Harsha Engineers International Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Strong top line, margin squeeze: Consolidated revenue grew 25% YoY, but India Engineering EBITDA margin degrew QoQ on raw material pass-through lag, FX hedge losses and war-driven indirect material inflation.
• The growth engine is broad-based: India Engineering posted ~21% YoY growth, with Bushing up 35%, Stamping up 31%, and exports up 22% YoY, all backed by industrial demand recovery.
• Foreign subsidiaries are the drag: Combined foreign subsidiary losses should shrink to ₹2–4 crores from ₹10 crores last year, but Romania remains the problem child with high overheads and a key customer still below previous levels.
• FY27 is a mid-teens year, not a 20% year: Management called 20% growth "a very tough stretch" and guided to mid-to-high-teens in India, low-teens consolidated.
• What to watch next quarter: Whether raw material pass-through actually lands and restores margin, whether Romania's new CEO can show operational improvement beyond FX noise, and whether large-size Cages capacity finally ramps to meet visible demand.

India Engineering: Growth & Margin Mechanics

• Top-line momentum: India Engineering grew ~21% YoY and 6% QoQ in Q1, despite Q4 historically being the strongest quarter. Growth was broad-based across Cages, Bushing and Stamping.
• Margin degrowth QoQ: Three factors hit India Engineering EBITDA margin: ~8% raw material cost increase with one-to-two-quarter pass-through lag, ~₹4 crores FX loss from IndAS cash flow hedge accounting, and ~₹3 crores indirect material cost increase from war-driven inflation.
• Raw material pass-through: The company follows pass-through mechanisms in most systems but with roughly a 4-month lag. Q1 raw material prices rose 6%–7%, with 40%–50% impacting the price of raw material. Management expects to pass through the increase in subsequent quarters.
• FX hedge accounting: The ~₹4 crores FX loss came from realization of cash flow hedges under IndAS; no material adverse impact expected going forward.
• Indirect material inflation: War outbreak during Q1 increased oil, chemical and packing material costs by ~₹3 crores.
• Raw material breadth: Q1 increases spanned all materials: brass, copper, zinc, steel, polymer. Last year the major focus was brass (copper + zinc).
• Margin guidance reset: FY27 India Engineering margin guidance of 22%–24% is lower than FY26's 24.4% because metal price increases reduce percentage margin even as absolute value increases, plus continued spending on Bhayla site expansion and ramp-up costs.
• Standalone margin reality: 24% standalone Engineering margin is "a little high"; the lag cycle causes some quarters to appear higher and some too low. Normal sustainable margin is expected in the 20–22% range.

Jasani: "No idea. As of now, no idea, we expect it to be settled down soon."

Product Lines: Where Growth Is Coming From

• Large-size Cages Q1 aberration: Q1 was partially driven by large-size capacity at the new facility still struggling to ramp up and respond to demand. Demand exists and the order book supports confidence in the 50% FY27 target.
• Large-size Cages strategy: Management is primarily trying to grab bigger wallet share where the company has very low wallet share with customers.
• Bushing durability: Conversion is supporting Bushing growth; management expects at least a couple of years for the conversion effect to continue, with part coming from wallet share.
• Stamping pipeline: Very strong pipeline of new products coming in or started, expected to mature over the next year or so.
• Japan laggard: Growth from 16% to close to 21% this quarter, but Japan is a laggard versus the other three fronts growing aggressively.

Rangwala: "So, in the large size Quarter 1 was aberration, partially driven by the large size capacity at our new facility, still struggling to ramp up and respond to the demand. We see that demand is there."

