Accumulate Harsha Engineers International; target of Rs 475: Prabhudas Lilladher

Prabhudas Lilladher's research report on Harsha Engineers International

Harsha Engineers International (HARSHA) reported a 6.8% YoY decline in revenue, while EBITDA margin expanded by 172bps YoY due to falling material costs. The presently weak bronze bushes market should recover in H2FY24, while we expect margins in China and Romania to significantly improve this year. The company has multiple levers for future growth, including i) bearing cage outsourcing, ii) significant capex by global bearing players in India, iii) opportunity in large-size cages, iv) wallet share gains in Japan, and v) long-term demand for wind bronze bushes. We remain positive on HARSHA given 1) market leadership in bearing cages, 2) strong wallet share with leading bearing players, 3) multiple levers for longterm growth, and 4) expected improvement in operations in Romania. We estimate FY23-25E Revenue/EBITDA/PAT CAGR of 13.3%/22.4%/26.3%. The stock is currently trading at a PE of 25.5x/20.2x FY24/25E. Downgrade to ‘Accumulate’.

Outlook

We revise our FY24/25E EPS estimates by +6.1%/+8.0% to factor in Romania & China’s improving profitability over the medium to long term, but downgrade the rating to ‘Accumulate’ from Buy with a TP of Rs475 (Rs439 earlier) valuing it at 22x on FY25E EPS (same as earlier) given the recent runup in the stock price.

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