PL First Cut – Harsha Engineers International (HARSHA) Q2FY24

PL First Cut – Harsha Engineers International (HARSHA) Q2FY24 – Amit Anwani – Research Analyst, Prabhudas Lilladher Pvt Ltd

Harsha Engineers International (HARSHA) Q2FY24 Results First Cut – Another subdued quarter; margins decline sharply

(CMP: Rs395 | MCap: Rs36.0bn)

Q2 Result summary

▪️ Consolidated revenue rose 5.4% YoY to Rs3.4bn (PL estimate of Rs3.7bn and consensus estimate of Rs3.6bn), aided by a sharp jump in Solar EPC revenue to Rs419mn (vs Rs38mn in Q2FY23).

▪️ Consolidated Engineering revenue slid 6.5% YoY to Rs3.0bn, with India Engineering declining by 5.0% YoY to Rs2.3bn and International (Romania & China) Engineering falling 10.8% YoY to Rs711mn.

▪️ Gross margin declined by 628bps YoY to 42.0%.

▪️ EBITDA fell 26.5% YoY to Rs352mn (PL estimate of Rs516mn and consensus estimate of Rs545mn), with EBITDA margin contracting by 451bps YoY to 10.4%, as a 223bps YoY reduction in other expenses as a % of sales partially offset the gross margin decline.

▪️ Consolidated Engineering EBITDA margin decreased by 258bps YoY to 13.6%, as India Engineering margin contracted by 71bps to 20.1% and International Engineering margin fell to -6.9% (vs +2.5% in Q2FY23). Solar EPC EBITDA margin came in at 3.2% (vs 18.2% in Q2FY23). [Note: Segmental EBITDA includes other income]

▪️ PAT slid 27.4% YoY to Rs204mn (PL estimate of Rs347mn and consensus estimate of Rs379mn), on the back of a weak operating performance and higher effective tax rate at 31.2% (vs 25.5% in Q2FY23). This was partially offset by higher other income (up 55.7% YoY to Rs67mn) and lower interest costs (down 55.6% YoY to Rs25mn).

▪️ At the CMP, the stock is trading at 23.7x/18.3x FY24E/FY25E. We have an Accumulate rating on the stock with a TP of Rs474.