Prabhudas Lilladher's research report on Harsha Engineers International
We revise our FY26/26E EPS estimates by +15.4%/+9.5% factoring in stronger margin profile in India Engineering business. Harsha Engineers International (HARSHA) reported a 1.4% YoY fall in revenue but 406bps YoY expansion in EBITDA margin to 16.1%. While soft European demand is impacting exports from India, the domestic market continues to witness strong traction in cage outsourcing, with demand set to rise over the next 1-2 years as key bearing players set up new plants in India. Bronze Bushings revenue grew strongly and is on track to double in FY25. China reported a healthy quarter and is expected to register positive PAT in FY25. Romania continued to perform poorly due to difficult conditions in Europe, but the outlook is improving on the back of new orders for large size cages from a key customer. HARSHA’s long-term outlook remains positive given its 1) market leadership in bearing cages, 2) turnaround in Romania & China, 3) greenfield capacity expansion plans, and 4) multiple levers for growth viz. i) bearing cage outsourcing, ii) capex by global bearing players in India, iii) growing demand for bronze bushings, iv) Japan wallet share gains, and v) opportunities in large-size cages and precision stamped components.
Outlook
The stock is currently trading at a P/E of 32.3x/26.3x FY25/26E. We maintain ‘Hold’ rating with a revised TP of Rs565 (Rs436 earlier), valuing the stock at a P/E of 26x FY26E (22x FY26E earlier) given the continued improvement in performance.
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