR 2-INR 3 correction.
Okay.
There is a correction of INR 3.5-INR 4.
Okay. From 76 it has come to 73. Okay, okay.
Yes.
What is the cumulative tonnage done in the machined things, and what is the cumulative tonnage done in the regular one, for the last nine months?
Cumulative.
The tonnage output, I think.
It's around 32,000 tons for this nine months.
So...
More or less.
In machining, it is 32,000 tons in machining?
For the last year, 35,000 is whole. For the last financial year.
You're talking about the machining volume?
No, I'm just. Y eah, I'm talking about the last nine months.
Yeah.
What has been the output machining in tonnage, as well as output in your non-machining? You gave that number in terms of 86% and 14%, right? I just want to know what the 86%-
Typically, yeah, I'll give you-
Sorry, 84% on a tonnage point of view, what does that translate to? And 16% on a tonnage, what it translates to?
So basically, on the machining front, as I can say, the capacity utilization today is around 87% on the machining tonnage. So, and the machining capacity today stands at 51,000 tons, whereas for the forging, the capacity stands at 120,000 tons, and the utilization is around 60% for the nine months at FY 2024.
Okay, okay. Can I assume that it's like 60% of INR 120,000 plus 87% of INR 57,000 is what it is? Because, you know, you forge and then you machine also, right?
We forge and we machine, because see only 15% of the revenues comes from forging now, and 85% is machining. So we forge and machine, so you cannot add and see it separately.
Got it, got it. And then what is, when, what do you, what-
You can refer to the slide 19 of the presentation.
Okay.
where, you know, it's clearly there.
Yeah. So how much of forging goes to machining, sir?
Everything is... Whatever we machine, everything is forged in-house. So 85% of the total forged product in-house is getting consumed in machining.
Okay, okay. So then I can assume that 87% of 51,000 is, is there, and then the balance-
Yes.
W ould be, sold as, hard-
Yeah, there is nothing machined in-house which is sourced from outside today. Everything is forged and machined in-house.
You don't forge and send it outside. It's whatever you forge, you actually consume it internally.
So only 15% of the sales that we do as forged, it goes outside, sir.
I mean, you... Okay, fair enough. Fair enough.
Yes.
Actually, I will come back. Thank you.
Yes.
Ladies and gentlemen, please press star and one to ask questions. The next question is from the line of Abhishek Jain from Dolat Capital. Please go ahead.
Thanks for the opportunity, and congrats, strong set of numbers in tough time. Sir, as domestic revenue is highly dependent on CVs, tractor and off-highway vehicles, where we see slowdown. So what would be the growth figure for the domestic business, going ahead? If you can throw some more light on the new client acquisition, product addition, and plan to enter in the passenger vehicle segment?
So, as you have already said, that there is a slight slowdown in the CV and the off in farm equipment industries, so we have already seen some slowdown. But despite of that, company has witnessed a strong growth. Going forward as well, we are seeing, you know, growth coming in from the new products that we have introduced in the last couple of months. And so we are seeing largely a, you know, the new product development is helping us out over here, so we are increasing our wallet share. We have added the new business in the CV sector as well, a new product, front axle beams.
And, on the industrial side, we have witnessed a very sharp growth from almost 3% to almost 14% now, and the export business has grown almost 70%, as you can see. So we are seeing growth coming from exports. On the domestic side, we have entered into the PV sector, especially in the SUV sector. We are expecting around 5%-6% revenues coming from this sector in next financial year. So we have already started, you know, manufacturing for these products. And, PV is going to be a, you know, a meaningful share for us going forward. So in the CV side, as I already mentioned, that we have increased our wallet share. We'll be increasing our wallet share as we have introduced new products.
Also, there are certain programs which are running for new CV clients, which will probably help us in adding in domestic business. And, as far as, you know, off-highway is concerned, we are seeing a good growth in that sector. And the off-highway business is also growing for us domestically, whereas industrial sector, the wind power is also growing for us domestically.
If you can throw some more light on the new client acquisition in the last one year, which can boost your revenue growth?
So, sir, in exports, we have today 66 clients in total. So largely, almost 30 clients have been added in the last four, five years. So the business, it takes a lot of time for these businesses to actually start. So there is a lot of new clients which are in pipeline, where this business is growing. And going forward, we see exports to be a considerable share for us, as 60% of the new businesses that we have in hand is coming from export sector.
Okay. And your revenue from the North America is very negligible, which is one of the larger markets for the other forging players. So what is your plan to expand the business in particular geographies?
