Harsha Engineers International's initial public offering (IPO) will open for subscription on Wednesday, September 14, and close on September 16. The company aims to raise Rs 455 crore through a fresh issue of shares and up to Rs 300 crore through an offer for sale (OFS) by its existing shareholders.

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The price band for the equity shares is Rs 314-330. The issue size is up to Rs 755 crore. Institutional investors will receive half of the issue size, retail investors will receive 35 percent, and non-institutional investors will receive 15 percent. Initially, investors may bid for 45 equity shares and thereafter in multiples of 45 equity shares.

Here is what experts think about the Harsha Engineers IPO:

Strengths

Diversified product portfolio

Harsha Engineers International (HEIL) is the largest manufacturer of precision bearing cages with a market share of more than 50 percent in the organised segment of the Indian bearing cages market. In order to maintain just-in-time inventory, the company has a total installed capacity of 1,097 million pieces across manufacturing facilities in India, China, and Romania as well as 20 warehouses worldwide. Brokerage firms Motilal Oswal and Religare Broking, in their notes, mentioned that one of the biggest strengths of Harsha Engineers is its diversified product portfolio with a presence in 25 countries.

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Old ties with leading manufacturers

The bearing cages market globally is concentrated among a few global bearing manufacturers, with the top six global manufacturers contributing to 54 percent of the market share in fiscal 2022. As per a report by brokerage firm LKP securities, HEIL supplies to each of the top six global bearing manufacturers, which has enabled the company to develop strong ties with their customers in the automobiles, railways, aviation and aerospace, construction, mining, agriculture, electrical & electronics, and renewable energy sectors.

Bearing market expected to grow

Religare Broking mentioned in its report that the global bearing market is expected to be valued at $171.7 billion with a CAGR of 6-8 percent over the period of 2021-2029. Post-COVID, a huge chunk of business in the bearing market has shifted to India from China, which has increased outsourcing for manufacturing of bearing cages by global companies from India. According to Religare, this will continue to aid growth for Indian manufacturers like Harsha Engineers.

HEIL track record

The company’s track record has seen an improvement in the last three years wherein the revenue and PAT have seen a growth of 22 percent and 105 percent, respectively over FY20-22, said Religare Broking.

Opportunities

HEIL already has a presence in the domestic market, which gives it an entry edge compared competitors. This will give the company an opportunity to penetrate the global bearing market efficiently, and become a local supplier to leading key global bearing players, said LKP Securities in its report.

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Religare Broking noted that HEIL can capture opportunities in the auto-EV segment, which has a good scope of growth. Besides, the company’s focus will be on expanding the customer base, developing customised products with the help of tooling and use of automation to bring in cost efficiency, inorganic acquisitions and partnerships with customers over the long-term, which will further aid the growth

Weaknesses and risks

Motilal Oswal and Religare mentioned in their reports that the biggest risk for HEIL is that it depends on a limited number of customers for revenue. HEIL derives nearly 71 percent of revenue from the top five customer groups as of FY22. The company also has an unsecured loan of Rs 73.5 crore, which is 19 percent of the total borrowings, said Motilal Oswal.

Further, according to Religare, the price volatility of raw materials may impact HEIL margins.

Valuation

“HEIL’s upper band price is Rs 330 — it is valued at 27.7 times its fiscal 2022 earnings of Rs 11.9 which in our view is reasonable compared to its peers,” said Arihant Capital, with a ‘subscribe’ call on the IPO. Religare has a neutral call on the HEIL IPO.

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(Edited by : Shoma Bhattacharjee)

First Published:Sept 13, 2022 6:47 PM IST