Detailed Narrative
Strong Q2 Performance Driven by Overseas Turnaround and Exports
Harsha Engineers reported a robust Q2 FY26, with consolidated engineering business top line growing 17.1% YoY to INR363 crores and EBITDA increasing 25.5% YoY to INR63 crores. A key highlight was Harsha Romania achieving positive EBITDA and strong top-line growth, contributing to an overall 38% YoY top-line growth for the company in both the current quarter and the first half. Exports from India to Europe also grew decently, with total export sales reaching INR123 crores in Q2 and INR237 crores in H1, marking a 12% HoH growth.
Harsha Advantek's Initial Losses Impact Margins
Despite strong overall growth, the company's EBITDA and PAT margins saw a sequential reduction, primarily due to an aggregate loss of INR5.7 crores from Harsha Advantek in H1. This loss was attributed to an additional charge of over INR4.2 crores for interest and depreciation, coupled with suboptimal revenue as the facility only began production in Q1 FY26. Management expects Advantek to become profitable within the next year, with optimal capacity utilization projected to take 2-2.5 years.
Segmental Growth Drivers: Bushings and Large-Sized Cases
The bronze bushing vertical demonstrated strong performance, reporting INR55 crores in sales for H1 FY26, a 25% HoH growth. Management is confident of achieving around 30% growth in this segment for the full FY26. Large-sized cases also saw significant traction, with H1 sales reaching INR77 crores, reflecting a 33% HoH growth. The company's pipeline remains strong, with 258 new SKUs developed in the current financial year.
Cautious Optimism on Demand Sustainability
While the improved demand, particularly from Europe's industrial sector, has continued for two quarters, management remains 'cautiously optimistic💬.' They prefer to 'wait and watch for at least 1 or 2 more quarters' before definitively concluding on the sustainability of this trend. Short-term order book visibility is described as 'fairly robust' for 3-6 months, but customers are also cautious about long-term commitments.
Capex and Working Capital Overview
Harsha Engineers incurred INR24 crores in capex during Q2 FY26, bringing the cumulative H1 capex to INR68 crores. The full-year capex target remains at INR110-120 crores. The overall working capital cycle at the consolidated level stood at 146 days, a slight increase from 139 days in the previous quarter but similar to the first half of the last year.
India Engineering Business and Margin Outlook
India's engineering business, including the standalone operations and Harsha Advantek, achieved a 15% QoQ top-line growth and 10% H1 to H1 growth. Management clarified that the sequential EBITDA margin reduction was a normalization from an 'exceptional' previous quarter driven by metal price reductions, rather than a fundamental operational issue. They expect sustainable India-level margins to be in the range of 21-22% over a 6-12 month basis.