Vishal Rangwala, CEO, Harsha Engineers International Limited

12 Sep 2022 , 03:22 PM

Let us start by understanding your company’s business model

Harsha Engineers is a solution provider for the precision engineering components space. Harsha Engineers’ main products are bearing cages — where the company is a market leader in the organized sector in India and the number 2 supplier globally in terms of revenue. The company also produces complex and specialized precision stamped components, welded assemblies, and bronze bushings.

Why should retail investors invest in the IPO?

We believe that Harsha Engineers is a good example of Make in India with homegrown technology and is likely to benefit from China+1 strategy deployment in the precision engineering products space. Harsha Engineers has strong market leadership in bearing cages in India and is among the leading manufacturers of precision bearing cages in the world. With the support of a strong product portfolio, technical capability, and low-cost manufacturing locations, we believe we are well positioned to continue the growth trajectory.

Given that a large part of your revenue comes from outside India, share some insights on demand trends in your key markets.

We continue to see positive demand for our products post the COVID-19 pandemic across all geographies. This is further supported by more than 1200 new products developed for our customers in the last 3 years and revenue grew in the last few years across various geographies. We are further hopeful of the wind energy market strengthening in Europe and the Automotive market growing in India.

Share with us the key macro opportunities for your company across all key markets.

We see the following as a macro opportunity for Harsha across various markets:

• Growing in large-size bearing cages to cash in on the outsourcing opportunities from bearing companies resulting in increasing the wallet share of outsourcing opportunities.
• Developing polyamide cages in different categories to meet the increased demand for electric vehicles space in the coming years.
• Capitalizing on the expected growth in bearing cage demand from India and Asia Pacific markets, and present us with significant opportunities for growth of our existing market share in these jurisdictions.

What is the company’s growth strategy?

Our company’s key strategies going forward are:

• Enhance market leadership in bearing cages and customer base expansion.
• Increased focus on developing products suited to capture market opportunity in the growing EV segment.
• Retain and strengthen technological leadership through continued focus on development and automation.
• Focus on growth by partnerships with customers and opportunistic inorganic acquisitions.
• Growing bronze bushings and specialised component segments.
• Focus on increasing operational efficiencies to improve returns.

Part of the IPO proceeds will be used to repay debt. Will the company become debt-free after this repayment?

Yes, Harsha Engineering will have low debt remaining after the repayment of most of the debt in India. We will carry some debt at our subsidiaries.

What are the prominent margin drivers for the company?

As our technological capabilities evolve, we intend to increase our focus on further diversifying our product portfolio and providing high-margin complex precision components to our customers across the world.

What are the key challenges facing the company? How is the company mitigating them?

We have identified comprehensive risks in our RHP document filed with SEBI. To share specifics.

• We depend on a limited number of customer groups for a significant portion of our revenue from the engineering business. We are working to expand our customers and product portfolio to support the diversity of customer and product bases.
• We are exposed to foreign currency exchange rate fluctuations, which may adversely affect our results of operations and cause our quarterly results to fluctuate significantly. We may be able to revise the prices, for foreign currency fluctuations, only on a periodic basis. Also, we seek to partly hedge our foreign currency risk by entering into forwarding exchange contracts and premium-paid long-term options contracts.
• Our inability to successfully diversify the product offerings of our engineering business may adversely affect our growth and negatively impact our profitability. We are working to expand our product portfolio to support the diversity of customers.