Harsha Engineers International LtdQ1 FY23Industrial Products

Harsha Engineers International Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 2

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Revenue guidance

Category 3

→Expecting global growth of about 8% to 10% combined for all markets in FY 2024. (Page 3)
→India market showing robust 20% growth, with engineering revenue from Indian market growing 20%. (Page 3, 13)
→Volume growth estimated at 8% on a consolidated basis and approximately 12% to 13% on India basis; blended volume growth due to product mix. (Page 17, 7)
→Medium to long-term target growth at around 15% CAGR, outperforming industry growth of 6%-8%, driven by wallet share gain, large-size bearing cages, and focus on Japan-based customers. (Page 16)
→Existing customers expected to contribute to volume growth overseas, along with new customer additions in Romania/Europe. (Page 8)
→Bronze bushings market expected to revive in second half of FY 24 with potential for INR125 crore annual business in the long run. (Page 5, 9)
→Wind market expected to improve in H2 FY 24 based on customer indications. (Page 9)

Category 2

→The company targets a medium to long-term CAGR of about 15%, outpacing the industry's 6-8% growth.
→EBITDA margins in Romania are expected to improve significantly from current low levels to around 7-8% by FY '25-'26.
→China’s margins expected to improve to 12-13% from current 6-7%.
→Profit after tax for the engineering business grew 28.6% in FY'23 and further margin growth is expected in FY'24.
→The hybrid captive power project’s full benefits will be visible in FY '24, potentially improving operating efficiency.
→Modest growth (8-10%) is targeted globally in FY '24 with margin improvement expected.
→Solar EPC business expected to remain range-bound with marginal margin improvements, not a key growth focus.
→Wind market demand soft but expected to revive in second half of FY '24, aiding bronze bushing business.
→Overall, positive margin and profit growth outlook driven by increased wallet share, capacity expansion, and operational efficiencies.

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Yes

→The company currently has negative borrowings of INR 225 crores at the stand-alone level and gross borrowings of INR 88 crores.
→The planned INR 350 crores capex for the new subsidiary, Harsha Engineers Advantek Limited, is expected to be funded mostly through internal cash accruals.
→The INR 350 crores capex is an enabling provision and will be deployed in tranches over the next 3 to 4 years, as needed.
→The company does not plan to take on significant additional debt for this capex and aims to fund investments primarily from cash generated internally.
→There is no explicit mention of new fundraising through equity in the material reviewed.
→Overall, funding for upcoming capex appears secured through cash accruals and existing financial resources without fresh debt or equity issuance plans currently disclosed.

Yes

→The bronze bushing segment currently has a robust order book and good visibility despite muted market demand due to the soft wind market in Europe and other regions.
→The company is developing new products in the bronze bushing segment, indicating confidence in a decent revival expected in the second half of the current financial year.
→There is strong growth in the large bearing cages segment and from Japan-based customers.
→Significant capex announced by global bearing manufacturers, especially those setting up facilities in India, indicates upcoming large cage requirements, positioning the company as a major beneficiary.
→Harsha Engineers developed about 333 new products in FY 2023, demonstrating a strong pipeline and sustained growth outlook.

Yes

→Harsha Engineers plans around INR 350 crores capex over the next 2-3 years, including working capital for new subsidiary Harsha Engineers Advantek Limited.
→The INR 350 crores is an enabling provision and will be invested in tranches over 3-4 years.
→Approximately INR 100-130 crores capex planned for FY 2024, including greenfield expansion.
→Greenfield project is being set up for next 3-5 years due to limited expansion scope in existing facilities.
→New subsidiary Harsha Engineers Advantek Limited formed to drive the greenfield project; setup likely completed during the current financial year.
→Most capex funded through cash accruals; company currently has negative net borrowings on a standalone basis.
→Existing facilities will also see debottlenecking and incremental expansion as needed.

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