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Harsha Engineers International Ltd (HEIL) is the largest manufacturer of precision bearing cages, in terms of revenue, in organized sector in India, and amongst the leading manufacturers of precision bearing cages in the world. HEIL offers diversified suite of precision engineering products across geographies and end-user industries. It operates under 2 Business Divisions: (i) Engineering business, under which it manufactures bearing cages (in brass, steel, and polyamide materials), complex and specialized precision stamped components, welded assemblies and brass castings and cages & bronze bushings; and (ii) solar EPC business, under which it provides complete comprehensive turnkey solutions to all solar photovoltaic requirements.

Positives: (a) Comprehensive solution provider offering a diversified suite of precision engineering products across geographies and end-user industries. (b) Expertise in Tooling, design development and automation (c) Strategically located domestic and international production facilities and warehouses. (d) Long-standing relationships with leading clientele.

Investment concerns: (a) High exposure to foreign currency exchange rate fluctuations (b) HEIL has recently completed a corporate reorganization, due to which they may face administrative and operational difficulties. (c) High dependence on limited number of customers. (d) HEIL has certain contingent liabilities and capital commitments, which, if they materialize, may adversely affect the financial condition.

Outlook & Valuation: In terms of valuations, the post-issue P/E works out to 32.7x FY22 EPS (at the upper end of the issue price band). Company’s consolidated PAT has grown at CAGR of ~105% over FY20-22 on back of margin expansion. HEIL has diverse product portfolio and strong expertise; we believe that these positives are yet to be factored in the valuations commanded by the company. Thus, we have a SUBSCRIBE rating on the issue

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