We are entering into North American market as well, but the type of products we offer, we are seeing a fairly rich demand coming from Europe. We definitely have more scope to grow even in the American market.
Okay. What sort of the inorganic opportunity are you looking to boost your top line? Because your top line is very, it's around INR 2,000 crore. So just wanted to understand, what's your plan to make it, four thousand to five thousand crores through organic and inorganic opportunity? So your top line is just INR 1,400 crore now, so just wanted to know around, what is your plan to make it a INR 3,000 crore kind of thing?
... So sir, at the moment, we are growing organically, if you see in the past, and going forward is, well, we'll be growing organically, but for inorganic opportunities as well. So company will be seeing opportunities. If you look at the company profile, the debt profile, it's negligible today, and we're sitting up in our cash. So going forward, we'll be in the position to actually, you know, see we are seeing some opportunities, but it will be too early to comment on it.
Okay, sir. My last question on your capacity-
Sir, can you come back in the queue for follow-up questions?
Thank you. Thank you so much.
Okay, thank you. The next question is from the line of Jignesh Gandhi from Ambit Capital. Please go ahead.
Hi, Ashish. A couple of questions from my side. One is, what would be total tonnage of sale of finished products in this quarter? And secondly, if you can talk about the order book which we have on our hand, how it has been trending. Those are my two questions. Thanks.
So, Jignesh, on the tonnage, right, you are asking on the machining tonnage, what we have delivered in quarter three?
The total tonnage on the finished products, right? Machining, you talked about 32,000 tons on for nine months.
Yeah.
If you have similar number for the total tonnage on the finished product sales?
Jignesh, it is 42,000 tons in nine months.
42,000 tons in nine months. What would be for 3Q?
Yeah, just checking. 14,400. 14,400.
That's just total finished product?
That is for-
Got it.
Yes, total.
Got it. On the order book side, how are you seeing that shaping up?
So new developments and projects are on track. So there are some launches, you know, the products which are under testing are planned from quarter one of next financial year. As already mentioned, you know, we have also entered into PE sector, which is a new sector for us, and we are expecting 5%-6% market share in that sector. 5%-6%, you know, revenue share to come from that sector in next financial year. It's a fairly large business that we have already started you know, supplying, and the major growth will probably start coming in from April in this business.
And then we are increasing our wallet share in PV sector because of the new product introduction, as we have launched front axle beams, which are under testing for some of these large OEMs. And in terms of exports, we already have the new, you know, businesses which we are in development for industrial sector, as well as for off-highway sector, which are in development phase and also ramping up on a month-on-month basis. So these, these all, you know, looks robust and good at the moment, wherever we are doing. So going forward, we see that, you know, even on the PV side, we'll have a meaningful share going forward by in next 1.5 to 2 to 3 years.
Okay, okay. And on the existing order side or the new orders which are getting into the ramp-up mode or production mode, are you seeing any bit of delay or slower ramp-up because of customers asking you to defer? Because some of your peers, both on forging and non-forging, have been talking about some of these new orders getting pushed back. Are we also experiencing similar kind of pushbacks?
No, there is no pushback as such for the businesses that we are doing. Yes, definitely, there is some slowdown. There is some delay in capacity creation because of the Red Sea crisis, like, by 1 month or so, 1, 1.5, 2 months in terms of capacity creation. Like, our 6,300-ton line is probably getting delayed by 2 months, and also some of the grinding machines that we've ordered from U.K. and Germany. Otherwise, if you see the ramp-up is all planned and is, you know, lined up.
Great. Great. Thanks, Ashish, and all the best.
Thank you.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to three per participants. We would like to remind that you may press Star and One to ask questions. The next question is from the line of Mitul Shah from DAM Capital. Please go ahead.
Sir, thank you for the opportunity. And, the first question is on non-auto industrial side. Our contribution, revenue contribution, has gone up significantly in first nine months from 4% last year to 13%. So can you throw some more light in terms of which are the segments and any major new segment addition and growth, from where the growth is coming, and what would be this contribution, 13%-14% going forward in next two year?
Thanks, Mitul. So, the contribution coming from industrial side has definitely gone up significantly in this financial year. It's majorly coming from wind turbine sector and large industrial engines. So both the sectors are doing well for us. We have started our 14,000-ton press line in last financial year, in the third quarter of last financial year. So it's almost one year now. Because of this line, we have started doing products from 90 KG to 250 KG. So earlier, if you see our manufacturing capability was up to 90 KG, but because of this press line, we are now able to forge parts up to 250 KG.
