IGI Logo

Harsha Engineers (HARSHA) reported mix bag of 1QFY25 quarterly number with consol. revenue decline on 1.4% YoY to INR 3.4bn (JMFe INR 4bn) and EBITDA margin expansion of 410bps YoY to 16.1%. Revenue in India grew 8.7% YoY to INR 1.3bn. Revenue outside India declined 6.8% YoY to INR 2bn (exports declined 5.7% YoY to INR 1.2bn). Revenue from International subs was down 8.3% YoY to INR 841mn. EBITDA grew 31.9% to INR 552mn. EBITDA margin expansion was mainly due to reduction in raw material price, which is not yet pass on to customer followed by strong growth in the Bushing business; continued positive contributions coming from Japan based customers & stampings, as well as increased off take from key domestic customers for existing as well as new projects. PAT grew 46.7% YoY to INR 361mn (JMFe INR 377mn), mainly due to better operating performance and higher other income (up 97.5% YoY to INR 79mn). We expect earning CAGR of c.34% over FY24-26E and maintain BUY with a target price of INR 660

* Domestic demand continues to be strong: Overall Indian bearing demand stands strong, primarily driven by strong economic outlook and China +1 strategy by customer resulting in few customer shifting their manufacturing facility in India. Large size bearing cages demand continued to be muted, largely on account of overall continued softness in demand from industrial segment.

* Bronze Bushing on growth path: Reported revenue of INR 200mn, from existing customer in manufacturing windmill gear box segment. Given the healthy demand in windmill segment, management expects revenue from bushing segment to reach INR 800mn in FY25. At current capacity bushing can generate peak rev of INR 1.2bn. Stamping business reported revenue of INR 140mn in 1QFY25.

* China performed well; Romania still impacted: in1QFY25 China witnessed an improvement in performance with positive bottom line, while Romania continues to be under pressure. Higher demand in Chinese market resulted in improved capacity utilisation level of more than 55%. While Romania demand still continues to be sluggish resulting in capacity utilisation to be lower than 50%. Management has taken several steps to improve performance such as interaction with customers, cost reduction, improving product mix etc. Hence both subsidiary put together is expected to report marginal negative bottom line to break even in FY25.

* Maintain BUY with a TP of INR 660: We expect revenue/earning CAGR of 15%/34% over FY24-26E on the back of (1) strong demand outlook in the domestic market, revival in China and then Europe, (2) customer increasing share of localisation, (3) strong opportunities in new product segment like stamping components and Bronze bushing, (4) Increasing wallet share with existing customers along with new customer addition, (5) high profitability at overseas. HARSHA currently trades at PE of 32x/26x on FY25/FY26E. We value HEIL at 30x (earlier 25x) on FY26 EPS to arrive at a target price of INR 660, upside of 16% from CMP and hence we maintain BUY.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361