Foreign Subsidiaries: The Loss-Making Problem

• Combined foreign performance: Foreign business EBITDA margin fell from 1.5% to 0.3% YoY despite 20% revenue growth, because raw material price increases negated revenue-side improvements.
• Romania: Continues in negative territory with slight top-line growth but a one-time FX loss of ~₹2 crores in Q1. Operating losses continue. A strategic change in top management has been made, with a new CEO appointed.
• Romania operational reality: Ignoring FOREX, operations did not significantly improve, only a little. Adverse copper price increases impacted results. No significant numbers yet on moving toward more cages, but the pipeline is improving.
• Romania structural challenge: Overheads are high; unless the key customer buying semi-finished castings reaches its previous level, breakeven becomes difficult. Strategy is to increase Cages sale mix from 20%–25% to 30%–35%.
• China: Stable and satisfactory, continuously profitable with steady growth over recent quarters. Profitability ranges 12%–14% EBITDA. Brownfield expansion commenced after securing debt funding at an attractive rate, focused on steel cages.
• Combined loss outlook: Management expects lower single-digit combined losses, maybe ₹2–4 crores, versus ₹10 crores last year. Both China and Romania will improve; Romania's loss run rate will reduce. Wait one or two quarters for a better picture on turning positive.
• Subsidiary revenue growth: Double-digits and low-teens for subsidiaries; Romania + China together less than 10%, Harsha India more than 15%, average 12%–15%.

Majmudar: "Till the problem is fixed, overheads are high, and unless the key customer who is buying semi-finished castings reaches the previous level, breakeven becomes difficult. That is my challenge in Romania."

Harsha Advantek: The Ramp-Up Bet

• Q1 performance: Harsha Advantek sales ~₹30 crores, only 7% QoQ growth but with visibility of progressive sales increase every quarter.
• FY27 target: Annual sales target ~₹140 crores plus versus ₹43 crores in FY26. Expected to be PAT positive by end of FY27, versus ~₹4 crores loss in Q1 FY26.
• EBITDA trajectory: 9% EBITDA last quarter due to major impact from material costs and other factors. Expected to be lower than blended India EBITDA this year during ramp-up, then match India EBITDA margin from next year onwards.
• PAT commitment: Management is planning to close Advantek on PAT positive this year.
• Bhayla expansion: Building construction just rolled out, expected to start this month (August 2026). Third building construction expected completed by end of this year or last quarter of this year. Incremental machinery orders already being procured.
• Bhayla civil delay: Construction was on hold because of heavy rain in Ahmedabad; now normalizing, should start very soon.
• Bhayla Phase-2 rationale: Started because Phase-1 capacity is expected to fill up in the next one year or less. Phase-2 products are a little different even though they are Stamping.
• Bhayla combined revenue potential: Roughly ₹300 crores to ₹400 crores by the third year across combined phases.

CapEx & Expansion Pipeline

• FY27 CapEx guidance: At least ₹50 crores to ₹80 crores year-over-year; better guidelines to come in coming quarters.
• China Phase-2 focus: Steel cages capabilities to expand product portfolio and market reach in China.
• China demand visibility: Good expectation and traction by being local; China is a very large market for bearings, with opportunity for quality Cages to get traction.
• Bhayla demand visibility: Fairly confident on all investment; seeing traction on large-size Cages, Stamping components and Bushing with good visibility and demand from customers.
• Inorganic growth: Looking at opportunities that enhance capability in precision engineering space; not a mandate. If the right opportunity comes, may evaluate.

Rangwala: "Basically, we are looking at any opportunity which comes our way which can really enhance our capability while remaining in that specific space of precision engineering. And we are looking at those as an opportunity if something comes across. But that's not really a mandate."

New Verticals & Adjacencies

• Wind segment: Working on Bushing and next-step Bushing technology; moving to a different set of technology with customers on variety of upgrades. On the Cage side, getting ready to cater to wind segment in terms of size capability and geometrical dimensional capability.
• Rail segment: Working with bearing companies or directly with other companies supplying Stamping components for the rail industry; developing more products for the railway market.
• Aerospace/defense: Doing Stamping components for that industry; working with Tier-1 and Tier-2 defense companies in India. In very developmental stage; once started, could bring a decent set of revenue.
• EV-related products: Servicing through a little bit of Stamping and a whole lot through bearing Cages; working with customers on improving bearing performance through clean, dirt-free, high-performance products.
• Solar EPC: Project-based business with Q4 usually very high linked to financial/depreciation benefit; Q1 typically lower post-Q4. Q1 this year was still decent relative to last year. FY27 revenue around ₹200-odd crores, EBITDA margin around 7%–8%.

Guidance & Commitments

Key Metrics