This has happened just in the last 9-10 months. So we are ramping up on this line, and the way our capacity utilization will increase, more businesses coming on industrial side on this line. So it is going to grow, you know, as the capacity utilization of our now over 14,000 ton is improving.
Okay, sir. Second question on overall revenue growth, wherein, we are still seeing positive indications. So what is our assumption for the underlying industry, particularly commercial vehicle or MHCV cargo segment for next two years? Or I'll put in other words, if at all this industry declines by 8%-10% over the next two years, still we are confident of, recording on overall business, healthy growth?
So sir, our growth is largely dependent on the production of commercial vehicles as well as tractors. But at the same time, we have a large new product development, which is undergoing. If you see, even in this year, CV as well as farm equipment is not doing so well, and despite of that, there is almost 20% growth in our volumes, despite those falling steel prices. So going forward with the new product introduction, we are confident of maintaining this growth. And if we see the sector is coming back, you know, say, third quarter of next financial year, like particularly farm equipment sector, definitely that will add up to our growth. But company is increasing its market share. That is what we kind of focus on by adding new domestic farm equipment as well as domestic CV clients.
That is the focus today, and that is what we are doing.
Last question on balance sheet side. Now we have decent cash on balance sheet, and moreover, CapEx is not very aggressive going forward. So next 2-3 years, we will be able to generate decent cash flow. So what would be our thought process in terms of utilizing it, either in terms of inward organic growth or dividend payout? And what is our thought process for next 2-3 years on cash side?
Now, on the fixed asset side, probably we'll, there will be CapEx of almost INR 200 crore on an annualized basis. That is what we are seeing. Beyond this, yes, you're right that we'll be having, sitting on enough cash. We'll be also looking at inorganic opportunities, so and we are evaluating, so, definitely, you know, if we have clarity going forward, we'll be definitely communicating the same.
Okay, sir. Thank you and all the best.
Thank you, sir.
Thank you. Participants who wish to ask questions may please press star and one. The next question is from the line of Naga Brahma from N.B. Investments. Please go ahead.
Hello. Can you hear me?
Yes, sir.
Okay. Good morning, sir. Sir, I had two questions. The one is regarding the export market. In general, we are hearing a lot of dropping demand on the recession happening in and around Europe and USA. Our major export is to European countries, and you are sounding bullish on the ordering flow and also future demand potential from the European market, even in the coming year. Just wanted to know how we are able to get better orders. What makes you to sound so positive and, you know, very bullish about the export market?
So thank you, sir. So in terms of exports, if you see, if you compare, our share for exports is fairly small. You know, if you look at it, we were largely a domestic supplier a few years back, but our exports revenues have grown nearly 6x in the last four years, and direct exports now contributes almost 21%. So going forward, you know, as rightly said that, you know, Europe is witnessing some slowdown, but this again is because of the high energy prices and high inflation. But at the same time, we are seeing a lot of large projects being shifted to countries like India. That gives us enough opportunity to actually grab businesses at this time.
So, you know, on a, you know, long-term basis, we see that, you know, this will be a positive for the Indian market, and we are witnessing the same for us, and this export share will definitely grow to around 30%-35% going forward in 3-4 years.
Okay. Sir, my second question is regarding, you know, the domestic PV market. You mentioned that you are expecting around 5%-6% of our sales to come from the PV segment. Now, what puzzles me is, most of the domestic PVs are all quite established and have been in the market for a longer time, and they must have already have a reputed and dedicated vendors for all their products. What makes them to shift to Happy Forgings now? Is it price, or is it service, or quality? What is, you know, makes them to shift to Happy Forgings from the existing vendors for their requirement?
So sir, on a PV side, particularly, for us, it is a SUV sector, which is growing very rapidly in India. And some of the OEMs, large PV OEMs, they have their own machining lines, but for the growing sector in SUV, the way demand is going up, some of these large OEMs are not having their own capacities. And the way this demand is coming up, is catching up in SUVs, so we basically, the new business, is developed in that sector for us. And these are very high precision components, because India has witnessed the fastest migration from BS3 to BS6 norms. And in BS6 norms, particularly, there's a requirement of, there are the standards and the specifications, and the tolerances are very tight.
The equipment and the investments that we have done in the last four years, if you see in the last four years, we've almost doubled our block. Today, we have the capability to develop those products which are required in those sectors, and that is the reason we are able to gain a faster share, because of the increased demand in particularly SUV sector.
