Accumulate Harsha Engineers International; target of Rs 415: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Harsha Engineers International

We revise our FY24E/FY25E EPS estimate by –38.5%/-20.0% to factor in continued demand softness in Europe & China and delays in the expected turnaround in Romania & China subsidiaries. Harsha Engineers International (HARSHA) reported a 5.4% YoY rise in revenue as robust growth in Solar EPC cushioned the fall in Engineering. EBITDA margin contracted by 451bps YoY, led by a sharp decline in gross margin due to higher share of Solar EPC in the mix. Despite a minor slowdown in India Engineering business, visibility is healthy for the medium to long-term. Although a revival is expected by Q4, Romania & China businesses are expected to report losses for the full year. 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 long-term growth viz. i) bearing cage outsourcing, ii) significant capex by global bearing customers in India, iii) growing opportunity in large-size cages, iv) Japan wallet share gains, and v) long-term demand for bronze bushes. The stock is currently trading at a PE of 22.8x/17.6x FY25/26E.

Outlook

We roll forward to Sep-25E and maintain ‘Accumulate’ rating with a revised TP of Rs415 (Rs474 earlier), valuing it at 21x on Sep-25E EPS (22x FY25E earlier).

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Harsha Engineers International - 08 - 10-2023 - prabhu