About the company:
The Agrochemicals manufacturer Heranba Industries is planning to raise upto Rs.625 cr by selling its stake via a combination of Offer for sale of Rs.565 Cr and a Fresh Issue of Rs.60 Cr. The issue is opening from 23rd February and is closing on 25th of February with a price band of Rs.626- 627 per share for a lot size of 23 shares.
Heranba Industries Ltd is a crop protection chemical manufacturer, exporter and marketing company based out of Vapi, Gujarat. It manufactures intermediates, technicals and formulations and is one of the leading domestic producers of synthetic pyrethroids which is a chemical compound used to control pest insects. It is one of the leading domestic producers of synthetic pyrethroids like cypermethrin, alphacypermethrin, deltamethrin, permitherin, lambda cyhalothrin etc. Their pesticides range includes insecticides, herbicides, fungicides and public health products for pest control in farms, homes, hospitals etc. The company has three well-equipped manufacturing units in Vapi with an aggregate manufacturing capacity of 14,024 MTPA. Heranba operates in different verticals including (a) domestic institutional sales of technicals i.e manufacturing and selling of technicals in bulk to domestic companies; (b) technicals exports i.e exports of technicals in bulk to customers outside India; (c) branded formulations: manufacturing and selling of formulations under their own brands through their own distribution network in India; (d) formulations exports i.e export of formulations in bulk and customer-specified packaging outside India; and (e) public health i.e manufacturing and selling of general insect control chemicals by participating in public health tenders issued by governmental authorities and selling to pest management companies. Heranba has a diversified presence across more than 60 countries, As of FY20 49percent of its revenues came from the overseas markets. Considering the future prospects, sustainable financials coupled with reasonable valuations as compared to its peers we recommend investor to “SUBSCRIBE” to this IPO for listing gains.
Financials:
Heranba Industries' revenues have grown at a CAGR of 13percent from FY18-FY20 whereas its PAT has grown at a CAGR of 44percent during the same period. Despite continuous rise in raw material prices which forms a significant part (70percent as of H1FY21) of its expenses Heranba has been able to maintain decent EBITDA & PAT margins of 16percent and 11percent respectively. Since Agrochemicals were categorized under essential commodities, the company faced minimal impact of lockdowns and managed to clock highest operating margins of 16percent in H1FY21. Heranba has recorded robust average ROE and ROCE of 31.3percent and 56percent for the last three years and in H1FY21 it recorded record operating cash flows of Rs.52 cr as against Rs.54 cr in FY20, primarily due to low finance costs indicating that the company has reduced its debt which is reflected in its debt to equity ratio which is down to 0.1 in FY20 from 0.4 in FY18. Heranba’s diversified nature of products and access to various geographies with a stable customer base helped it overcome the peak lockdown time gracefully.
Risks:
• Any significant increase in Raw material prices
• High dependence on smaller customers
• Regulatory risk in product approvals
Heranba has become a key player in the Pyrethroids market with highest market share of 20 percent. While its competitors like Rallis, Sumimoto Chemicals, and Bharat Rasayan trade at same or higher multiples in terms of P/E, As of FY20 EPS Heranba looks fairly priced but commands a higher ROE of 31percent, making it attractive with its sustainable and growing financials, reasonable valuation and ability to sail through COVID, could give decent gains on listing day given the prevailing sentiments. We, therefore, recommend investors to subscribe to this IPO for listing gains only.
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