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Should You Subscribe To Harsha Engineers International IPO? Check Out What Brokerage Says

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On Wednesday, Harsha Engineers International Ltd.'s Rs 755 crore initial public offering will open for public Subscription. The red herring prospectus for the precision bearing cage manufacturing company states that it will issue new shares for Rs 455 crore. The promoters will receive Rs 300 crore for that at the upper end of the range of Rs 314-330 per share.

 

Brokerage firm KR Choksey Research on Tuesday, 13 September, published a report on Harsha Engineers International's IPO. In the report the brokerage highlighted the company's Key Strengths, Key Risks, also commented the IPO whether should you subscribe to the IPO or not. Following are the key highlights of the report:

Indicative Timetable

Indicative Timetable

Offer Closing Date - September 16, 2022
Finalization of Basis of Allotment with Stock Exchange - On or about 21st Sep' 2022
Initiation of Refunds - On or about 22nd Sep' 2022
Credit of Equity Shares to Demat accounts - On or about 23rd Sep' 2022
Commencement of Trading of Eq.shares on NSE - On or about 26th Sep' 2022

Offer Structure

Offer Structure

ParticularsIPO Details
No. of shares under IPO (#)24,053,265- 22,886,595
Net offer (# shares)24,053,265- 22,886,595
Price band (INR)314-330
Post issue MCAP (INR Mn)28,809- 30,049
Objective of The IPO - The net proceeds will be utilized for the following purpose
 

Objective of The IPO - The net proceeds will be utilized for the following purpose

  • Pre-payment or scheduled repayment of a portion of the existing borrowing availed by the company.
  • Funding capital expenditure requirements towards purchase of machinery.
  • Infrastructure repairs and renovation of the existing production facilities including office premises in India.
Company Overview

Company Overview

Harsha Engineers International Limited (HEIL) is the largest manufacturer of precision bearing cages in organized sector in India, in terms of revenue, and amongst the leading manufacturers of precision bearing cages in the world. HEIL offers a diversified suite of precision engineering products across geographies and end-user industries. HEIL has approximately 50% market share in the organized segment of the Indian bearing cages market and around 5.2% market share in the global organized bearing cages market for brass, steel and polyamide cages. The company offers a wide range of bearing cages starting from 20 mm to 2,000 mm in diameter. These bearing cages find application in the automotive sector, railways, aviation & aerospace, construction, mining, agriculture sector, electrical and electronics and renewables sectors.

The global bearing cage market has presence of global and regional players. Some of the key players operating in the global bearing cages market are Nakanishi Metal Works Co Ltd (NKC; Japan), Harsha Engineers International Ltd (HEIL, India), MPT Präzisionsteile GmbH Mittweida (MPT Group Gmbh, Germany) and Manu Yantralaya Pvt Ltd (MYPT, India). The market share of some of the key players operating in the global organized bearing (brass, steel and polyamide) cages market has been depicted in the following chart.

Key Strengths

Key Strengths

• Comprehensive solution provider offering diversified suite of precision engineering products across geographies.
• Long standing relationships with leading clientele.
• Strategically located domestic and international production facilities and warehouses.
• Expertise in Tooling, design development and automation.
• Consistent track record of growth and financial performance.
• Strong, experienced and dedicated senior management team and qualified workforce.

 Key Risks

Key Risks

• HEIL depends on a limited number of customer groups for a significant portion of its revenue from engineering business. The loss of any of its major customer groups due to any adverse development or significant reduction in business from its major customer groups may adversely affect its business, financial condition, results of operations, cash flow and future prospects.
• The company is dependent on its network of agents for fulfilment of needs of its customers. HEIL's inability to maintain its relationships with its agents or deficiency in the service provided by such agents may adversely affect its business, results of operations, cashflow and profitability.
• HEIL is subject to various laws, regulations, approvals and licenses required in the ordinary course of business, including environmental, health and safety laws and other regulations. Any failure to obtain, renew or comply with necessary regulatory approvals and licenses may adversely affect the operations and have an impact on its financial condition.
• The company is exposed to foreign currency exchange rate fluctuations, which may adversely affect its results of operations and cause its quarterly results to fluctuate significantly.
• HEIL depends on third parties for the supply of raw material and delivery of products. A disruption in the supply of raw materials or failure of its suppliers to meet their obligations could impact its production and increase the costs.
• Geographical concentration of HEIL's production units may restrict its operations and adversely affect its business and financial condition.

Outlook & Valuation -  KR Choksey's Views

Outlook & Valuation - KR Choksey's Views

Harsha Engineers International IPO size is INR 7,550 mn. The price band of the issue is INR 314 - INR 330. On the upper price band of INR 330 and EPS of INR 11.9 for FY22, the P/E ratio works out to be 27.7x. As per the prospectus, the valuation looks reasonable considering the average industry P/E of 50.9x.

Brokerage firm KR Choksey Said, "We believe the company's long-term prospects are favorable, given long-standing relationship with key industry players. The company enjoys a healthy market share of 50-60% in the Indian organized precision bearing cages market. The company has healthy return ratios and good earnings visibility going ahead. HEIL is available at a discount to its listed industry peers. As a result, we recommend investors to 'SUBSCRIBE' to the IPO of HEIL."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

Story first published: Tuesday, September 13, 2022, 21:14 [IST]
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