Harsha Engineers International

• Harsha Engineers International is coming with IPO with a 100% book building plan; an initial public offering (IPO) of 2,40,53,265 shares of Rs 10 each in a price band of Rs 314-330 per equity share is available for application.
• For the allotment process, not crossing over 50% will be allotted to Qualified Institutional Buyers (QIBs), inclusive of 5% to the mutual funds, and allocating not less than 15% of the issue will be made available for the non-institutional bidders and rest of the remaining 35% will be kept for the retail investors.
• The dates of the issue will be 14.09.2022 to 16.09.2022.
• The script will trade(list) on both NSE and BSE exchanges.
• the FV of the share is Rs.10 per share, and it is priced at 31.40 times its face value on the lower side and 33 times on the higher side.
• Lead managers who are running the book are Axis Capital, Equirus Capital, and JM Financial.
• Compliance Officer for the IPO will be Kiran Mohanty.

Profile of the company

Harsha Engineers International is the biggest manufacturer of precision bearing cages, and in terms of profits, among the organized industry sector at the same time, they are also a leading manufacturer globally. they deliver a diversified line of precision engineering products across the globe and to end-user enterprises. Their business comprises (i) engineering business, in which they manufacture bearing cages (in brass, steel, and polyamide materials), complex and specialized precision stamped components, welded assemblies, and brass castings and cages & bronze bushings; and (ii) solar EPC business, in which they provide whole exhaustive turnkey resolutions to all solar photovoltaic necessities. The company has about 50-60% of the market share in the organized Sector of the Indian bearing cages market and 6.5% of the market share in the international organized bearing cages market for brass, steel, and polyamide cages in CY 2021. They deliver a wide range of bearing coops starting from 20 mm to 2000 mm in the periphery, and their bearing coops are used in the automotive, railroads, aeronautics & aerospace, construction, mining, husbandry, electrical and electronics, and renewables sectors.

 The company is a technology-driven company with a strong eye for quality, design, and tool development, which has enabled them to develop products suited to its guests ’ conditions. It has the moxie to design and develop advanced tooling in-house which enables it to manufacture perfection-bearing coops and complex and specialized perfection stamped factors. Bearing coops are critical corridors of comportment and it requires high perfection technology to manufacture them. The company, which housed a platoon of 253 good masterminds( including solar EPC business) as of March 31, 2022, along with its decades of experience in bearing coops engineering, enables it to develop technical products and results. Its capability to develop products suited to its guests ’ conditions has fostered strong and long-term client relationships which in turn has helped it gain advanced perimeters for its products and better navigate competition. Further, it has been successful in dealing with multiple products in its portfolio and improving its current processes in different types of bearing coops substantially due to its design, development, and technological capabilities. The company is also an EPC service provider in the solar photovoltaic assiduity and also provides operations and conservation services in the solar sector. It has over 10 times of operating history in the solar EPC business. It also has an in-house design, engineering, procurement, design operation, and O&M platoon, which has a concerted experience of installing at least 500 MW and further than 60 MW commissioning experience in rooftop members as of March 31, 2022.

Proceeds from IPO will be used for:

• Scheduled repayment of a portion of the existing borrowing taken by the company.
• Funding capital expenditure needs towards the purchase of machinery.
• Infrastructure repairs and renovation of existing production facilities, including office premises in India.
• General corporate purposes.

