Harsha says 4%-5% of H1 growth came from metal pass-through

Harsha said only about 4%-5% of its first-half growth came from material pass-through, while management is working toward 12%-15% global volume growth. The estimate indicates that most of the first-half increase reflected shipments rather than recovery of brass-related costs, although metal movements can still affect reported revenue and margins.

How much of Harsha’s first-half growth came from material pass-through?

Harsha estimated that about 4%-5% of first-half growth was linked to material pass-through, with the balance representing real volume growth. The estimate was given after one analyst described first-half growth at about 25%, while another cited consolidated revenue growth of about 21% year on year and India Engineering growth of more than 22%.

The distinction matters because Harsha said its growth guidance excludes metal movements. Brass prices, which reflect copper and zinc costs, had increased over the preceding six months, and some of that increase had been recovered through customer pricing mechanisms. Harsha did not provide a monetary value for the recovery or a product-level split across brass cages, steel cages, bushings and stamping components.

That 4%-5% estimate is not a fixed calculation for every customer or product line. Harsha said customer arrangements work on different timelines, meaning the recognition of metal-related price movements can vary across its portfolio even when underlying shipment volumes are rising.

What volume growth is Harsha targeting globally?

Harsha is working toward 12%-15% volume growth globally, according to management. The target is a planning objective rather than a value-growth forecast because reported revenue will also depend on metal prices and the timing and extent of pass-through to customers.

The global objective is above the 5%-7% moderate growth Harsha currently expects from its existing China portfolio. Management said China growth could accelerate after new capacity and a wider product range are introduced, with the capacity scheduled to come online in the second or third quarter of FY28.

Harsha also said its U.S. portfolio continues to grow and that it is working with customers there to meet demand opportunities. Management did not quantify the effect of U.S. bearing-supply constraints on its order book, explaining that it operates one step below the bearing market and could not isolate that effect.

Why can metal prices still affect Harsha’s revenue and margins?

Metal prices can still affect Harsha’s reported revenue because pass-through is an ongoing process rather than a one-time adjustment. Management said a major portion of recovery from sharp metal-price increases during the preceding four to five months had been completed if prices stabilised, but it could not say pass-through was 100% complete.

If metal prices rise or fall further, Harsha expects a corresponding effect through customer pricing mechanisms. Management also identified inflation in costs not covered by pass-through, including indirect costs, as a continuing pressure that it is seeking to mitigate. Stable metal prices therefore would not remove every cost variable affecting profitability.

In the quarter discussed on the call, gross margin was 51.7% and India Engineering earnings before interest, tax, depreciation and amortisation, or EBITDA, margin was 23.7%. Management attributed the consolidated gross-margin outcome to partial raw-material pass-through and a lower revenue contribution from the Solar business.

Does first-half growth change Harsha’s FY27 outlook?

Harsha remains cautious on consolidated growth despite first-half revenue growth of about 21%, because second-half comparisons are tougher and Romania is expected to detract from growth. Management said the third and fourth quarters of the previous year had already started showing good growth, raising the year-on-year comparison base.

Management said India Engineering should grow at a higher rate, while Romania is expected to be negative during loss-reduction actions. On that basis, management referred to consolidated growth guidance of about 10%-12%, rather than signalling weaker conditions in the India Engineering business. China was described as softer than India, although still expected to grow.

On profitability, Harsha continues to expect a blended EBITDA margin above 20% over the longer term. Management added that around 22% was a more representative steady-state margin, after product mix supported margins roughly 100 to 200 basis points above the broader blended indication in recent quarters.

What capacity plans support Harsha’s volume target?

Harsha sees potential revenue of Rs 2,500 crore to Rs 3,000 crore from existing capacity, greenfield investment and expansion projects under way. Management cautioned that these are peak-capacity figures, requiring demand to match capacity across each product sub-segment rather than assuming every line can operate at 100% simultaneously.

Harsha has announced about Rs 220 crore of capital expenditure over 18 months, including around Rs 110 crore for the next Advantek expansion phase in India and about Rs 100 crore for China. It said about Rs 73 crore had been spent in the first half and that spending could be completed in 12 to 15 months, or by about June 2027.

Commercial production may begin later than capital-spending completion because customer approvals and trials are required. Harsha said it was not assuming incremental borrowings in FY28, as existing borrowings relate to Advantek expansion and China Phase 2, and estimated annual consolidated maintenance capital expenditure at Rs 25 crore to Rs 30 crore.

Conclusion

Harsha’s first-half performance indicates that most reported growth came from shipment volumes rather than metal-cost recovery, even as consolidated revenue increased about 21% and India Engineering grew more than 22%. The result also shows that revenue growth, volume growth and margin movement can diverge when brass-related pricing mechanisms operate on customer-specific schedules.

The next developments to watch are the planned China capacity start in the second or third quarter of FY28, completion of India and China capex spending by about June 2027, and a more detailed Romania downsizing announcement that management said could come in the next quarter. Customer approvals and trials will determine when the new capacity can move from capital expenditure to commercial output.