Harsha Engineers International Ltd is one of the largest manufacturers of precision bearing cages, having approximately 50-60% market share in the organised sector in India. The Company’s product line-up is diverse in terms of end-user sectors and geographical regions. In the organised sector, which includes brass, steel, and polyamide bearing caps, the company has a global market share of roughly 5–6%. The company’s primary line of business is the production of bearing cages (in brass, steel, and polyamide materials), intricate and specialised precision stamped components, welded assemblies, brass castings, cages, and bronze bushings. It also operates in the solar EPC sector, where it offers comprehensive turnkey solutions for all solar photovoltaic requirements. In the engineering operations segment, the company has four strategically placed manufacturing facilities, two of which are in India’s Gujarat state near Ahmedabad, at Changodar and Moraiya, and one each in Changshu, China and Ghimbav-Braşov, Romania.
Objects of the issue:
The following uses will be made of the IPO proceeds:
- Pre-payment or scheduled repayment of a portion of the existing borrowing availed by our Company
- Funding capital expenditure requirements toward the purchase of machinery.
- Infrastructure repairs and renovation of our existing production facilities, including office premises in India.
- General corporate purposes
Investment Rationale:
Strong Demand for Customized Bearings
Today’s bearing industry is expanding as a result of expansion in the industrial sector and strong demand across various other sectors, such as equipment, construction, automotive, aerospace, and defence. To fulfil their changing needs, manufacturers are focusing on the use of customised bearings as a result of the growing use of new technologies and digitalisation. The market will be further boosted by the increased demand for customised bearing solutions that satisfy various industry-specific needs, such as the growing EV sector. The automotive industry is turning its attention to electric automobiles. The demand is going to shift progressively towards exact dimension, and dirt-free bearing, steel and polyamide cages as a potential option at a premium price as the need for more silent and lighter bearings and their components are required. The company can produce precision stamping components and steel cages suitable for the electric car industry, including that of import substitutes, thanks to in-house tool and design facilities, modern machinery, specialised cleaning equipment, and software
Strategically positioned industrial plants both domestically and globally.
The Company’s global presence in China and Romania aids them in overcoming substantial entry barriers allowing them to access these markets more deeply than their rivals. Engineering and producing goods in several areas enables them to provide services, and customer requests from alternative places, providing the customer with the benefit of regular supply and cost-competitive manufacturing operation. Although China is regarded as the centre of the world’s manufacturing, current macro factors like the US-China trade conflict and the global Covid-19 outbreak prompted manufacturers to establish production facilities in certain areas other than China in emerging markets like India, which is positive for companies like Harsha Engineering who makes bearing cages.
Valuation and Outlook:
The general rise in the global economy and a rise in the technological advancements in the bearing cage manufacturing business provide HEIL with strong support to further grow in global markets. The company has a stronghold in India and long-standing relationships with leading clientele supplying to the Top-6 global bearing manufacturers. The wide application of bearings growing in different sectors coupled with substantial government initiatives to promote the manufacturing sector is a robust driver for the company. However, the rising raw material prices remain a top concern for the manufacturer. On the upper end of the price band, the issue is valued at a PE of 27.7x (based on FY22 earnings), which we believe to be fairly priced in comparison with the listed peers (Timken – 77.3x & Rolex Rings – 39.2x). Due to the above factors, we give this issue a “SUBSCRIBE” rating for the long term as well as for the Listing gains.
