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A global player in bearing industry 

Harsha Engineers International Ltd (HEIL) is the largest manufacturer of precision bearing cages (critical component within bearings), in terms of revenue, in organised sector in India (60% market share), and amongst the leading manufacturers of precision bearing cages in the world (6.5% market share). HEIL manufactures a wide range of brass, steel and polyamide bearing cages; stamping components primarily used in the auto-component industry; and sand casting, value added stamping components, bronze bushings etc. to cater to wind, mining and shipping sectors. They cater to customers with over 50% global market share in bearing industry. They also have a solar EPC business (6% of revenue), under which they provide turnkey solutions to all solar photovoltaic requirements.

• The world bearing cage market is estimated at USD 5,230.6 million in 2021 and is expected to grow at a CAGR of 6% to 8% between 2021-29.

• They supply products to customers in over 25 countries, covering five continents. HEIL’s four strategically located manufacturing facilities in India, China and Romania and warehouses in 20 locations worldwide help them serve its clients productively and economically.

• In FY22, sales to India, Europe, China and Americas contributed 37%, 38%, 13%, and 6%, respectively, from the engineering segment. Manufacturing and services in India, China and Romania contributed 72%, 8% and 20% of total revenue.

• HEIL’s revenue from operations grew from Rs.886cr to Rs.1,322cr at a CAGR of 22% between FY20 and FY22 and its PAT grew by 105% CAGR from Rs.22cr to Rs.92cr in the same period.

• The company has an average EBITDA Margin of 12.1% and RoE of 11.4% during FY20-22 and can be expected to improve due to product expansion, debottlenecking, increasing capacity utilization (Current-63%) and reduction in commodity prices in the future.

• As of FY22, HEIL has a D/E of 0.7 and debt repayments of Rs.270cr from IPO proceeds will make D/E negligible.

• HEIL will not be impacted by the automotive segment’s shift towards EVs as they are not manufacturing needle bearings cages, which are engine components, while the EV shift will increase the precision requirements sought by customers, which will help companies like HEIL to further improve their market share.

• At the upper price band of Rs.330, HEIL is available at a P/E of 32.7x (FY22), which appears reasonably priced compared to peers. Considering its strong financials and market share, the China-plus-one strategy by major economies and growing outsourcing trend of bearing manufacturers, we assign a “Subscribe” rating on a medium to long term basis.

Purpose of IPO

The IPO consists of a fresh issue of Rs.455cr and an offer for sale of equity shares (Rs. 300cr). The proceeds worth Rs.270cr will be utilised for debt repayment, funding capital expenditure (Rs.77.9cr),infrastructure repairs and renovation (Rs.7.12cr) and general corporate purposes

Key Risks

• HEIL’s top five customers contributes ~70% of the revenue from operations.

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