Harsha Engineers International Limited — Q3 FY25 earnings call

Call held 18 Feb 2025

Management summary

Harsha Engineers International Limited reported a flattish Q3 FY25 performance for its engineering business, with strong growth in Bronze Bushings offsetting softness in domestic cages due to year-end inventory reduction. International markets, particularly Europe and the US, continued to face significant headwinds, leading to ongoing losses in the Romania subsidiary. The company remains focused on cost containment, strategic product mix improvements, and capacity expansion with a targeted FY25 CAPEX of ₹170 crores, while also securing a new long-term cage supply contract.

Highlights

  • Engineering business topline for Q3 FY25 was ₹302 crores, an 8.63% YoY growth but a 2.58% QoQ decline.

  • Engineering business EBITDA for Q3 FY25 stood at ₹48.2 crores, a marginal 0.61% YoY decline and a 3.98% QoQ decline.

  • Solar business reported revenue of ₹37 crores and EBITDA of ₹1.28 crores in Q3 FY25.

  • Working capital cycle improved to 144 days, down from 151 days in the previous quarter.

  • The company incurred an overall CAPEX of ₹70.8 crores in Q3 FY25, with a target of ~₹170 crores for FY25.

  • Bronze Bushing segment showed strong growth, with 9-month YTD sales of ~₹60 crores, on track to exceed the FY25 target of ₹80 crores.

  • A long-term contract for cages, valued at €6-10 million per annum at full potential, is expected to commence supply in H2 FY26.

  • Consolidated EBITDA margin for the nine months was approximately 16.09%.

Concerns

  • Significant headwinds and subdued demand in key European and US markets.

  • Continued losses in the Romania subsidiary.

Key financials

2 periods

Headline

  • Engineering Revenue
    ₹302 Cr
    YoY +8.6% QoQ -2.6%
  • Engineering EBITDA
    ₹48.2 Cr
    YoY -0.61% QoQ -4%
  • Solar Revenue
    ₹37 Cr
  • Solar EBITDA
    ₹1.28 Cr
  • Working Capital Days
    144 days

Q3

  • CAPEX
    ₹70.8 Cr

What they filed

Q1 FY27: revenue up 25.2%, net profit down 2.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue353 339 373 365 378 +7%409 +21%474 +27%457 +25%
EBITDA42 43 35 55 54 +29%57 +33%73 +109%67 +22%
Net profit29 27 -2 38 36 +24%34 +26%47 +2450%37 −3%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹339 Cr Total
  • Engineering Business ₹302 Cr 89.1%
  • Solar Business ₹37 Cr 10.9%

Guidance & targets

Revenue

  • Long-term cage contract annual revenue Revenue · per annum at full potential, starting H2 FY26 · High confidence €6-10 million
    And this will be I think €6-10 million is what we are projecting at the full potential level we could achieve that.

    — Mr. Vishal Rangwala, CEO & Whole-Time Director

  • Bronze Bushing annual sales Revenue · FY25 · High confidence ₹80 crores
    Thus, the 9 months year-to-date sales for bronze bushing is around Rs. 60 crores plus, very much in line with our expectation of crossing Rs. 80 crores annual sales target of bushing this financial year.

    — Mr. Vishal Rangwala, CEO & Whole-Time Director

  • Bronze Bushing annual run rate Revenue · over a period of time · Medium confidence ₹300 crores
    Long term our target is bushings can take us too easily to Rs. 300 crores annual run rate over a period of time.

    — Mr. Sanjay Majmudar, Strategic Advisor

Capex

  • Overall CAPEX Capex · FY25 · High confidence ₹170 crores
    So, let me start with the second part, the CAPEX number, we are targeting for FY25, about Rs. 170 crores, somewhere in that range for FY25 and primarily attributable to the new plant and building and all equipment coming in.

    — Mr. Vishal Rangwala, CEO & Whole-Time Director

Capacity

  • Greenfield site commissioning Capacity · by end of Q1 FY26 · High confidence All capacities online
    All the capacities should come online by the end of 1st Quarter next year.

    — Mr. Vishal Rangwala, CEO & Whole-Time Director

Revenue Growth

  • Bronze Bushing growth Revenue Growth · FY26 · Medium confidence 50%
    Yes, 50% growth minimum.

    — Mr. Sanjay Majmudar, Strategic Advisor

  • India domestic cages growth Revenue Growth · Q4 FY25 · Medium confidence 8%-10%
    We believe this quarter Q4 we should see India, the big business also again starting to grow 8%-10% per annum.

    — Mr. Sanjay Majmudar, Strategic Advisor

  • Current financial year topline Revenue Growth · current financial year · Medium confidence flat
    while the current financial year topline will be more or less flat as indicated in the past

    — Mr. Vishal Rangwala, CEO & Whole-Time Director

Capacity Utilization

  • India cages utilization Capacity Utilization · optimally · Medium confidence 80%
    Around 80% is what we could optimally reach, I think.

    — Mr. Vishal Rangwala, CEO & Whole-Time Director

Revenue Opportunity

  • Incremental opportunity from customer CAPEX (cages) Revenue Opportunity · at peak · Medium confidence ₹200 crores
    Our guesstimate is that this could be around Rs. 200 crores at the peak opportunity.

    — Mr. Vishal Rangwala, CEO & Whole-Time Director

Profitability

  • Consolidated EBITDA margin Profitability · long term · Low confidence 17% to 18%

    Previously 14% to 15% → 17% to 18%

    But long term our target is the consolidated margin for 14% to 15% our target is to take it to 17% to 18% but it is very difficult for me to predict anything right now.