  Industry Overview

  In terms of profit, comportments request in India reckoned for a share of about5.2 in the global comportments request in 2021. Meanwhile, within the Asia Pacific region, the earnings for comportments request in India reckoned for a share of about12.5 of the Asia Pacific region’s earnings. The Indian comportments request grew at a CAGR of7.2 from 2015 to 2019. The global outbreak of Covid- 19 and posterior duty of restrictions led to a fall in demand for comportments from end stoner diligence and backups in force chain networks of manufacturers. This in turn led to the compression of domestic comportments requests in 2020. High and unpredictable commodity prices poised significant pitfalls for global frugality and the goods were felt on both affectation and growth and will fall inversely across countries. There was an answer seen in 2021 led by growth in the Asia- Pacific region, including India, which showed anticipated growth in the operation of comportments in several operations similar as mining, automotive, structure development, and construction. Sharp growth in commodity prices also augured well for the overall growth in 2021. The domestic automotive comportments request is reckoned for the loftiest share at22.3 of the total domestic bearing request in 2021. It stood at$0.9 billion in 2015 and grew at a CAGR of6.7 from 2015 to 2019. The demand for the automotive bearing is being driven by adding demand for machines. The marketable vehicle sector is witnessing a structural supplement. The domestic automotive comportments request is anticipated to grow to$2.2 billion in 2029 at a CAGR of7.8 from 2021 to 2029. The domestic aeronautics & aerospace comportments request reckoned for a share of19.7 of the total domestic bearing request in 2021. It stood at$0.7 billion in 2015 and grew at a CAGR of 7 from 2015 to 2019. Adding investments in defense and growing demand for high-performance comportments in aeronautics and aerospace is likely to appreciatively affect the aeronautics and aerospace comportments assiduity in the country. It's anticipated to grow to$ 2 billion in 2029 at a CAGR of8.1 from 2021 to 2029. The domestic railroad comportments request reckoned for a share of17.8 of the total domestic bearing request in 2021. It stood at$0.6 billion in 2015 and grew at a CAGR of7.8 from 2015 to 2019. Growing investments in railroads and thrust handed by the government on structure included railroads bodes well for comportments assiduity. The domestic railroad comportments request is anticipated to grow to$1.9 billion in 2029 at a CAGR of8.9 from 2021 to 2029. 

Pros and Strengths

 Diversified product portfolio The Company has a diversified product portfolio in terms of the accouterments used as well as the confines and end-use of the finished products. It primarily manufactures bearing coops in the range of 20 mm to 2000 mm in the periphery. It has been successful in perfecting its current processes of manufacturing and new product development for different types of bearing cages substantially due to its design and tooling development and technological capabilities. Within its diversified product portfolio, it manufactures bearing cages( including spherical comber cages, globular comber cages, deep copse coops, angular contact coops, thrust comber coops, and taper comber coops), complex and specialized perfection stamped factors, welded assemblies, and brass castings and bushings. Since its objectification, it has manufactured further than,500 types of products in the automotive and artificial parts. It manufactures bearing coops in brass, sword, and polyamide which represents6.5 the global systematized outsourced bearing( brass, sword & polyamide) coops request in CY 2021. 

Long-standing connections with leading clientele: The company has established strong relationships with its guests who are leading global bearing manufacturers in the automotive, railroads, aeronautics & aerospace, construction, mining, husbandry, electrical and electronics, and renewables sectors. The bearing coops request encyclopedically is concentrated among many global bearing manufacturers with the top six global bearing manufacturers contributing to 54 of the request share in financial 2022. As of March 31, 2022, it forces each of the top six global bearing manufacturers. Its top 10 guests contributed to44.70,48.24, and47.79 of its total profit from operations for financial 2022, financial 2021, and financial 2020, independently. The average age of its relationship with its top five client groups spans further than a decade. Its long-term connections with guests are reflective of its quality knowledge and its designing and tooling capabilities. 

Strategically located domestic and international production facilities and warehouses: The company has four strategically located manufacturing facilities spread across three countries china, India, and Romania. As on March 31, 2022, its aggregate installed capacity across these manufacturing facilities was 4,596 metric tonnes per annum for castings and 1,097.87 million pieces per annum for bearing cages. Its presence in these locations helps it overcome significant entry barriers in comparison with its competitors, allowing it to penetrate these markets more efficiently and become a local supplier to leading key global bearing players. Its presence in these strategic locations helps it penetrate global markets more efficiently and in a cost-effective manner. It also gives it the ability to cater to the needs of its customers from multiple locations, at times designing products at one location while manufacturing them at another. Its dual-shore capabilities, which is its ability to carry out design, engineering, and manufacturing of products at different locations allow it to service customer requirements from alternate locations, giving the customer the benefit of regular supply and cost-competitive manufacturing operations.

