Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Harsha Engineers International Ltd (BOM:543600, Financial) reported that their Q1 FY25 performance is in line with expectations, despite some softness in the Romanian market.
- The company achieved strong growth in the bronze bushing segment, with sales reaching INR20 crore, driven by key existing customers in the windmill gearbox manufacturing sector.
- The outsourcing of the cage business from Europe is progressing satisfactorily, indicating positive traction in this area.
- The company has started receiving orders from key customers who have set up new plants in India, aligning with the China+1 strategy.
- The business from Japan-based customers continues to grow, with sales of around INR18 crore in Q1 FY25, and the company expects this growth to catch up in the coming quarters.
Negative Points
- Top line growth in Q1 FY25 was slightly muted compared to Q1 FY24, partly due to the project nature of the solar business, which typically sees a leaner Q1.
- Sales of large-sized bearing cages were soft in Q1 FY25, primarily due to continued softness in demand from the windmill segment and industrial demand softening in Europe.
- The Romanian market continues to face challenges, with the company adopting a new strategy to increase the share of cages compared to semi-finished or casting business.
- Overall working capital cycle increased to 153 days in Q1 FY25, up from 141 days in the previous quarter, due to increasing pricing and inventory pipeline.
- The company incurred a CapEx of INR42 crore in Q1 FY25, which could impact short-term cash flows and financial flexibility.
Q & A Highlights
Q: Your gross margins have significantly increased from 44% in FY24 to 51% in Q1 FY25. What are the exact reasons for this jump?
A: The increase is due to lower solar business contribution, reduced metal prices not yet passed to customers, improved product mix, and better results from subsidiaries, especially China. (Maulik Jasani, CFO)
Q: Is the current level of gross margin sustainable?
A: Material pass-through is ongoing, so a sustainable gross margin would be around 48% to 50%. (Sanjay Majmudar, Strategic Advisor)
Q: How is the bearing demand in India, and what is the outlook for localization and CapEx from major bearing manufacturers?
A: Bearing demand is strong, driven by market growth and China+1 strategy. We expect higher demand in the next one to two years as customers set up new facilities. (Vishal Rangwala, CEO)
Q: Can you provide more details on the bronze bushings segment and its impact on margins?
A: Bronze bushings have a slightly better margin than the overall engineering business. We expect INR80 crore in sales for FY25, driven by increased allocation from key customers. (Vishal Rangwala, CEO)
Q: What steps are being taken to reduce losses in Romania and China?
A: We are focusing on customer interactions, cost reductions, and improving product mix. We aim for a marginally positive or breakeven result for both subsidiaries by the end of FY25. (Maulik Jasani, CFO)
Q: Are you factoring in any revenue from new customers setting up in India due to the China+1 strategy?
A: Yes, we have projected some revenue from these customers in our guidance. The products vary across our portfolio, and we are preparing to meet their capacity and development needs. (Vishal Rangwala, CEO)
Q: What is the progress on CapEx for the bronze bushings segment?
A: We have invested for current year revenue and are building a third facility to support growth. This facility is expected to start in Q4 FY25. (Vishal Rangwala, CEO)
Q: How is the large bearing cages segment performing, and what is the outlook?
A: There is softness in demand from the windmill and industrial segments, particularly in Europe. However, the increase in bushing sales is due to higher allocation from customers, not a market revival. (Vishal Rangwala, CEO)
Q: Can you provide a geographical split of exports and the pressure on sales?
A: Europe accounts for more than 50% of our exports. We see pressure in China and Europe, while North America and Asia remain positive. (Vishal Rangwala, CEO)
Q: What is the outlook for the stamp components business?
A: We are targeting multiple segments, including household appliances, HVAC, electrical, automotive, and railways. We see potential growth to INR200 crore in the midterm future. (Vishal Rangwala, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