So you mean to say this is the additional or the increase in demand that these companies, you know, who are making SUVs are getting, so they are giving-
Yes.
Part of that increased business to Happy Forging, correct?
Yes, yes.
Okay. Okay, sir. Thank you very much, and wish you all the best.
Thank you.
We would like to remind participants that you may press star and one to ask questions. The next question is from the line of Lakshmi Narayan from Tunga Investments. Please go ahead.
Yeah. So, you know, you mentioned that, SUV sales, but in terms of your automotive, you know, in terms of your revenue makeup, you say that it is, automotive, commercial vehicles, non-automotive, farm, off-highway vehicles, and industrial, right? So where does the SUV thing come in the whole thing, sir?
SUV is a new sector for us, so we have just started. That is the reason I mentioned that it will be around, you know, 4%-5% of our revenues going forward in next financial year.
Got it. Okay, okay.
Yes.
If you just look at the overall, you know, forging industry, so there is a large player, Bharat Forge, and then there are players like you, MM Forgings and Ramkrishna, right? So, what does your competitive landscape look like? I mean, of course, you have detailed in your RHP, but in the current scheme of things in, with respect to the domestic market, who, you know, what is your market share, and who typically compete with you in the domestic?
So sir, if you see, today we have the press lines that we have. So we have today 3 8,000-ton press line, 14,000-ton press line, and 4,000-ton press line. So almost 70, 75% of our total revenue comes from heavy product sector. So, you know, other players might have, you know, 1 or 2 lines, but the contribution from heavy side will not be that much. So our contribution on the heavy forging front is 75, 80%. And then, in terms of crankshaft, if you see, we are the second largest now in terms of our capacities and production. And...
So over there, we are the second largest, and, so that's, you know, that's the main business for us, and we compete against only one player in the country today on that side. And, today, for us, if you look at it, we are majorly into machine component business, so 85% of our revenue comes from machine products. Also, the industrial business, which is kind of gaining share over there as well, we are competing against one player. So that's how... That's what I want to say. I don't want to name some of the peers in the call.
Got it. So then from an industry point of view, are we seeing that one larger player is actually looking into other markets, and then there is a lot of smaller players are actually winding off, or they are actually moving away? Does it make the industry more lucrative and concentrated in the hands of three or four player, which is in the range of, you know, somewhere, you know, ±10%-20% from your size, right? Is that something you see the industry would actually go through?
That's not the case, sir. Everyone is growing. India's growth story is very different. We are seeing a lot of business being shifted to India, and with the type of capability required to, you know, forge and machine those parts, and some of the players who are in this sector for the last 40, 50 years, will probably, you know, enjoy that. And with the type of machining capabilities that, you know, we have possessed and we have developed in the last couple of years, I think we'll be able to gain a lot of market share because of the machining capabilities. Because it's not that you invest in the capacities. A lot of players have actually tried investing in this business, but they eventually failed.
So it's, it's a business which is for the critical components, and it requires a lot of long testing period and, you know, a lot of you know, business culture to actually produce and supply these parts. So I would like to comment, I don't want to comment on, you know, what others are doing, but overall situation is that, yes, India will witness a good growth in this sector.
Yes, and you are a Tier 1 vendor to Indian companies as well as the global, or you actually supply to a system aggregator and then that person actually.
No, we are direct. We are direct suppliers, and in some of the cases with Dana and Meritor, probably we are Tier 2, where we supply them and they supply to Volvo and VECV. But besides that, we are direct suppliers to almost all OEMs.
Got it. Thank you, sir.
Thank you. The next question is from the line of Sagar Sethi from Sethi Investments.
... Can you please share results for CapEx for coming months?
Can you come again, sir?
Your voice is not clear.
Your voice is not clear.
Can you please share results about CapEx?
I can hear you, the CapEx and what, what you are asking about?
Can you come again, sir? Your question is not clear.
I will check.
The line for the current participant has been dropped. Ladies and gentlemen, we would like to remind you that you may press star and one to ask questions. The next question is from the line of Amber Shukla from Motilal Oswal. Please go ahead.
Hi. Thank you, sir. Thanks for the opportunity. So you talked about the 14,000 ton press, can you tell us the utilization rate of that press? And, by when do you think the utilization should reach 100%?
So sir, thanks for your question. So current utilization is around 40%, and we plan to increase it to 80%, going forward in next 15-18 months. So the optimum utilization of the line, normally 75%-80%, and we are 50% utilizing it at the moment. There is a lot of development which is ongoing on this line, and the plan is to utilize you know, to almost to 75%-80% going forward in the next 15-18 months.
