Harsha Engineers International Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Muted top line, better profitability: Revenue was slightly lower YoY and QoQ, but profitability growth tracked expectations, helped by a richer product mix and better subsidiary performance.
• Bushing segment is the standout: Bronze Bushing sales hit ₹20 crores in Q1, driven by a technology shift in wind gearboxes and share gains, not a broader wind market recovery.
• Europe is the clear drag: Softening industrial demand in Europe is weighing on large cage sales and exports, while India, Asia, and North America remain decent.
• Margins have a ceiling: The Q1 standalone engineering margin of 24.7% is unsustainable; management pegs the long-term sustainable India EBITDA margin at 20–21%.
• What to watch next quarter: Whether the new cage orders in Romania convert to revenue in Q3 as hoped, and if the softening in India demand becomes a material headwind.

Bushing: The Growth Engine Decoupled from Wind

• Sales doubled on technology shift, not demand: The ₹20 crores in quarterly Bronze Bushing sales came from key windmill gearbox customers converting from bearings to bushings and allocating a higher share to Harsha. Management explicitly stated this is not a sign of a significant revival in the overseas wind segment.
• Capacity expansion underway: A third bushing facility is under construction, with Phase 1 expected to start in Q4 FY25, adding incremental capacity toward a potential ₹200 crores revenue target over the next 2–3 years.
• FY25 target intact: Management reiterated the annual bushing sales target of at least ₹80 crores for FY25.

Vishal Rangwala: "I would say that this does not necessarily mean a significant revival of Wind segment in the overseas market, but more attributable to increase the allocation to Bushing as compared to Bearings by these customers and higher share of allocation to Harsha by these customers."

Geographic & Segment Crosswinds

• China+1 orders beginning: Harsha has started receiving orders from key customers who have set up new plants in India. One customer has already started production, a second is likely to start around October-November, and Harsha is in advanced discussions for most of their requirements.

Sanjay Majmudar: "we are the lion's share in all those incremental businesses. That's all I can say."

Romania & Outsourcing: The Turnaround Bet

• Romania strategy shift: The subsidiary has adopted a new strategy to aggressively increase its share of finished cages versus semi-finish and casting business. It has received encouraging new orders for cages from one key European customer.
• Recovery timeline: The impact of these new cage orders is more likely to be felt in Q3 FY25, with management hopeful of improved results starting Q4 FY25.
• Outsourcing trend intact: Even in a difficult market, the trend of customers outsourcing more cages continues. Management sees no increase in customer in-sourcing, calling the outsourcing trend "very constant irrespective of what's going on in the market."
• Subsidiary drag to persist: Combined overseas subsidiaries are expected to contribute a marginally negative number for the full year FY25, though China alone should be positive.

Vishal Rangwala: "So even in this difficult market, our customers are working with us through outsource more and more cages. So that is a very constant trend irrespective of what's going on in the market."

Margins: Strong Quarter, Lower Baseline

• Q1 margin spike is temporary: Standalone engineering EBITDA margin hit 24.7% in Q1, driven by lower metal prices not yet passed through to customers, a better product mix from bushing and Japanese customer growth, and better subsidiary results. Management was explicit that this level is not sustainable.
• Sustainable baseline: The long-term sustainable operating margin at the India level is 20–21%, due to the pass-through mechanism on commodity prices and normal fluctuations.
• Consolidated margin drag: Net margin is around 10–11%, weighed down by foreign subsidiaries. Improvement is expected when subsidiaries normalize.
• Committed improvement: Management is committed to improving consolidated margins by 100–200 bps over the next 2–3 years.

Sanjay Majmudar: "So at the operating margin level, we feel that a long-term sustainable and at India level is 20%..."

Diversification & New Initiatives

• Stamp components: Harsha is targeting household appliances, HVAC, electrical, automotive, and railway markets. Current revenue of ₹40–50 crores could directionally grow towards ₹200 crores in the midterm, though no specific guidance was given.
• Plastic cages: Development work is ongoing for plastic cages aimed at weight reduction and clean cages for EV adoption.
• EV impact: No specific visible impact on Harsha yet. The long-term EV direction remains intact per customers, though a minor short-term slowdown is possible but not clearly visible.
• Solar business: Good order levels driven by focused cost control and the favorable Gujarat renewable energy policy.

Guidance & Commitments

Key Metrics