    — Mr. Sanjay Majmudar, Strategic Advisor

Profit Growth

  • Current financial year bottom-line growth Profit Growth · current financial year · Medium confidence much higher
    the bottom-line growth would be much higher, more or less in line with our current run rate we have achieved till now.

    — Mr. Vishal Rangwala, CEO & Whole-Time Director

Risks & concerns

  • Significant headwinds and subdued demand in key European and US markets.

    high

    Europe continues to face significant headwinds, and the US is not showing significant signs of revival, impacting overall business sentiment.

    Management acknowledged

  • Continued losses in the Romania subsidiary.

    high

    Romania's prospects remain bleak, and it is not expected to achieve operating breakeven in the current financial year due to demand challenges and fixed costs.

    Management acknowledged

  • Potential impact of increased tariff wars, particularly between US and China.

    medium

    This could have a domino effect on overall international trade and global commodities, potentially having an indirect impact on Harsha.

    Management acknowledged

  • Short-term softness and inventory reduction pressure in the India domestic cages segment.

    medium

    Major MNC bearing companies operating in India reduced inventory at year-end, leading to soft demand, though normal purchasing is expected to resume in Q4.

    Management acknowledged

  • Delays in customer CAPEX projects impacting demand growth.

    medium

    Some customer projects catering to India and global demand are slightly delayed, viewed as a short-term push back.

    Management acknowledged

Areas of evasion (3)

  • Specific FY26 outlook for overseas subsidiaries beyond general trends
  • Detailed breakdown of revenue/profit for castings vs. other products within engineering business
  • Annual fixed cost for Romania facility (offered to take offline)

Q&A highlights

2 direct
Long-term contract for cage supply: revenue potential and delivery timeline. Direct
So, in general, we have signed a contract for a long-term supply of product which we are expecting to start supplying in the second-half of FY26. And it is what we have anyway disclosed. And this will be I think €6-10 million is what we are projecting at the full potential level we could achieve that.

This question clarified the specifics of a significant new contract, providing concrete revenue potential and a timeline for investors to track.

Asked by Jason Soans, IDBI Capital

Outlook for overseas subsidiaries (Europe, US) and signs of recovery for FY26. Partial
Having said that, right now we are not in position to really clearly project a lot of uncertainties in the US with this trade war, the things are still a developing situation. We have a very clear picture right now. Having said that, we are (Inaudible) unable to comment anything from here on in general.

Management acknowledged continued weakness and uncertainty in key international markets, indicating that a significant turnaround for overseas subsidiaries is not yet visible for FY26, which impacts overall profitability.

Asked by Jason Soans, IDBI Capital

CAPEX plans, commissioning of the Greenfield site, and overall CAPEX for FY25 and FY26. Direct
So, let me start with the second part, the CAPEX number, we are targeting for FY25, about Rs. 170 crores, somewhere in that range for FY25 and primarily attributable to the new plant and building and all equipment coming in. ... All the capacities should come online by the end of 1st Quarter next year.

This question provided clear financial targets for CAPEX and a timeline for new capacity coming online, which is crucial for future growth and revenue generation.

Asked by Harshit Patel, Equirus Securities

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance and Market Overview

Harsha Engineers reported a flattish Q3 FY25 performance. The engineering business achieved a topline of ₹302 crores, an 8.63% YoY increase but a 2.58% QoQ dip. EBITDA for the engineering segment was ₹48.2 crores, showing a slight 0.61% YoY decline. The solar business contributed ₹37 crores in revenue and ₹1.28 crores in EBITDA. Overall, the company noted persistent headwinds in Europe and the US, while India showed mixed trends with strong growth in Bronze Bushings.

India Business: Bushings Drive Growth, Cages Soft

The India business saw higher single-digit growth in Q3 FY25, primarily driven by the Bronze Bushing segment, which recorded over ₹60 crores in 9-month YTD sales and is on track to surpass the ₹80 crores annual target for FY25. Management projects this segment to reach ₹300 crores annually in the long term, with a minimum 50% growth expected in FY26. However, the domestic cages business was soft in Q3 due to year-end inventory reduction by major MNC bearing companies, but is anticipated to resume 8-10% growth in Q4 FY25.

International Operations: Persistent Headwinds and Romania Losses

International markets, particularly Europe and the US, continue to face significant headwinds with no clear signs of revival. The Romania subsidiary remains a major concern, not expected to achieve operating breakeven in the current financial year due to demand compression and fixed overheads. While China's year-to-date performance has improved, the overall international outlook remains uncertain, especially with potential tariff wars between the US and China.

Strategic Growth Initiatives and New Contracts

Harsha Engineers has secured a major long-term sourcing contract for cages with a global customer, projected to generate €6-10 million in annual revenue at full potential, with supplies commencing in H2 FY26. The company is also expanding into complex stamping components beyond bearing cages, focusing on green and battery-operated vehicle segments. Additionally, customer CAPEX in India for localization is expected to create an incremental opportunity of around ₹200 crores for cage supply at peak.

Capex and Capacity Expansion

The company incurred ₹70.8 crores in CAPEX during Q3 FY25 and targets an overall CAPEX of approximately ₹170 crores for FY25. This investment is primarily for a new Greenfield plant, with commissioning planned in phases. Most new capacities are expected to come online by the end of Q1 FY26, supporting future growth and new contract requirements.

Working Capital and Profitability Outlook

Harsha Engineers successfully reduced its overall working capital cycle to 144 days from 151 days in the previous quarter. While the current financial year's topline is expected to be more or less flat, bottom-line growth is projected to be much higher, in line with the current run rate. The consolidated EBITDA margin for the nine months stood at 16.09%, and the long-term target is to improve this to 17-18% from the current 14-15% range, though management noted the difficulty in predicting this given the current environment.

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