Okay. And secondly, we have earlier talked about the new press line. So is there any change in those timelines or should we expect it to come by FY 26?
So sir, there is one 6,000-ton line which was expected to arrive by March, but there is a delay by 1.5 months because of Red Sea crisis. We are expecting the line to reach by May and June. So which will probably impact a quarter, that's it. We'll be able to forge parts up to 35-40 KG on this line. And there is another line which is ordered, which we are expecting in FY 2026. So the whatever plans are there in terms of CapEx are all in place.
Okay, sir. Thank you.
Thank you. And the next question is from the line of Manish Goel from ThinkWise Wealth Managers. Please go ahead.
Yeah. Thank you so much, sir. Sir, in the results release, there is a mention about HFL Tech Private Limited, which is a newly formed subsidiary, and is looking to invest INR 100 crore for manufacturing auto components. So if you can just give us more understanding on what is the plan for this. Are we looking to acquire some company through this vehicle, or it's a new company for in-house production?
So it is part of our organic growth and because it's just... We've been in a process to apply for, you know, certain things within the different state. It will be coming in a different state, and probably we'll have a more clarity on it in next one or two quarters, but definitely it will be part of our organic growth, and it will be majorly in machining. And it will be a 100% owned subsidiary of Happy Forgings.
Okay. And so, so is it that we probably want to take advantage of the lower tax regime for new companies we are putting this capacity in a subsidiary?
Yes, sir, there is definitely there is the tax rate will be better in that, and definitely there is some benefits of investing in that state. We will have more clarity going forward in one or two quarters.
Sir, you just mentioned about one 16,300-ton press coming up in near future, and there is another line. What will be the capacity of that, sir? What will be the capacity?
6,300 will add nearly 10,000-12,000 tons of annual capacity. 10,000 tons of annual capacity.
Sir, I was also asking, in terms of one more press line which you expect to come next year. So what is the size of that, and when is it expected to get installed, apart from the 6,300?
So that will probably arrive in at the end of next financial year, and probably be up and running in FY 2026, and will give us a capacity of almost 20,000 tons on an annual basis.
This is, 10,000 ton press? Sorry.
Similar, similar capacity.
...Right, sir. And sir, coming to the industrial, the 14,000-ton press, what production it can give, sir, this particular is probably, I know there is a wide range in terms of product profile, but average, what kind of production can we expect from this press, sir, and average realization, sir?
So, sir, if you do large batch sizes on a CV product, then you can probably touch 25-30,000 tons. If you do a mix of industrial products with small batch sizes, then it will be in the range of 20-25,000 tons. It depends on the batch sizes and the industries we serve on this line.
Sir, how is the realization difference for a CV or for an industrial?
It is INR 20-INR 25 a kg more on the industrial business, if you compare it with the CV products.
Okay, okay. And these are, so again, industrial, all the products are, what we sell is completely machined, and largely for, wind power at the moment?
For wind power as well as large industrial engines. So it's all, machined.
Okay. Yes. And, sir, just in terms of, so whatever production we do, say, in the codes-
Hello, Manish sir?
Yeah.
Can you come for the follow-up question?
Sure, I'll come. Thank you so much.
Thank you, sir.
Thank you, sir.
The next question is from the line of Ashim Modi from Equirus Securities. Please go ahead, sir.
Yeah, hi. Thanks for the opportunity. So I just had one question: So one of the key reason of, you know, reduction in margins compared to last year was because of lower government incentives. So could you help us with the government incentive number for the quarter and also for the scrap sales during the quarter? And how do you see this government incentive going forward?
The government incentive of SGST that we have received is an ongoing incentive, which is roughly 0.8%-1% on the revenue. In last year, the incentives that we have received was pertaining to the last two financial years, which was of almost INR 23 crore. But the incentive that we have will be ongoing for next 10 years, going forward as well. It will be in the range of 0.8%-1%.
Of the domestic one.
Of the domestic business.
Okay. What were the scrap sales during the quarter?
8%. It is around 7%-8% of the total.
Sure. Sure, sure. I'll join back with you. Thank you.
Thank you. That was the last question. I would now like to hand the conference over to management for closing comments.
Thank you everyone for joining the call, and thanks for your questions. So, with a legacy of innovation, a commitment to excellence, and a relentless pursuit of customer satisfaction, we are poised to write the next chapter of success in our journey. 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 information, kindly get in touch with the SGA team, our investor relations advisors. Thank you, all.
On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.