Hold Harsha Engineers International Ltd for the Target Rs. 407 By Prabhudas Liladhar Capital Ltd
Steady Q2 driven by strong export rebound
Quick Pointers:
* India Engineering domestic/export mix stood at 46%/54% (vs 57%/43% YoY).
* Management retained their cautiously optimistic outlook with consolidated revenue growth guidance of high single-digit.
Harsha Engineers International (HARSHA) delivered a steady performance, with revenue rising 7.3% YoY and EBITDA margin improving 228bps YoY to 14.1%. The quarter benefited from strong export momentum, reflecting sustained recovery in industrial demand across Europe and other key markets. The Romania unit reported robust 38% YoY growth in Q2FY26, supported by a favorable product mix of finished goods. The operational greenfield facility, Advantek, is expected to bolster domestic prospects. Meanwhile, increasing wallet share from existing clients is expected to garner ~30% revenue growth in bronze bushings segment in FY26, while management maintains their cautiously optimistic outlook—guiding for high single-digit growth in consolidated business and low mid-teens growth in India-Engineering.
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 longterm outlook remains positive given its 1) market leadership in bearing cages, 2) greenfield capacity expansion, and 3) multiple levers for growth viz. i) bearing cage outsourcing, ii) capex by global bearing players in India and iii) growing demand for bronze bushings. The stock is currently trading at a P/E of 20.2x/18.0x on FY27/28E earnings. We roll forward to Sep’27E and maintain our ‘Hold’ rating valuing the stock at a PE of 20x Sep’27E (21x Mar’27E) arriving at a revised TP of Rs407 (Rs402 earlier).
Marginal recovery in Romania propelled top-line growth: Consolidated revenue increased by 7.3% YoY to Rs3.8bn (Ple: Rs3.9bn). Gross margin expanded by 209bps YoY to 49.0% (PLe: 47.0%). EBITDA grew 27.9% YoY to Rs535mn (PLe: Rs522mn) while EBITDA margin expanded by 228bps YoY to 14.1% (PLe: 13.5%) primarily driven by higher gross margin. PBT increased by 21.2% YoY to Rs496mn (PLe: Rs502mn) despite of decrease in other income (-13.5% YoY to Rs105mn). PAT increased by 25.8% YoY to Rs364mn (PLe: Rs362mn) driven by better operating performance and lower effective rate of 26.5% (-272bps YoY).
Strong revival in European demand drive subsidiary performance: Consolidated Engineering revenue rose 17.2% YoY to Rs3.6bn driven by continued revival of Industrial demand in Europe and other key geographies. Meanwhile, Solar EPC sales declined sharply by -63% YoY to Rs152mn. Consolidated Engineering Opg. EBITDA margin increased to 14.6% (vs 13.2% in Q2FY25). Solar EPC Opg. EBITDA margin increased to 3.8% (vs 2.3% in Q2FY25).
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