Hold Harsha Engineers International Ltd for the Target Rs. 408 By Prabhudas Lilladher Ltd
Quick Pointers:
* India Engineering domestic/export mix stood at 44%/56% (vs 45%/55% YoY).
* Management guided ~10% YoY consolidated revenue growth for FY26 with Q4FY26 revenue likely to sustain Q3 run rate
Harsha Engineers International (HARSHA) delivered a healthy performance, with revenue rising 21% YoY and EBITDA margin improving 284bps YoY to 15.5%, driven by volume-led growth in the standalone Indian engineering business across industrial and automotive segments, and supported by improving export momentum with gradual recovery in Europe (industrials). The newly operational Advantek facility remains loss-making due to initial capitalization, with profitability expected from FY27, while Romania continues to report losses amid commodity inflation, though management expects improvement on better mix, customer diversification and cost actions. Growth levers across large-size cages, bushings and stampings continue to gain traction with management focus on improving wallet share from existing customers, and the approved ~US$10mn China brownfield expansion for steel cages, targeted to be operational by FY28 and expected to drive ~2x asset turnover.
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, 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 20.76x/18.3x on FY27/28E earnings. We maintain our ‘Hold’ rating valuing the stock at a PE of 20x Sep’27E (same as earlier ) arriving at a TP of Rs408 (Rs407 earlier).
Gross margin expansion drive the overall profitability: Consolidated revenue increased by 20.7% YoY to Rs4.1bn (Ple: Rs3.7bn). EBITDA grew 48.0% YoY to Rs633mn (PLe: Rs475mn) while EBITDA margin expanded by 284bps YoY to 15.5% (PLe: 13.0%) primarily driven by higher gross margin (+225 bps YoY) and better operating leverage. PBT (exc. Extra-ordinaries) increased by 42.7% YoY to Rs532mn (PLe: Rs428mn) despite increased in interest cost to Rs48mn (+127% YoY). Adj.PAT increased by 41.8% YoY to Rs379mn (PLe: Rs314mn) driven by better operating performance.
Strong standalone performance drive overall performance: Consolidated Engineering revenue rose 15.7% YoY to Rs3.5bn driven by increased in Engineering India revenue by 17.4% YoY to Rs2.7bn and Solar EPC revenue increased by 61.6% YoY to Rs597mn owing to project execution post monsoon Consolidated Engineering Opg.EBITDA margin increased to 16.8% (vs 14.0% in Q3FY25). Solar EPC Opg.EBITDA margin increased to 7.7%.
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SEBI Registration number is INH000000933
