Happy Forgings IPO: Here are 10 key risk factors from RHP investors should know

Happy Forgings IPO: The initial public offering (IPO) of Happy Forgings Ltd has garnered strong investors’ interest as the issue got oversubscribed on the first day itself.

Happy Forgings IPO opened for subscription on December 19 will conclude on December 21. The company aims to raise ₹1,008.59 crore from the IPO that comprises a fresh issue of equity shares worth ₹400 crore and an offer for sale (OFS) of 71.59 lakh shares. Happy Forgings IPO price band has been set at ₹808 to ₹850 per share. 

Happy Forgings is a manufacturer of heavy forgings and high-precision machined components.

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Before investing in Happy Forgings IPO, investors must know all the details about the company, including the risk factors mentioned in the Red-herring prospectus (RHP). Below are 10 key risks factors of Happy Forgings IPO:

Happy Forgings IPO: Key risk factors

1) The business of Happy Forgings Ltd largely depends upon its top 10 customers. A significant portion of the company’s revenue comes from these 10 clients. The loss of any of these customers poses a risk to the company’s business and financial condition.

2) The company depends on a few suppliers for the supply of steel, their primary raw material. Further, it does not have definitive supply agreements with suppliers for the supply of steel. Therefore, interruptions in the supply of steel could adversely affect its business.

3) The company’s business is dependent on the performance of certain industries, particularly commercial vehicles, farm equipment and off-highway vehicles both in the Indian and overseas markets. Any adverse changes in the conditions affecting these industries poses a risk.

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4) Happy Forgings derives a substantial portion of its revenue from the sale of crankshafts. Hence, loss of sales due to reduction in demand for crankshafts could also affect its financial condition.

5) The company has significant power and fuel requirements and any disruption to power or fuel sources could increase its production costs.

6) Its business and profitability is substantially dependent on the availability and cost of steel, its primary raw material. It faces a risk of any disruption to the timely and adequate supply of steel, or volatility in the steel prices.

7) The company has three manufacturing facilities, all of which are located in Ludhiana, Punjab, exposing its operations to potential risks arising from local and regional factors such as adverse social and political events, weather conditions and natural disaster.

8) As per the RHP, the company, its promoters, and directors are involved in certain legal and regulatory proceedings. Any adverse decision in such proceedings may have a material adverse effect on its business, financial condition, cash flows and results of operations.

9) The company’s operations involve activities and materials which are hazardous in nature and could result in a suspension of operations and/or the imposition of civil or criminal liabilities.

10) The company is dependent on third parties for the transportation and timely delivery of their products to customers. Any failure by or loss of a third party transport service provider could result in delays and increased costs.

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Inventors are advised to read carefully the Risk Factors given in detail in section III of the Happy Forgings IPO RHP.

Happy Forgings Ltd proposes to utilise the net issue proceeds towards the purchase of equipment, plant and machinery; prepayment of all or a portion of certain outstanding borrowings and for general corporate purposes.

Happy Forgings IPO Subscription Status

Happy Forgings IPO has been subscribed 2.31 times as on December 19, the first day of the bidding process. The public issue received bids for 1.93 crore lakh equity shares as against 83.65 lakh shares on the offer, as per data available on NSE.

Happy Forgings IPO GMP Today

Happy Forgings IPO GMP today, or grey market premium today, is ₹420 per share, as per market observers. This indicates that Happy Forgings shares are trading at a premium of 50.59% to the issue price at ₹1,280 apiece in the grey market.

Happy Forgings IPO Review

Happy Forgings Ltd is a well-experienced and the fourth-largest manufacturer of complex machine components with 40 years of experience. 

“The company has consistently demonstrated growth in both its top and bottom lines, establishing persistent relationships with its customers. At a higher price band, Happy Forgings is demanding a TTM P/E multiple of 37.8x (to its TTM earning per share of ₹22.5), which is at a premium compared to its peer average 35.7x (excluding Bharat Forge and Sona BLW Precision Forging),” said Choice Broking.

Thus, the brokerage assigned a “Subscribe with Caution” rating to the issue.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.