Harsha Engineers IPO Review

---

Harsha Engineers Background

Harsha Engineers Limited, which was incorporated in 1986, is engaged in the business of manufacturing of bearing cages in brass, steel and polyamide materials.

In terms of capacity and operations, it is the largest manufacturer of precision bearing cages in India. The market share of Harsha Engineers is more than 50% in the Indian bearing cages market in the organized segment for brass, steel and polyamide cages and 5% – 6% in the world.

They also manufacture complex and specialised precision stamped components for automotive and industrial customers. They have developed an expertise to design and develop advanced tooling in-house due to which they are able to meet customers’ requirements by manufacturing complex products.

They have developed more than 5,000 products in the automotive and industrial segments and more than 850 products in different bearing divisions.

Their main production facilities are at Changodar and Moraiya in Gujarat and in Changshu and Suzhou in China and Ghimbav Brasov in Romania, all of which are certified in accordance with the international standards of quality management systems.

Now the business is coming up with an IPO for its financial requirements.

Harsha Engineers Management Information

As on date, the Board of Harsha Engineers has 9 Directors. Jitendra Ujamsi Mamtora is the Chairman and Independent Director.

Furthermore, Harish Ranjit Rangwala is the Managing Director, Rajendra Shantilal Shah is the Whole Time Director and Chief Executive Officer, Vishal Rangwala is the Whole Time Director and Chief Operating Officer, Pilak Rajendra Shah is the Whole Time Director and Chief Financial Officer, Munjal Rangwala is the Non – Executive Director.

To add to that, Ambar Jayantilal Patel, Neharika Vohra and Kunal Dilipbhai Shah are the Additional Independent Directors of Harsha Engineers Limited.

Jitendra Ujamsi Mamtora, Chairman and Independent Director

He is an Electrical Engineer from Jalpaiguri Government Engineering College. He possesses an experience of more than 35 years in the manufacturing industry and is an Executive Council member of Indian Electrical & Electronics Manufacturers’ Association (“IEEMA”).

Harsha Engineers IPO Data Points

Harsha Engineers IPO will open on (undisclosed) and close for subscription on (undisclosed).

The IPO size will be of (undisclosed) Equity shares and the face value of each share will be ₹10. The offer consists of a fresh issue of up to (undisclosed) lakh equity shares aggregating up to Rs. 3700 million and an offer for sale of up to 13.25 lakh equity shares by selling shareholders.

Up to 331,250 equity shares are being offered by Rajendra Shantilal Shah, 331,250 equity shares by Harish Ranjit Rangwala, 331,250 equity shares by Nirmala Rajendra Shah and the rest 331,250 shares by Charusheela Harish Rangwala.

(undisclosed) lakh equity shares will be reserved for subscription by employees. (undisclosed) equity shares will be reserved for market makers and (undisclosed) shares will be issued to investors.

The price band range has been set at ₹(undisclosed) – ₹(undisclosed) per share. The IPO size is expected to be up to ₹370 Crore.

The market lot size is of (undisclosed) equity shares and the shares will be listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Pursuant to a resolution on June 25, 2018, the offer for sale has been authorised by the Board of Directors and pursuant to a special resolution of the shareholders held on June 27, 2018, the fresh issue has been approved by them.

Harsha Engineers Financial Performance

Total revenues of Harsha Engineers increased by 24.50% to ₹7,675.29 million in fiscal 2018.

 

However, the revenue figure decreased slightly from fiscal 2016 to fiscal 2017. It is interesting to note that the profit after tax for fiscal 2018 increased by 413.88% to ₹565.94 million from ₹110.13 million in fiscal 2017.

The PAT decreased in fiscal 2017 as compared to fiscal 2016. Earnings per share of the company are ₹3.29 per share in fiscal 2018 whereas EPS in fiscal 2017 was negative i.e. (- ₹0.47).

The Return on Net Worth figures for the company for the fiscal years ended March 31, 2016, 2017 and 2018 were 12.46%, 5.74% and 22.57% respectively.

Also, the return on capital employed for the year 2018 was 29.9% and the company showed a compound annual growth rate (CAGR) of 10.42% in terms of total income.

Harsha Engineers IPO Objectives

The proceeds from the offer for sale of up to 13.25 lakh equity shares will be given to the selling shareholders. Any proceeds from the offer for sale will not be received by the company for its operations.

The main objectives of the Harsha Engineers IPO are as follows –

• For prepayment or repayment of some loans taken by the company
• For buying machinery in India
• For investment in two subsidiaries in different forms –
  • Investing in Harsha Engineers Europe SRL through equity infusion
  • Investing in Harsha Precision Bearing Components (China) Co. Ltd. through debt capital
• For the development of Infrastructure in existing facilities in India
• For meeting expenses related to general corporate operations

Other than the above-mentioned objectives, the company will also benefit in terms of enhanced corporate image, brand name and increased visibility through Harsha Engineers IPO.

Harsha Engineers IPO Events

Harsha Engineers filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on August 20, 2018, for the book building IPO.

The offer will open on (undisclosed) and close on (undisclosed). The finalisation of basis of allotment is expected to happen by (undisclosed) and the initiation of refunds is expected to start by (undisclosed). The transfer of shares to demat accounts is expected to start on (undisclosed) and the expected listing date will be (undisclosed).

Harsha Engineers IPO Recommendation

Every company has some strengths and risks related to it. Let us discuss them one by one in the case of Harsha Engineers.

One of their biggest strengths is their diversified portfolio, which consists of more than 5000 products in the automotive and industrial segments and more than 850 products in different bearing divisions.

They maintain a strong long-standing relationship with their customers in more than 25 countries across five continents and have secured many repeat orders from them.

The strategic location of their production facilities is another key strength of the company. They have gained high levels of experience and expertise developed over decades through a strong focus on research and development and automation.

The management and qualified workforce of the company are one of the biggest assets of the company. To improve the skill set of their workforce, they try to engage them in in-house training programs on a regular basis.

Now, let us discuss the risks related to the company.

One of the greatest risks to the company is its dependence on a number of customers for a significant portion of their revenues. An inability to maintain relationships with their network of agents which help them in fulfilling the requirements of their customers.

They have not received or renewed some approvals or licenses required for the normal functioning of the business, with respect to their manufacturing facilities in Changodar and Moraiya in India.

Due to their operations spread in more than 25 countries, they are exposed to the risk of currency fluctuations.

The company, its subsidiaries, promoters, Directors, etc. are involved in certain legal proceedings and any adverse ruling in them may pose a risk to the overall profitability of the company. The financing agreements signed by the company have imposed some restrictions on the company’s smooth functioning.

The company is subject to stringent quality standards, inspection and audits by customers, etc. and any failure to do so may affect the business of Harsh Engineers.

The geographical concentration of their manufacturing facilities also poses a risk for the business of the company.

Non-availability of raw materials or availing them at competitive prices is also a challenge for the company.

There have been negative cash flows in the company for the past few years. If it continues to do so, it may affect the profitability of the company.

From the financial point of view also, there are some concerns like negative EPS in the fiscal 2017 and sudden increase of PAT 413.88% in fiscal 2018. It is yet to be seen if the company is able to maintain such a high growth rate in profits after taxes.

After analysing the strengths and risks related to the company, it can be said that investors should remain cautious and subscribe to the Harsha Engineers IPO for the long term.

In case you are looking to apply for this IPO or stock market investments in general, let us assist you in taking the next steps forward:

 

Harsha Engineers IPO Advisors Information

Axis Capital and Edelweiss Financial Services are acting as Book Running Lead Manager to the issue. Link Intime India Private is acting as the Registrar for the Harsha Engineers IPO.