Accumulate Harsha Engineers International Ltd For Target Rs.462 by Prabhudas Liladhar Capital Ltd
Decent Q1; Overseas recovery key to watch
Harsha Engineers International (HARSHA) reported a decent Q1FY27 performance, with consolidated revenue growing 25% YoY, led by robust India Engineering growth and broad-based industrial demand. Management expects India Engineering to grow ~15%YoY and consolidated revenue by ~12% YoY in FY27, with sustainable margins of 20–22%. Raw-material inflation and ramp-up costs impacted margins, though passthrough is expected to support recovery. Cages remained a key growth driver, while bushings and stampings grew 35% and 31% YoY, respectively, with ~30% growth targeted for FY27. Large-size cages offer further growth potential, with management targeting ~50% growth. Japanese customer sales grew 25% YoY, though FY27 growth is expected at ~10% given longer conversion cycles. Advantek remains in ramp-up mode, targeting Rs1.4bn revenue and breakeven by FY27-end. China remains profitable with ~10% growth expected, while Romania continues to weigh on profitability despite ongoing mix and cost-improvement initiatives. Solar EPC is expected to deliver ~Rs2bn revenue at 7–8% EBITDA margin. Overall, strong demand across cages, bushings, stampings and exports, alongside capacity expansion, supports medium-term growth, although raw-material volatility, ramp-up costs and overseas losses remain key monitorables. The stock is currently trading at a P/E of 20.7x/17.8x on FY27/28E earnings. We upgrade our rating from ‘HOLD’ to ‘Accumulate’ given recent correction in the stock price with a revised TP of INR461 (same as earlier earlier), valuing the company at a PE of 20x Mar’28E (same as earlier).
Despite the momentary revival in Romania, we remain watchful on the subsidiary performance and the export demand which may impact mid-term consolidated financial performance of the company however, HARSHA’s long term outlook remains positive given its
1) market leadership in bearing cages
2) greenfield capacity expansion
3) multiple levers for growth viz.
i) bearing cage outsourcing,
ii) capex by global bearing players in India
iii) growing demand for bronze bushings.
Revenue growth was driven by broad based demand:
Consolidated revenue increased by 25.2% YoY to Rs4.5bn (Ple: Rs4.1bn) driven by domestic demand trend as well as improving demand for industrials in Europe and ROW. Consolidated Engineering revenue rose 20.7% YoY to Rs4.2bn driven by increased in Engineering India revenue by 20.9% YoY to Rs3.1bn and Solar EPC revenue increased by 121% YoY to Rs364mn. Gross margin contracted by 134bps YoY to 47.5% (PLe: 49.1%). EBITDA increased by 21.7% YoY to Rs675mn (PLe: Rs654mn) with EBITDA margin contracted by 43bps YoY to 14.7% (Ple: 15.8%) due to lower gross margin. Indian Engineering EBITDA impacted by higher RM cost (6-8%), forex loss (Rs40mn) and higher indirect cost (Rs 30mn). Consolidated Engineering Opg. EBITDA margin contracted to 15.4% (vs 15.8% in Q1FY26). Solar EPC Opg. EBITDA margin increased to 6.6% (2.5% in Q1FY26). Adj. PBT remain flattish YoY to Rs530mn (PLe: Rs594mn) due to decline in other income (-52.2% YoY to Rs51mn). Adj. PAT came in at Rs374mn (-1.5% YoY) (PLe: Rs444mn) due to higher effective rate (+97bps YoY to 29.5%).
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