Heranba Industries IPO analysis!
Last updated: 22 Feb, 2021 | 12:41 pm
Heranba Industries IPO opens on 23rd Feb!
Heranba Industries is set to raise up to Rs 625 crore via IPO which opens on 23rd February, Tuesday. Here are the details:
About Heranba Industries
- Heranba is a crop protection chemical manufacturer, exporter and marketing company based out of Vapi, Gujarat. They manufacture intermediates, Technicals and Formulations. Technicals refer to concentrated solutions that are mixed with other ingredients to finally make formulations.
- It sells a range of insecticides, herbicides, fungicides and public-health products based on synthetic pyrethroids. Pyrethroids are chemical compounds used to control pests and insects in farms, homes, offices and other places.
- The company exported products to more than 60 countries in Latin America, CIS, Middle East, Africa, Asia and South East Asia in FY20. In 2020, the company earned around 41% in revenues from exports.
- Heranba has three manufacturing and packaging facilities in and around the industrial belt of Vapi, Gujarat having 174 reactors with an aggregate manufacturing capacity of 14,024 MTPA.
- Heranba Industries operates in a highly competitive and fragmented market with many formulators. The competition is immense with a large number of organized sector players and also counterfeit pesticide manufacturers.
- Heranba Industries Limited has a 19.5% market share of the total Indian pyrethroids production values, as shown in the table below.
- Heranba’s Return on Net Worth is better than its listed peers (except Bharat Rasayan). The company also ranks better than its peers in terms of Operating and Net Profit margins.
- The company has seen a steady growth in topline over the last 3 years, with revenue from operations increasing from Rs 745 cr in FY18 to ~Rs 951 cr in FY20.
- PAT margins have also improved significantly to ~10.72% in Apr-Sep 20 period, on the back of thrust on new value-added products. Such trends are expected to continue going forward.
- The impact of the Lockdown was minimal as the Company deals with Agro Products and the Government gave relaxation to the Agro Products. The revenues have grown at 23% YoY in the period.
- The company has paid a dividend for the last four financial years. Heranba is confident of maintaining a prudent dividend policy going forward.
About the issue
Issue open: 23rd Feb - 25th Feb 2021
Price band: Rs 626 - Rs 627 per share
Issue Size: Rs 625 crore (Gross)
Issue Size: Fresh Issue of Equity Shares aggregating upto Rs 60 Crore and Offer for sale of upto 90,15,000 Equity Shares.
Reservation for QIB - 50% , Retail - 35%, Non institutional Investors -15%.
Bid lot: 23 shares, and in multiples of 23 shares
Post issue market cap: Rs 2,505 cr- Rs 2,509 cr
- As the company operates in a business that generates more hazardous effluents, there are risks of regulatory changes.
- Shakti Bio Science, owned by the same promoters, was declared a wilful defaulter in 2017. Further, Heranba is a co-borrower of a term loan of Rs 35 crore provided to a group entity and will have to bear liability in case of default.
- The promoters have been disqualified from acting as directors of the group company due to non-compliance in filing annual returns.
At the higher end of the price band, Heranba IPO is reasonably priced at a PE ratio of ~25.05 times FY20 earnings per share. The company has a dominant market share in the domestic pyrethroids market. Further, its margins and return ratios are also better as compared to the industry average. Non-operational concerns mentioned above seem to be an overhang.
Given the company’s steady topline growth, robust margins and return ratios, strong market share position, low debt, and reasonable valuations, we remain positive on the prospects of the issue.