Key Financial Performance (Consolidated)

Revenue:

  • Consolidated Engineering business revenue stood at ₹421 crores for Q1 FY27.
  • This represents growth from ₹382 crores in Q4 FY26 (previous quarter) and ₹349 crores in Q1 FY26 (year-ago quarter).

EBITDA:

  • Consolidated EBITDA for the Engineering business was ₹69.8 crores in Q1 FY27.
  • This compares to ₹77 crores in Q4 FY26 and ₹65.3 crores in Q1 FY26.

Solar Business:

  • The solar EPC segment reported revenue of ₹36.3 crores and a positive EBITDA of ₹2.82 crores for the quarter.

Working Capital & Capex:

  • The overall consolidated working capital cycle was 116 days, an improvement from 130 days in the previous quarter.
  • The company incurred a consolidated Capital Expenditure (CapEx) of ₹37 crores in Q1 FY27.

Segmental Revenue Breakdown (Q1 FY27)

  • Bushing: ₹34 crores
  • Stamping: ₹90 crores (corrected from an initial mention of ₹19 crores)
  • Large Size Cages (LSB): ₹10 crores
  • Japanese Customers: ₹21 crores
  • Exports from India: ₹139 crores (22% YoY growth, 11% QoQ growth)

Margin Pressure & Key Factors

Management cited three primary reasons for the quarter-on-quarter EBITDA margin contraction in the India Engineering business:

1. Raw Material (RM) Cost Increase: Average raw material costs increased by approximately 8% in Q1. The company employs a pass-through mechanism for these costs, but there is a typical lag of 1-2 quarters before it is reflected in customer prices.

2. Foreign Exchange (FX) Loss: An accounting loss of approximately ₹4 crores was recorded due to the realization and settlement of cash flow hedges, as per IndAS provisions.

3. Indirect Material Cost Inflation: Costs for items like oil, chemicals, and packing materials increased by approximately ₹3 crores due to broader inflationary pressures, partly attributed to geopolitical events.

Growth Drivers and Business Outlook

India Business:

  • The India Engineering business (HEIL + Harsha Advantek) grew 21% Year-over-Year (YoY) and 6% Quarter-over-Quarter (QoQ).
  • Growth is attributed to strong demand for cages from both multinational corporation (MNC) customers expanding facilities in India and major Indian bearing customers, reflecting robust industrial and automobile sector demand.
  • FY27 Guidance: Management expects India Engineering business growth in the "mid-to-high teens" and consolidated growth in the "low-to-medium teens."

Product-Specific Targets for FY27:

  • Bushing: Achieved sales of ₹34 crores in Q1 (35% YoY growth). Target is ~30% growth for FY27 over FY26 sales of ₹127 crores.
  • Stamping: Achieved sales of ₹90 crores in Q1 (31% YoY growth). Target is ~30% growth for FY27 over FY26 sales of ₹60 crores. New products in development for AC compressors, railways, seals, and automotive applications.
  • Large Size Cages (LSB): Achieved sales of ₹10 crores in Q1. Despite a slow start, management is confident of achieving ~50% growth for FY27 over FY26 sales of ₹49 crores, driven by a strong order book and pipeline.
  • Japanese Customers: Achieved sales of ₹21 crores in Q1 (25% YoY growth). Expects a modest ~10% growth for FY27 over FY26 sales of ₹72 crores due to slow conversion processes.

Subsidiaries Performance and Plans

Harsha Advantek (Wholly-owned subsidiary):

  • Q1 FY27 sales were approximately ₹30 crores (7% QoQ growth).
  • Annual sales target for FY27 is approx. ₹140 crores, a significant increase from ₹43 crores in FY26.
  • Expected to become Profit After Tax (PAT) positive by the end of FY27. It reported a loss of approx. ₹4 crores in Q1 FY26 (comparative figure).
  • A Phase-2 CapEx plan is underway to expand facilities for Bushing, Stampings, and large-size cages.

Harsha China:

  • Performance is described as stable and satisfactory.
  • FY27 Guidance: Expected to report ~10% growth over FY26 sales of ₹120 crores, with an EBITDA margin in the 12%-14% range and PAT around 6%.
  • A brownfield expansion project has commenced, focused on steel cage capabilities. The project is funded by attractive debt and is expected to be commissioned by Q3 FY28, with full impact from FY29 onwards.

Harsha Romania:

  • The subsidiary continues to report losses and remains a challenge.
  • It recorded a one-time foreign exchange loss of approx. ₹2 crores in Q1 FY27 due to adverse currency movement between the Romanian Leu and Euro.
  • Operating losses persist. Management is efforts to improve the product mix (pushing more cages), acquire new customers, and reduce costs.
  • A strategic change in top management has been implemented.
  • FY27 Outlook: Management expects combined losses from foreign subsidiaries (China & Romania) to reduce to "much lower single-digit figures" compared to a combined loss of ₹10 crores in FY26. Breaking even in FY27 is uncertain.

Capital Expenditure (CapEx) Guidance

  • The major expansions include the Phase-2 CapEx in Bhayla (Harsha Advantek) and the brownfield project in China.
  • Civil construction at the Bhayla site was delayed due to heavy rains in Ahmedabad but is expected to commence soon.
  • Total CapEx guidance for a 1.5 to 2-year period (FY27 and FY28) is in the range of ₹180-200 crores.
  • Yearly CapEx for FY27 is expected to be in the range of ₹50-80 crores.

Strategic Initiatives & Market Commentary

  • The company is developing new products and capabilities in sectors including wind energy, gearboxes, specialized railway applications, aerospace, defense, and electric mobility solutions, primarily through stamping components and high-performance cages.
  • Management is evaluating inorganic growth opportunities in the precision engineering space but stated it is not a primary mandate.
  • Customer concentration is high, with the top 10 customers accounting for approx. 80% of revenue, supplied to over 80 plants worldwide. Key customers include SKF, Schaeffler, Timken, NBC, ZF, and Flender.
  • The solar EPC business is project-based and volatile quarter-to-quarter. FY27 revenue is expected to be around ₹200 crores with EBITDA margins of 7-8%.