Happy Forgings FY26: Strong margins, stronger cash flows, and a bigger capex cycle

Happy Forgings Limited closed FY26 with its highest annual profitability to date, supported by steady volumes, an improving product mix, and operating leverage. Consolidated revenue from operations was INR 1,546 crore for FY26, up 9.8% year on year. EBITDA rose 15.7% to INR 471 crore, with EBITDA margin expanding to 30.4% from 28.9% in FY25. PAT came in at INR 302 crore, up 12.8%, and PAT margin improved to 19.5%.

The March quarter (Q4 FY26) was an especially strong finish. Revenue grew 20.4% year on year to INR 424 crore, EBITDA increased 30.4% to INR 133 crore, and PAT rose 23.6% to INR 84 crore. Finished goods volume growth of 20.6% year on year did the heavy lifting, while realisations stayed broadly stable at around INR 245 per kg.

What drove FY26 performance

The company’s FY26 narrative stayed consistent with its multi-year positioning: a shift from conventional forging toward high-precision forged and machined components. Product mix data from the investor presentation shows forged and machined products at 89% of FY26 revenue, up from 87% in FY25.

Margin expansion was visible across the P&L. FY26 gross margin improved to 59.1% (from 58.0%), while EBITDA margin expanded by 157 bps year on year to 30.4%. Management attributed the quarter’s margin lift to execution, improving mix, and operating leverage.

Foreign exchange movement was a drag on reported profitability versus operating performance. The CFO stated other income in Q4 FY26 was impacted by roughly INR 4.5 crore pre-tax due to adverse FX movements. In the investor presentation, the company also noted PAT growth lagged EBITDA growth in Q4 primarily due to FX.

Segment mix and domestic export balance

The company’s revenue is diversified across five end-market buckets disclosed in the investor presentation. In FY26, commercial vehicles remained the largest segment at 37% of revenue, followed by farm equipment at 32%, industrials at 14%, off-highway at 11%, and passenger vehicles at 6%.

Management commentary highlighted mixed conditions across domestic and export markets. The domestic environment for commercial vehicles was described as stable, supported by replacement demand and infrastructure-led activity. At the same time, management noted that global markets, particularly North America and Europe, saw a 9% to 10% decline in unit sales, which contributed to a decline in the company’s export-dependent commercial vehicle sales.

Geographically, the investor presentation indicates that FY26 revenue was 74% domestic, 11% deemed plus indirect exports, and 15% direct exports. Direct exports reduced versus FY25 (18% in FY25 to 15% in FY26), indicating that FY26 leaned more on domestic demand.

Financial summary

Capex, capacity, and the heavy forgings push

Happy Forgings is in the middle of a large investment cycle. FY26 capex was INR 461 crore, and management guided to FY27 capex of INR 450 crore to INR 500 crore. Management also stated that planned capex over the next two years is around INR 800 crore (including solar capex).

Capacity additions are aimed at supporting both volume growth and more complex programs. The investor presentation notes that a 10,000-ton forging press was commissioned in Q4 FY26 and a 4,000-ton press is expected to be commissioned in H1 FY27.

A key medium-term initiative is the heavy forgings expansion. As per the investor deck, investments in heavy component forging capacities remain on schedule, with commissioning expected in FY27 and trials commencing by the end of FY27. The company expects this to enable expansion into the higher-weight segment, with components weighing 250 to 3,000 kilograms, targeted primarily at industrials and farm equipment.

On the earnings call, management linked a portion of incremental orders to heavier industrial applications, including data center linked requirements. Management said the new business order book was around INR 950 crore, expected to be executed over 2.5 to 3 years. It also stated that about INR 250 crore of this order book relates to heavy businesses connected to data centers, with product weights in the range of 700 kg to 1.8 tons.

Cash generation and balance sheet strength

Even with elevated capex, the company delivered strong operating cash flow conversion in FY26. Operating cash flow was INR 445 crore in FY26. In the investor deck’s cash accrual table, operating cash flow to EBITDA was shown at 94% in FY26.

Liquidity remained a highlight. Both the investor presentation and management commentary referenced liquid assets and liquidity surplus of around INR 430 crore. The investor presentation also disclosed net debt to EBITDA at -0.19x for FY26, indicating a net cash position when including liquid investments.

This balance sheet flexibility is strategically relevant given the capex runway. The company framed its approach as internally funded growth with limited reliance on external capital, supported by strong cash generation and an AA stable credit rating.

ESG and cost optimization initiative: captive solar

Management also discussed a long-term cost and ESG initiative. It stated the company signed a long-term lease of 80 acres to develop a captive solar power plant and received approval to enhance the capacity of the proposed plant by an additional 10 AC MW to 35 AC MW. The total outlay indicated was up to INR 170 crore. Management expects partial benefits to start from FY28, with full benefits accruing thereafter.

Takeaways

FY26 reinforced Happy Forgings’ positioning as a high-precision forging and machining company, with a rising share of machined components, improving margins, and strong cash conversion. The next phase appears centered on capacity ramp-ups, higher realisation programs, and heavy forgings that expand the addressable market.

The near-term watch items remain export market recovery, FX volatility, and disciplined execution of a high capex pipeline. But with FY26 showing strong profitability and cash flows alongside a net cash balance sheet, the company enters FY27 with visible financial headroom and a clearer product and segment diversification agenda.