The initial public offering (IPO) of Harsha Engineers International Ltd (HEIL) opened on Wednesday for subscription. The precision bearing cages manufacturer has set a price band of Rs 314-330 per share for the initial stake sale which will remain open for subscription till Friday, 16 September. Ahead of the IPO, the company raised Rs 225.7 crore through its anchor book. Harsha Engineers plans to raise Rs 755 crore through this IPO which consists of a fresh issue of Rs 455 crore and an offer for sale (OFS) of up to Rs 300 crore by shareholders and promoters. As part of the OFS, Rajendra Shah is looking to offload shares worth up to Rs 66.75 crore, Harish Rangwala up to Rs 75 crore, Pilak Shah up to Rs 16.50 crore, Charusheela Rangwala up to Rs 75 crore and Nirmala Shah up to Rs 66.75 crore. Harsha Engineers shares were commanding a grey market premium (GMP) of Rs 220 today, according to people who deal in unlisted stocks.
Rs 225.7 crore raised from anchor investors
Harsha Engineers International garnered Rs 225.7 crore from 23 anchor investors and 17 domestic mutual funds ahead of the IPO. The company informed the bourses that it allocated 68,40,855 shares at Rs 330 per share on Tuesday, September 13, 2022, to anchor investors. American Funds Insurance Series Global Small Capitalization Fund, Goldman Sachs Funds – Goldman Sachs India Equity Portfolio, PineBridge Global Funds – PineBridge India Equity Fund, Abu Dhabi Investment Authority-Monsoon are among the investors that participated in the anchor book.
In addition, shares have been allocated to domestic funds Whiteoak Capital, HDFC Mutual Fund, SBI Mutual Fund, Franklin Templeton India MF, UTI MF, SBI Life, Nippon India Mutual Fund, ICICI Prudential Mutual Fund, DSP Mutual Fund, ICICI Prudential Life Insurance & L&T Investment Management are among the investors that participated in the anchor book. Out of the total allocation of 68,40,855 equity shares to the anchor investors, 38,90,610 equity shares were allocated to 9 mutual funds through 17 schemes amounting to Rs 128.4 crore i.e. 56.9% of the Total Anchor Book Size.
Should you subscribe?
“Harsha Engineers with its dominant position is well placed to capture the growing bearing cage demand across industries. We like its increasing focus on other specialized precision components and on the growing EV segment which could boost its EBITDA margins. It is valued at 32.7x FY22 P/E which is at par with its listed peers. Given growth recovery in auto/auto ancillary and strong momentum in the midcaps, we expect the IPO to do well. We suggest investors to Subscribe for listing gains,” said Motilal Oswal in an IPO note.
Harsha Engineers International Ltd is the largest manufacturer of precision bearing cages, with 50-60% market share in the organized market. It offers a diversified suite of precision engineering products across geographies and end-user industries. It operates under 2 business divisions – engineering business and solar EPC business.
“In terms of valuations, the post-issue P/E works out to 32.7x FY22 EPS (at the upper end of the issue price band). Company’s consolidated PAT has grown at a CAGR of ~105% over FY20-22 on back of margin expansion. HEIL has a diverse product portfolio and strong expertise; we believe that these positives are yet to be factored in the valuations commanded by the company. Thus, we have a SUBSCRIBE rating on the issue,” said brokerage Angel One in its note.
“At a higher price band, Harsha Engineers is demanding EV/Sales multiple of 2.2x, which is discounted to peer average of 5.6x. Above peer list includes large well established bearing manufacturers, which are trading at higher valuations thereby distorting the peer average. Excluding these highly valued manufacturers, still the demanded valuation by Harsha Engineers is discounted to the peer average. Thus the issue is attractively priced. Considering the future growth outlook of the bearing market; HEIL’s dominant position in the bearing cage market and the demanded attractive valuations, we assign a “SUBSCRIBE” rating for the issue,” said Choice Broking.
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