Harsha Engineers International Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Bushing segment doubles as a conversion story, not a volume bet: Sales expected to nearly double to ₹75 crores+ in FY'25, driven by customers shifting more gearbox models from bearings to bushings even while the global wind market stays muted.
• International subsidiaries turning the corner: China swung to profit in Q4, and Romania is targeted to at least reach cash break-even in FY'25, ending a multi-year drag on consolidated earnings.
• Consolidated bottom line set to outgrow the top line: Management guided for 10-15% revenue growth but >25% PAT growth in FY'25, with the delta coming from operating leverage, product mix, and subsidiaries stopping their losses.
• Stamping emerges as a second growth engine: Sales jumped to ~₹50 crores in FY'24 on railway and auto demand, with at least 50% growth targeted for FY'25. [3-4]
• What to watch next quarter: Whether the bushing order inflow sustains its FY'24 exit momentum, Romania's cage-mix shift actually delivers cash break-even, and the greenfield project stays on track for its Q4 FY'25 commissioning target.

Bushing: The Conversion Tailwind

• Demand decoupled from wind volumes: Growth is driven by customers converting existing gearbox models from bearings to bushings, not by an increase in the number of gearboxes sold. This shrinks gearbox design and reduces weight-to-power ratio, so the conversion trend continues even in a muted global wind market.
• Revenue trajectory: Sales of ~₹40 crores in FY'24 are expected to nearly double to at least ₹75 crores plus in FY'25, with installed capacity already in place for a ₹200-220 crores order book.
• Market share ambition: Management targets roughly 10% market share, or about ₹500 crores at peak, from regular ongoing new CAPEX and gearbox business. The replacement cycle is not yet being addressed.
• Capacity build-out: The greenfield project's first phase adds bushing and large-size bearing cage capacity, with a modular approach to further expansion as customer conversions progress.

Rangwala: "I think what is happening is conversion of gearbox without bushing to with bushings. So, basically, if my customer is selling 100 gearboxes, maybe they were selling 20 or 30 with bushings, and thereby my demand was, based on that the 30 they were supplying. Now they are converting more models, bigger portion of their supply to bushings."

Subsidiary Turnaround: The Margin Bridge

• China turned profitable in Q4 FY'24, signaling a demand revival from key customers. Management is cautiously optimistic the trend continues, targeting blended EBITDA margins of 12-13% and positive PBT/PAT in FY'25.
• Romania remains under pressure with no near-term revival signs in European wind or industrial demand. The strategy is to improve product mix by increasing cage share from 15% to more than 30%, which should lift margins enough to reach cash break-even in FY'25. In a normal year, Romania can deliver 6-8% EBITDA margins, but that timeline is uncertain.
• Blended subsidiary EBITDA was just 0.3% in FY'24, so even a modest swing to positive territory directly adds to consolidated bottom-line growth.

Rangwala: "India remaining constant or slight improvement, India will improve actually a little bit, definitely, product mix change. But international is stopping negative contribution and chipping in with a wee bit, little bit of positive."

Stamping & Other Growth Vectors

• Stamping segment saw strong growth on railway and automotive demand, with sales reaching ~₹50 crores in FY'24. Management expects at least 50% growth in FY'25. [3-4]
• Japan-based customer business grew about 10% plus in FY'24, below expectations as some pipeline projects were delayed. Those projects are now back on track, and management expects 20-30% growth in FY'25.
• LSV business did not grow as expected in FY'24 due to subdued global demand in wind and industrial segments, but is expected to gain traction in FY'25.
• India domestic growth continues at 10-12% plus, a combination of industrial and automotive. Management is long-term bullish on the industrial side given significant CAPEX investment in India, and has started seeing improved order flow from key customers' India plants serving global requirements, validating the China-plus-one strategy.
• Solar EPC reported decent top-line growth and bottom-line improvement on renewed state-level renewable policy interest. The strategy is deliberately conservative: focus on industrial rooftop and ground-mounted projects in Gujarat only, with a ₹150-200 crores run rate, to avoid receivable issues. Margins remain low (mid single digit) due to legacy costs and lack of scale.

Majumdar: "This business was handled by Vishal's younger brother, and then unfortunately we lost him. And then it's just merged into our business sort of to give us support and continuity to ensure that there is no sudden disruption, and that's about it."

Margins & Cost Structure

• EBITDA margin improvement in Q4 came from continuing focus on cost, improving sales, favorable raw material pass-through, and better product mix at both standalone and consolidated levels.
• Engineering margins are seen as sustainable at 21-22% going forward.
• Employee cost runs around 10% at standalone level, reflecting the high mix of skilled and unskilled labor needed for precision engineering and new product development. The focus is on improving productivity and deploying automation.
• Solar EPC margin drag has multiple components: legacy costs, sub-scale operations, a ₹67 lakh one-off loss from winding up the US subsidiary, and a significant O&M contract expense earlier in FY'24.

Capital Allocation & Greenfield Project

• Greenfield project adjacent to the Ahmedabad plant is on track, with major CAPEX underway on site development and basic infrastructure. First phase targets operational by Q4 FY'25, creating additional capacity for bushing and large-size bearing cages.
• Total CAPEX plan is ~₹300 crores plus over the next two to three years, including the greenfield site. Management is also exploring right opportunities in the market.
• Asset turnover on the greenfield is benchmarked at 2x, but may initially be lower because early investment is in infrastructure.
• ROE target is 17-18% over the next three years, improving gradually year-over-year.
• Dividend policy exists and is being followed, but management declined to disclose details when asked.

Guidance & Commitments

Key Metrics