Expertise in tooling, design development, and automation: The company’s decades of experience in precision engineering, expertise in the area of tooling, strategically located production facilities, focus on design and tooling, coupled with technologically advanced and cost-competitive manufacturing technology processes has enabled it to meet its customers’ bespoke and stringent requirements. It has full-service capabilities across the product cycle including product design and development, material sourcing, designing and manufacture of complex tooling components, and testing and measurement infrastructure, all under one roof for meeting the requirement of its global customers. It employs machining as well as stamping processes in its manufacturing process. Its machines are equipped for both individual and diversified processes, and their fungibility enables it to employ them in the most optimum manner to suit the customer’s preferences. Its tool room at the Indian production facilities is equipped with tool design software like Pro Engineer for 3D modeling and detailing, Numerically Controlled Tool Path, Auto Cad Station, Sheet Metal Formability Simulation, and Hyperworks, which allow it to eliminate any defects in the designing process. 

Risks and Concerns (Cons)

Dependency on Network Agents:  The company is dependent on its network of agents for its business development in specific jurisdictions, cargo handling, transportation, warehousing, and delivery at the destination and load port for export cargo and import cargo respectively. For the same purpose, they enter into contracts with such agents and arrangements are generally for a distinct period and generally renewable according to mutual consent. It cannot assure that such arrangements as aforementioned will continue to be successful or be renewed after the expiry of the specified term. Any alteration to or cessation of its current agreements with agents, or any negligence in entering into new and similar agreements can impact companies business, financial condition, opportunities, or results of operations. they have limited control over the operations and businesses of these agents in the event any such agents treat their competitors more favorably than it does, their competitors may also provide greater incentives to their agents, consequent to which their agents may choose to act only on behalf of their competitors instead of them.

Geographical concentration: The company substantially runs its engineering business, including its manufacturing processes, and its main production units are located at Changodar and Moraiya near Ahmedabad in Gujarat in India. It has further extended its manufacturing process by setting up a production unit at Changshu in China and acquiring production units at Suzhou in China (currently part of the unit at Changshu in China) and Ghimbav Brasov in Romania. If the company’s existing units in Ahmedabad, China, and Romania are harmed or rendered inoperable by factors such as increased competition as more players enter into these locations, general economic conditions, laws and regulations, both Indian and international, and other natural or man-made disasters, including earthquakes, fire, floods, acts of terrorism, pandemic and power outages, it may affect them to operate for some time or may require it to shut significant part of its operations, which may adversely affect its business, financial condition, the result of operations and cash flows.

Depend on suppliers from China for solar PV modules: The company is dependent on suppliers from China for solar PV modules, which is a critical component required for setting up its solar power projects. they are dependent primarily on a limited number of suppliers in China, which cannot be substituted easily. If the open supply of such key component is inadequate to meet the needs of its solar EPC business or if there is an interruption in supply from its Chinese suppliers, including due to any unexpected outage, shutdown and/or suspension of production at their units, alter in the political relationship between India and China or enactment of laws and policies impacting its relationship with its Chinese suppliers, their ability to set up solar projects could be adversely impacted which will harm their solar EPC business and results of operations.

Business operations can be disrupted in case of an outage of power supply: The company’s units and operations require a continuous power supply, and any disruption in the supply of power may disrupt its operations, which may hinder with manufacturing process requiring it to either halt its operations or replicate activities which may affect additional time and raise its costs. For example, they had a power supply outage at a manufacturing plant in China, resulting in the brief closure of the unit or being operated at reduced capacity relying on the power availability. As per its Summarized Consolidated Financial Statements, its cost of power comprised 3.40%, 3.79% and 3.49% of its total expenses, respectively, for FY 2022, 2021 and 2020. While they have power backup in the form of DG sets and solar rooftop plants, that may not be sufficient if the disturbance in the supply of power is for a more prolonged period. Further, such standby power supply may not be adequate to enable it to operate its units at maximum capacity, and any such disruption in the primary power supply available at its production units could majorly affect its business, financial condition and results of operations.