Shares of Harsha Engineers International look poised for gains in the medium to long term due to factors including its leadership position in the bearing cages market and increasing share of higher-value products in the mix.
Brokerage firm Prabhudas Lilladher has initiated coverage on the stock with a 'buy' call, pegging the target price at ₹439, implying a potential upside of 25 percent.
As per the brokerage firm, the stock is currently trading at a price-to-earnings ratio (P/E) of 20.2 times and 16.3 times on FY24 and FY25 earnings estimates.
The stock hit its 52-week low of ₹320 on BSE on February 27, 2023.
Around 1:20 pm, the stock was down 1.23 percent at ₹345.40 on BSE.
"Harsha Engineers International is well-placed for long-term growth given its (1) leadership position in the domestic and global organized bearing cages market (nearly 50-60 percent share and nearly 6.5 percent share respectively), (2) long-standing relationships with top bearing players, (3) excellence in tooling & customized precision engineering and (4) increasing share of higher-value products in the mix," said Prabhudas Lillladher.
The brokerage firm estimates revenue and PAT CAGR of 8.6 percent and 25.5 percent, respectively, over FY22-25E driven by outsourcing of cage production and localization of manufacturing in India, scale-up in bronze bushings, precision stamped components and large-size cages, interest and power cost savings, and turnaround in Romania operations.
The brokerage firm highlighted that Harsha Engineers has recently diversified into producing bronze bushings as a substitute for bearings for wind turbine gearboxes.
As per Prabhudas Lilladher, this market has the potential to expand from ₹200 crore to ₹5000 crore, driven by the cost and operational benefits of using bushings instead of bearings, along with growing demand for renewable energy sources.
"Harsha Engineers' sales of bronze bushings in the first half of FY23 already surpassed the total of nearly ₹13 crore in FY22; it also has a healthy order book providing visibility for the next 1-1.5 years. As an early mover, Harsha Engineers has the potential to capture nearly 10-15 percent of the market over the next few years," said Prabhudas Lilladher.
The brokerage firm also added that Harsha Engineers' underperforming Romania operations are expected to turn around on the back of improving demand in Europe and greater production of large-sized cages.
Meanwhile, the Solar EPC segment has also turned profitable, registering a 0.4 percent PAT margin in the nine months of FY23 against (-8.3) percent in the nine months of FY22, Prabhudas Lilladher observed.
"Harsha Engineers has used its IPO proceeds to repay the majority of its debt and is investing in wind and solar plants to service its energy requirements. These measures combined can generate interest and power costs savings of ₹18-19 crore annually, aiding margin expansion from FY23 onwards," it said.
According to a MintGenie poll, 28 analysts on average have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
