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Harsha Engineers International IPO oversubscribed starting with Day 1

Harsha Engineers International, one of the significant players in organised sector engaged in manufacturing of precision bearing cages. They have a market cap of Rs 3004 crores. Further, it is one of the largest organized precision bearing cages players in India and a leading global manufacturer. The company controls 50-60% of the domestic organised Indian bearing cages market and 6.5% of the global organised market.

Harsha Engineers International’s History:

The company, which has its headquarters in Ahmedabad, has five manufacturing facilities, with two of them located close to Ahmedabad in Gujarat, India—in Changodar and Moray—and one each in Changshu, China, and Gimbal Brasov, Romania. These facilities give the company access to customers in over 25 different countries. As of March 31, 2022, it had produced over 7,205 bearing cages in addition to more than 295 other items. Additionally, during the last three years, its product development and innovation centre has created over 1,200 products in a variety of bearing kinds.

The company Harsha Engineers International, has recently announced an Initial Public Offering of Rs 755 crores, consisting of fresh issue of equity shares aggregating to Rs 455 crore, and an offer-for-sale of up to Rs 300 crore by existing shareholders.

Harsha Engineers IPO details:

It has fixed the price band at Rs 314-330 per share for its Rs 755-crore initial share sale. The public issue will conclude on Friday, September 16, 2022. The IPO of Harsha Engineers got fully subscribed on the first day of subscription on Wednesday i.e., 14th September 2022. While the issue has been overall subscribed 8.52 times with retail category booked 8.15x, NIIs 20.15x, employee reserved nearly 6x, and QIBs 0.48, BSE data showed on 15th September evening.

As per market observers, Harsha Engineers shares are available at a premium of Rs 203 in the grey market yesterday.

Reason for IPO and its usage:

  • Proceeds from the fresh issue to the tune of up to Rs 270 crore will be utilised for debt payment
  • Up to Rs 76 crore for funding working capital requirements towards purchase of machinery
  • Up to Rs 7 crore for infrastructure repairs and renovation of the existing production facilities and for general corporate proposes.
  • Further they are planning to fund the purchase of machinery through this IPO

Harsha Engineer Company’s SWOT analysis:

Strength

The company is engaged in the production and sale of bearing. Bearings cage is a homogeneous product that is sold mainly to other businesses. So, under this B2B model, the company has a good customer base. This is also highlighted through the fact that clients make repeated purchases. On average their relationship with customers lasts more than a decade, making them much better placed in the market.

One of its prominent strengths is that their business is not easily replicable and is immune to the same. This is because manufacturing bearing cage requires good degree of precision & technical expertise as it cannot be easily substituted or outdated. Thus, it is difficult for new players to enter the market. Lastly, the company has positive free cash flows in last 3 financial years. Even their Net debt-equity is 0.64 which is less than 1.

Promotors holds 74.6% stake in the company even post issue of shares with zero pledge, even the management of company is pretty experienced with no proof of any material litigation against any one of them.

Weakness

Even when the company have its leadership position in the market, they have other bigger competitors and bearing companies with In-house manufacturing. Further, the top 5 customers which constitute 71% of its revenue has power to change design of bearings and to buy at pre-agreed prices, making it difficult for company to counter it and is riskier to rely on such small number of clients.

The company’s three-year average ROE is 12.1% less than 15%, a recommended mark. While the ROCE is 20.1%.

Opportunities

The company’s PE ratio post listing will be 32.7 which is quite less than its peer’s median PE of 47.4. Even their PB ratio is just 3.6 which is less than 10.5 PB ratio of its peers. Further, company’s exports make up to 2/3 of its revenue, therefore giving it an opportunity to explore markets beyond domestic territory and tap their hidden potential.

Threat

Further, the company has 2 manufacturing plants which contribute to 27% of the total revenue & several warehouses around the world. Of this, the plant in Romania may face the brunt power crisis which can affect its operations. Moreover, the company has to face huge competition at the global level, especially from companies such as NKC, which is the world’s largest independent bearing cage manufacturer.

Further, the company’s major competitors in India include Timken India, SKF India, Rolex Rings & Sundaram Fasteners Limited.

Also, Read – https://www.flipposting.com/an-examination-of-competitive-intelligence-in-revenue-management-across-cultures/

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