Harsha Engineers IPO Opens Next Week. 5 Things to Know

In recent months, Indian share markets have been running wild, upping the volatility at every change they get. However, of late, the volatility has eased and market sentiment has improved.

After good quarterly results and improving GDP numbers, everything looks bright and investors have got their confidence back.

The good news is that IPO markets are also buzzing with activity. Two recently concluded IPOs - Syrma and DreamFolks Services opened with a bang on the bourses on listing day as they received good response from investors.

Tamilnad Mercantile Bank is all set to list next week, and there are also speculations about Tata Play coming out with an IPO.

To take the opportunity of this spree, another company - Harsha Engineers International is also coming out with its public offer next week.

Engineering and solar EPC company Harsha Engineers will open its IPO on 14 September.

Here are the key details of the IPO.

Issue period: 14 September 2022 to 16 September 2022

Issue size: Rs 7,550 m (fresh issue worth Rs 4,550 m and offer for sale worth Rs 3,000 m)

Price band: Rs 314 to Rs 330 per equity share

Bid lot: 45 shares and multiples thereof

Application limit: Minimum one lot maximum thirteen lots

Face value: Rs 10 per equity share

GMP: Rs 150

Objects of the issue: the company intends to use the funds raised for multiple purposes such as:

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

Out of the total offer, shares of up to Rs 25 m, not exceeding 5% of the post offer paid cap capital, are reserved for subscription by eligible employees.

The company has reserved 60% shares of the offer for qualified institutional buyers (QIB). It has reserved 15% for high non-institutional buyers. Hence 25% of shares are available for retail individual investors.

Tentative IPO allotment date: 21 September 2022

Tentative listing date: 26 September 2022

Continue reading to know the 5 important details about Harsha Engineers IPO.

#1 About the company

Incorporated in 2010, Harsha Engineers International is the largest manufacturer of precision bearing cages, in terms of revenue in the organised sector in India. The company is a part of the Harsha Group.

The company supplies its products to customers in over 25 countries covering five continents i.e., North America, Europe, Asia, South America, and Africa.

The business comprises two segments:

1. Engineering business, under which the company manufactures bearing cages (in brass, steel, and polyamide materials), complex and specialised precision stamped components, welded assemblies, and brass castings and cages & bronze bushings.

2. Solar engineering, procurement, and construction (EPC) business, under which the company provides complete comprehensive turnkey solutions to all solar photovoltaic requirements and provides operations and maintenance services in the solar sector.

#2 Financial position of the company

Harsha Engineers saw a marginal fall in revenues during the Covid-19 period. However, in financial year 2021-22, the company's revenues saw a high jump of 51%.

Its return on net worth (RoNW) and net profit margins have gradually increased in the past three years.

However, it has very high expenses. Take a look at the table below:

Financial snapshot of the company

Particulars	31-Mar-22	31-Mar-21	31-Mar-20
Revenues (Rs m)	13,214.80	8,767.30	8,995.10
Revenue Growth (%)	51%	-3%
Expenditure Before Tax	12,123.80	8,160.10	8,679.20
% of Total Income	91.7	93.1	96.5
Net Profit	919.4	454.4	219.1
Net Profit Margin (%)	7	5.2	2.4
Net Worth	1,605.60	1,227.10	1,277.90
Return on Net Worth (%)	17.4	10.5	5.8
Basic Earnings per share (Rs)	16.1	9.1	6.3

Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

Timken India, SKF India, Rolex Rings, and Sundaram Fasteners are the listed peers of Harsha Engineers, as per its DRHP.

Comparative Analysis

Company	Total Income (2022) (Rs m)	Operating Profit	Net Profit	EPS (Basic) (Rs)	Return on Net Worth (%)
Harsha Engineers	13,389.90	1,619.70	919.44	16.1	17.4
Timken India	22,175.30	4,381.80	3,271.10	43.5	19.7
SKF India	37,002.90	5,309.60	3,951.30	79.9	20.9
Rolex Rings	10,281.30	1,943.60	1,318.80	50.2	24.2
Sundaram Fasteners	49,414	5,859.60	4,074.60	21.7	17.4

Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

Here are some arguments in favour of Harsha Engineers' business. This is what separates the company from other competitors.

• Comprehensive solution provider offering diversified suite of precision engineering products across geographies and end user industries.
• Long standing relationships with leading clientele.
• Strategically located domestic and international production facilities and warehouses.
• Expertise in tooling, design development and automation.
• Strong, experienced and dedicated senior management team and qualified workforce.

#5 Risk factors

One can't make a decision before studying the risk factors that a company might stumble upon. Here are few risk factors which could derail Harsha Engineers' growth prospects:

• It is heavily dependent on a limited number of customers. Hence, in the future if Harsha Engineers faces a problem with its existing customers, its revenues will be shaken up.
• It is heavily dependent on China for importing raw materials. Hence, both for its sales and purchases it is dependent on foreign countries. Any change in trade policy or geopolitical tensions between these countries and India will hamper the operation of Harsha Engineers.

To conclude

Harsha Engineers' revenues are thriving but simultaneously its debt is also increasing.

The increasing net profits and net profit margins of the company are positive signs.

However, if expenses continue to be at the same scale, the increase in revenues will be wiped off by an increase in expenses.

Also, the company has exposure to China, which raises some questions. We recently wrote to you about how a China-Taiwan war may impact your portfolio.

If something does happen on the China-Taiwan front, the company may be severely impacted.

IPOs are back after a long time, but are they worth investing in? An investor will have to carefully look into that.

Considering the volatility of 2022, it would not be an exaggeration to say that no matter how strong, how popular, or how fundamentally strong the company, all have been knocked out clean by the punch of the global downfall.

Amid this, will a new company survive? Only time will tell.

As an IPO investor, you should keep track of the subscription activity and the response which the company gets overall.

If the company gets good response like Syrma and DreamFolks, who knows...we can just as well see a decent listing on the cards.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...