Harsha Engineers International Ltd IPO - 7 things to know

Harsha Engineers International Ltd, a manufacturer of precision engineering products, had filed its draft red herring prospectus (DRHP) once again in February 2022 and SEBI has not yet given its observations and approval for the IPO.

Normally, the IPOs are approved by SEBI within a period of 2 to 3 months unless there are other queries or clarifications that the regulator has. The approval for this IPO would most likely come by end of April or in May 2022.

The IPO of Harsha Engineers International Ltd will be a combination of a fresh issue and an offer for sale and the next step will be for the company to finalize on its issue date and issue price once the IPO approval is received from SEBI.
 

7 important things to know about the Harsha Engineers International Ltd IPO

1) Harsha Engineers International Ltd has filed for an IPO with SEBI and is currently awaiting SEBI approval to go ahead with the IPO. The Harsha Engineers International IPO comprises of a fresh issue of Rs.455 crore and an offer for sale of Rs.300 crore taking the total issue size to Rs.755 crore.

However, since the price band and the granular details like the number of shares offered are pending, the final value of the issue size is not yet known. For now, the next steps would predicate on getting the SEBI approval for its DRHP.

Harsha Engineers had originally file for the IPO in August 2018, but had decided to shelve the IPO at that point of time due to unfavourable market conditions, amidst the NBFC crisis.

2) Let us talk about the offer for sale (OFS) portion of the IPO first. A total of Rs.300 crore worth of shares will be sold by the early investors and the promoters as part of the offer for sale. The OFS component will not result in any fresh fund infusion or dilution of the capital or the EPS.

However, the selling of stake by the promoter will increase the free float of the company and facilitate listing of the stock. The main sellers in the Rs.300 crore OFS include the promoter group comprising of Rajendra Shah, Harish Rangwala, Pilak Shah, Charusheela Rangwala and Nirmala Shah.

3) The fresh issue portion of Rs.455 crore will issue fresh shares in the quantum based on the total price of the offer as decided. Let us not look at how the funds raised via fresh issue will be utilized by Harsha Engineers International Ltd.

It will use the funds predominantly to repay debt of the company to the tune of Rs.270 crore. In addition, Harsha Engineers will also use Rs.77.95 crore for purchase of machinery while Rs.7.11 crore will be used for repairs and renovation of its office premises. The balance amount will be used for working capital applications and for general corporate purposes.
 

4) Harsha Engineers International Ltd plans to set aside a small portion of the issue as reserved shares for the employees of the company. In addition, the company is also planning a pre-IPO placement on private placement basis worth Rs.90 crore.

This pre-IPO placement is normally done to HNIs, family offices and qualified institutional buyers (QIBs). The pre-IPO placement is different from the anchor placement in that there is more leeway in pricing of the shares but the lock-in period is longer.

If the pre-IPO placement is successful, then Harsha engineers will reduce the size of the issue proportionately. 

5) Harsha Engineering international Ltd was promoted by Rajendra Shah and Harish Rangwala in the year 1986, so the company has a 35 year pedigree. The promoters hold 99.7 percent of the equity and there has been literally not dilution till date.

Harish Engineers offers a diverse suite of precision engineering products and largely caters to end-user industries like automotive, aviation,  aerospace, railways, construction, mining, renewable energy, agriculture and industrials. Its manufacturing plants are located in Gujarat, China and in Romania. The company operates 5 plants in all.

6) Harsha Engineers has 50% market share in the organised bearing cages market with a near 5.2% market share in the global market.

For the fiscal year ended March 2021 i.e. FY21, Harsha Engineers reported net profit of Rs.45.44 crore on sales revenues of Rs.874 crore. While revenues are flat YoY, the profits have more than doubled on better cost controls implemented.

In FY22, Harsha Engineers has built on the momentum in the first half of FY22 ended Sep-21 with profits of Rs.43.7 crore on sales of Rs.629 crore.

7) The IPO of Harsha Engineers International Ltd will be lead managed by Axis Capital, Equirus and JM Financial. They will act as the book running lead managers or BRLMs to the issue. The company is proposed to be listed on BSE and NSE.
 

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