Auto components manufacturer expects weakness in US Class8 truck segment but projects growth in Indian commercial vehicle market as company diversifies into passenger vehicles and industrial segments
20 May 2025 | 444 Views | By Angitha Suresh
Happy Forgings Limited (HFL), a leading auto components manufacturer specializing in forged and machined products for commercial vehicles, tractors, passenger vehicles, and industrial applications, has forecasted a decline in the global commercial vehicle (CV) market for the financial year 2026, citing significant weakness in the US Class8 truck segment. According ...
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Happy Forgings Limited (HFL), a leading auto components manufacturer specializing in forged and machined products for commercial vehicles, tractors, passenger vehicles, and industrial applications, has forecasted a decline in the global commercial vehicle (CV) market for the financial year 2026, citing significant weakness in the US Class8 truck segment. According to the company's latest quarterly report, global CV sales are expected to decline in high single digits in calendar year 2025.
The global automotive industry continues to navigate challenging terrain in 2025, with commercial vehicle manufacturers particularly affected by economic uncertainties and shifting trade dynamics. The US Class8 truck market, which represents heavy-duty trucks with a gross vehicle weight rating exceeding 33,000 pounds, has experienced declining orders in recent months as fleet operators delay capital expenditures amid economic concerns.
Industry analysts note that recent tariff adjustments between major manufacturing hubs have further complicated the global supply chain for automotive components. While some manufacturers have benefited from localization initiatives, others face margin pressures from increased import costs and logistics challenges.
In contrast to the global outlook, Happy Forgings expects the domestic medium and heavy commercial vehicle (MHCV) industry to post growth in FY26. The company anticipates outperforming industry growth rates thanks to new order wins from large domestic CV players.
"While global headwinds persist, the Indian CV market continues to show resilience driven by infrastructure development and fleet modernization initiatives," noted industry observers familiar with the company's operations.
Happy Forgings' management provided a mixed outlook for the tractor segment. The domestic tractor industry is projected to achieve high-single-digit growth in volumes during FY26, offering a bright spot in the company's diversified portfolio.
However, the picture for tractor exports remains challenging in the near term, with recovery expected only from the third quarter of FY26. Management indicated that dealer stock liquidation has already occurred, setting the stage for a potential recovery by the second half of calendar year 2025.
The company highlighted significant order wins in the passenger vehicle (PV) and industrial segments, totaling INR16 billion to be executed over the next 5-8 years. These orders are expected to generate an annual peak revenue of INR2.5 billion, increasing the PV and industrial contribution to 25% of the company's total revenue.
To support this growth, Happy Forgings plans to invest INR4 billion in capital expenditure for FY26, including INR800 million specifically allocated for the passenger vehicle segment.
Happy Forgings reported modest growth in its fourth-quarter results for FY25, with revenue increasing 2.5% year-over-year (YoY) to INR3.52 billion. The company's profit after tax (PAT) grew by 3% YoY to INR678 million, in line with analyst estimates.
Despite the challenging demand environment, HFL achieved impressive margin expansion, with EBITDA margins improving by 80 basis points YoY to 29.1% in Q4FY25. This improvement was primarily driven by a favorable product mix shift towards higher-margin offerings.
For the full fiscal year 2025, Happy Forgings posted revenue growth of 4% YoY to INR14.1 billion. Domestic growth stood at 6% YoY, while direct exports remained flat, resulting in export contribution marginally declining to about 18% of revenue. Commercial vehicles account for approximately 12% of exports, with the balance coming from industrial products.
A key highlight in the company's financial performance was the improved average selling price (ASP) of INR248 per kg in FY25, despite a INR7-8 per kg decline in steel prices. This improvement was attributed to the company's enhanced machining mix, which increased to 87% from 85% YoY.
The company maintained a strong financial position with cash and cash equivalents of INR3.6 billion and a comfortable debt-to-equity ratio of 0.1x. Happy Forgings generated free cash flow of INR119 million after capital expenditure of INR2.8 billion in FY25.
The board has recommended a dividend of INR3 per share, translating to an 11% dividend payout ratio.
According to Motilal Oswal Financial Services, "A recovery in domestic CV demand, healthy tractor outlook and strong order wins in Industrials and PVs should help to offset the weakness in CV and tractor exports in the near term."
The brokerage firm expects Happy Forgings to deliver a compound annual growth rate (CAGR) of 14% in revenue, 16% in EBITDA, and 16% in PAT during FY25-27E. Following recent stock price corrections, Motilal Oswal reiterated their BUY rating with a target price of INR984, representing a potential upside of 20% from the current market price of INR818.
"HFL's superior financial track record compared to its peers serves as a testament to its inherent operational efficiencies and is likely to be a key competitive advantage going forward," Motilal Oswal added in their research report.