The ₹755-crore initial public offering of Harsha Engineers International (HEIL) opened for subscription today, September 14 and will close on September 16. The company has fixed the IPO price band at ₹314-330 per share.
The IPO consists of a fresh issue of equity shares aggregating to ₹455 crore, and an offer-for-sale (OFS) of up to ₹300 crore by existing shareholders. 50 percent of the issue size has been reserved for qualified institutional investors, 35 percent for retail investors and the remaining 15 percent for non-institutional investors. Investors can bid for a minimum of 45 equity shares and in multiples of 45 equity shares thereafter.
About the firm
Harsha Engineers International Ltd (HEIL) is the largest manufacturer of precision bearing cages (critical component within bearings), in terms of revenue, in organised sector in India (60 percent market share), and among the leading manufacturers of precision bearing cages in the world (6.5 percent market share). HEIL manufactures a wide range of brass, steel and polyamide bearing cages; stamping components primarily used in the auto-component industry; and sand casting, value-added stamping components, bronze bushings, etc. to cater to wind, mining and shipping sectors. They cater to customers with over 50 percent global market share in the bearing industry. They also have a solar EPC business (6 percent of revenue), under which they provide turnkey solutions to all solar photovoltaic requirements.
Financials
HEIL’s revenue from operations grew from ₹886 crore to ₹1,322 crore at a CAGR of 22 percent between FY20 and FY22 and its PAT grew by 105 percent CAGR from ₹22 crore to ₹92 crore in the same period.
The company had an average EBITDA Margin of 12.1 percent and RoE of 11.4 percent during FY20-22 and can be expected to improve due to product expansion, debottlenecking, increasing capacity utilization (Current-63 percent), and reduction in commodity prices in the future.
Most brokerages have given a subscribe rating to the issue on the back of strong financials and reasonable valuation.
Here's what brokerages say:
Geojit Financial Services: Subscribe
Considering its strong financials and market share, the China-plus-one strategy by major economies and the growing outsourcing trend of bearing manufacturers, the brokerage has assigned a “Subscribe” rating on a medium to long-term basis. At the upper price band of ₹330, HEIL is available at a P/E of 32.7x (FY22), which appears reasonably priced compared to peers, it added.
Motilal Oswal: Subscribe for listing gains
HEIL with its dominant position is well placed to capture the growing bearing cage demand across industries. MOSL likes its increasing focus on other specialized precision components and on the growing EV segment which could boost its EBITDA margins. It is valued at 32.7x FY22 P/E which is at par with its listed peers, it added. Given growth recovery in auto/auto ancillary and strong momentum in the midcaps, MOSL expects the IPO to do well and suggests investors to Subscribe to the IPO for listing gains.
Ventura Securities: Subscribe
The brokerage expects HEIL’s revenue/ EBITDA/ PAT to grow at a CAGR of 17.2 percent/ 22.7 percent/ 32.1 percent respectively over FY22-25E, while EBITDA and PAT margins are expected to improve by 191 bps and 301 bps, respectively over the same period.
At the IPO price of ₹330 (upper price band), HEIL is valued at FY25 P/E of 14.2X. Considering the growth opportunities in the bearing sector due to sector tailwinds and strong fundamentals of HEIL, the brokerage recommends a SUBSCRIBE rating with a price target of ₹406, which represents an upside of 23 percent over the IPO price in 18 months.
Religare Broking: Not rated
"HEIL is well placed in the engineering segment and has plans to enhance market leadership in the bearings segment as well as capture opportunity in Auto-EV segment which has a good scope of growth. Besides, their focus will be on expanding the customer base, developing customized products with help of tooling and use of automation to bring in cost efficiency. Also, they have plans to look for inorganic acquisitions and partnerships with customers over a long-term period," said the brokerage.
Key Risk: 1) Depends on limited numbers of customers for revenue. 2) the price volatility of raw materials may impact margins.
Angel One: Subscribe
As per the brokerage, the company has expertise in tooling, design development, and automation and has strategically located domestic and international production facilities and warehouses. Its consolidated PAT has grown at a CAGR of 105 percent over FY20-22 on the back of margin expansion and its diverse product portfolio and strong expertise are yet to be factored in the valuations, it noted.
LKP Securities: Subscribe
"HEI has established a strong relationship with its customers who are leading global bearing makers across sectors. The bearing cages market globally is concentrated with top-6 players commanding a 54 percent market share in FY22. As of March 31, HEIL is supplied to each of these six companies. The company’s top 10 customers have contributed 45-48 percent to its total revenues over the last 3 financial years. It also enjoys a long-term relationship with its clients. At the upper end of the price band of ₹330, it is valued at 27.7x FY22 earnings, which is reasonable compared to its peers," it said.
