Given the critical function of a bearing cage and the resultant quality requirements, global bearing companies have steadily increased outsourcing manufacture of bearing cages and the business from these bearing companies has gotten concentrated to a few bearing cage manufacturers like Harsha Engineering International Ltd.

The Global bearing cages market size in the year 2021 was $5,230 million and it is expected to reach $8,583 million by 2029 at a CAGR of 6.4%. While the global bearings market size in the year 2021 was $104.6 Bn and is expected to reach $171.7 Bn by 2029 also at a CAGR of 6.4%.

When we say bearings, we usually imagine a small ring attached to the center of the cycle wheel. But it is not its only use. Let us see the application-wise percentage breakup of the global bearing market in 2021.

There are six large bearing manufacturers globally and Harsha Engineers International Ltd. supplies to each of the top 6 global bearing manufacturers.

In order to consolidate the Harsha Group’s India engineering and Solar EPC business, and to get the benefits of synergies, a corporate reorganization was recently completed on April 01, 2020. In this, the engineering business of the Harsha Group that was earlier distributed among Aastha Tools Private Limited (ATPL), Harsha Engineers India (Private) Limited (HEIPL), and Harsha Engineers Limited (HEL), along with the solar business under Helianthus Solar Power Private Limited (HSPPL) was amalgamated into one.

Products offered by the company
The company offers a diversified portfolio of precision engineering products

The engineering business contributes 94% of the company’s revenue and the balance of 6% comes from the Solar EPC business.

Objects of the offer
The total issue of Rs. 755 Cr. consists of Rs. 455 Cr. fresh issue and an offer for sale of Rs. 300 Cr. From the fresh issue Rs. 270 Cr. Will be utilized for pre-payment of borrowings, Rs. 78 Cr. Will be utilized for funding capital expenditure requirements, and Rs. 7 Cr will be used for Infrastructure repairs and renovation of existing production facilities.

Finances

The company’s revenue grew by 51% in FY22 (though flat in FY21) as many new orders won over FY20-21 started reflecting in FY22. The Revenue, EBITDA, and PAT grew at 22%, 40%, and 105% CAGR respectively over FY20-22. In FY 21, the EBITDA margin expanded to 13.9% due to high value and margin orders but the raw material inflation dropped the margin to 12.8% in FY22. The company’s cash flow from operations in FY22 is Rs. 34 Cr. and the D/E ratio is 0.74.

Peer comparison and IPO valuation

Company P/E at the highest price band is 27.73. This leaves investors with a good margin for a good listing.

Risks & Litigations

1) The company derives more than 70% of its revenue from the top 5 customers. Discontinuation of even one customer could have a severe impact on its revenue.
2) In FY 22, 63.02% of revenue from operations was dominated in foreign currencies. Therefore, the company carries a risk of foreign currency fluctuation.
3) No major litigations against the company or its promoters were found in the RHP.

IPO Details & Subscription status

1) The IPO started on 14th September and will end on 16th September 2022 with an issue size of Rs. 755 Cr. The lot size will be 45 shares and a retail investor can apply for a maximum of 13 lots. The price band offered by the company is Rs. 314-330 per share. There is also an employee discount of Rs. 31 per share.

2) As of releasing the blog, the IPO has been subscribed 7.17 times. And the GMP is Rs. 225.