Harsha Engineers International IPO: All You Need To Know

Harsha Engineers International Ltd. is set to launch its Rs 755-crore initial public offering on Wednesday even as volatility persists in the market.

The Ahmedabad-based precision bearing cage manufacturing firm will issue fresh shares worth Rs 455 crore, according to its red herring prospectus. The IPO will also comprise an offer for sale of 90 lakh shares by the promoter group. That will fetch the promoters Rs 300 crore at the upper end of the price band of Rs 314-330 apiece.

The issue together will comprise 25.13% of the post-issue equity capital of the company. At the upper end of the price band, the company is valued at Rs 3,007 crore.

The company underwent corporate restructuring by merging the group companies in the last two years.

Key Details

• Issue opens on: Sept. 14

• Issue closes on: Sept. 16

• Price band: Rs 314-330 apiece

• Issue size: Rs 755 crore

• Face value: Rs 10 apiece

• Lot size: 45 equity shares and multiples

• Listing on: BSE and NSE

• Lead managers: Axis Capital, Equirus Capital, and JM Financial.

Use of Proceeds

The company will use the proceeds from the fresh issue for:

• Repayment of existing debt: Rs 270 crore

• Funding capex requirements towards purchase of machinery: Rs 77.95 crore

• Infrastructure repairs and renovation of the existing production facilities: Rs 7.12 crore

Business

Harsha Engineers International was incorporated on Dec.11, 2010. It manufactures brass, steel and polyamide cages, and stamped components with production facilities located in Asia (India and China) and in Romania in Europe.

HEIL’s market share is estimated to be 50-60% of the Indian bearing cages market making it the largest manufacturer of precision bearing cages in organized sector in India in terms of revenues. The company has a market share of 6.5% in the global organised bearing brass, steel and polyamide cages market in 2021.

The company’s business comprises mainly of engineering business, under which it manufactures bearing cages in brass, steel and polyamide materials; complex and specialised precision stamped components, welded assemblies, brass castings and cages, and bronze bushings. The other business includes the solar EPC business, which provides comprehensive turnkey solutions to all solar photovoltaic requirements.

The company offers a wide range of bearing cages starting from 20mm to 2,000 mm in diameter for automotive, railways, aviation and aerospace, construction, mining, agriculture, electrical and electronics, renewables sectors, among others.

The company has four strategically located manufacturing facilities for its engineering business. Two of which are at Changodar and Moraiya near Ahmedabad in Gujarat in India. The other two manufacturing units are at Changshu in China and Ghimbav Brasov in Romania. Overseas units account for nearly 30% of the production. Over 60% of its revenue comes from exports to 25 countries. The top five client group account for over 70% of the revenue of the company.

Financials

The company has been profitable for the last three years, but margin squeezed due to Covid-driven cost increases in raw materials—a large portion of which is imported. Though its domestic business margin is around 21%, lower margin in overseas operations have led to core margin of 12-13%.

Peers

The company’s listed peers include Timken India Ltd., SKF India Ltd. and Sundram Fasteners Ltd.

Risks

• The continuing impact of the Covid-19 pandemic on business, operating results, cash flows and/or financial condition is uncertain and cannot be predicted.

• The company is dependent on a limited number of customer groups for a significant portion of revenue from engineering business. The loss of any major customer groups due to any adverse development or significant reduction in business from major customer groups may adversely affect business, financial condition, results of operations, cash flow, and future prospects.

• It is dependent upon network of agents for fulfilment of needs of customers. Its inability to maintain relationships with agents or deficiency in the service provided by such agents may adversely affect business.

• The company recently completed a corporate restructuring, pursuant to which it would have faced administrative and operational difficulties.

• The company is exposed to forex fluctuations, which may adversely affect results significantly.

• Its inability to successfully diversify product offerings of engineering business may adversely affect growth and negatively impact profitability.

• It depends on third parties for the supply of raw material and delivery of products. A disruption in the supply of raw materials or failure of suppliers to meet their obligations could impact production and increase costs.

• The company and some of its subsidiaries have unsecured loans that may be recalled by the lenders at any time.

• Availability and cost of raw materials for engineering business could adversely affect business, financial condition, results of operations, and prospects.