Harsha Engineers IPO opens today. Should you subscribe?

The Rs 760 crore initial public offering (IPO) of Harsha Engineers International is set to open for public bidding on September 14. The IPO is a combination of fresh issue and offer for sale by shareholders.

The company is the largest manufacturer of precision bearing cagesby revenue in India. It also has a solar EPC (engineering, procurement, and construction) business under which it provides turnkey solutions for solar photovoltaic requirements.

Most analysts are positive about the issue thanks to the diverse product portfolio and strong expertise of Harsha Engineers. They advise investors to apply for the IPO.

“At the higher end of the price band - Rs 330 - Harsha Engineers is valued at 27.7 times FY22 earnings which in our view is reasonable compared to its peers,” said Avinash Kumar Pathak of LKP Research who has a subscribe recommendation.

“The company with its strong market share in precision bearing cages and being one of the leading players globally in organised bearing cages, provides healthy return ratios and visibility going ahead.”

Analysts noted that Harsha Engineers has a strong relationship with customers who are leading global bearing manufacturers in automotive, railways, aviation and aerospace, construction, mining, agriculture, electrical and electronics, renewables sectors.

Choice Broking, which also has a subscribe rating, said the company is demanding enterprise value/sales multiple of 2.2 times, which is a discount to peer average of 5.6 times. “Thus the issue is attractively priced,” it said.

The company has already garnered Rs 225.7 crore from anchor investors ahead of its initial share sale. The firm informed bourses that it allocated 68,40,855 shares at Rs 330 apiece on 13 September to anchor investors.

American Funds Insurance Series Global Small Capitalization Fund, Goldman Sachs Funds - Goldman Sachs India Equity Portfolio, PineBridge Global Funds - PineBridge India Equity Fund, Abu Dhabi Investment Authority-Monsoon are among investors that participated in the anchor book.

The price band of the issue is Rs 314 - 330 per share. Fifty percent of the net issue is for qualified institutional buyers, while 15 and 35 percent of the net issue is for non-institutional and retail investors respectively.

Motilal Oswal also advised subscribe as it sees the company is well placed to capture growing bearing cage demand across industries.

“We like its increasing focus on other specialised precision components and on the growing EV segment which could boost its core profit margins. Given growth recovery in auto/auto ancillary and strong momentum in midcaps, we expect the IPO to do well,” it said.

Hem Securities, Arihant Capital and Nirmal Bang have also assigned subscribe rating while Religare Broking is neutral on the issue.

Key risk factors that analysts see include:
-High exposure to foreign currency exchange rate fluctuations
-The company has recently completed a corporate reorganisation due to which they may face administrative and operational difficulties
-High dependence on a limited number of customers
-It has certain contingent liabilities and capital commitments and if they materialise the financial condition may get adversely affected

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