HMA Agro IPO: Analysis

Leading buffalo meat exporter, the HMA Agro Group has announced its Initial Public Offering (IPO). The IPO will open for subscription on June 20th and will close on June 23. The company is looking to raise Rs 480 crores through the issue.

HMA Agro IPO Details

• HMA Agro IPO Date: 20th June - 23rd June 2023
   
• HMA Agro IPO Price band: Rs 555 - Rs 585
   
• HMA Agro IPO Issue Size: Rs 480 crores (Fresh Issue of Rs 150 crore and an OFS of Rs 330 crores)
   
• Reservation: QIB - 50%, Retail Investors - 35% and  NII - 15% (QIB - Qualified Institutional Buyers, NII - Non - Institutional Investors)
   
• Minimum Order Quantity: 25 shares

HMA Agro IPO: Issue objective

HMA Agro expects to utilize the net proceeds from the IPO to:

• Fund working capital requirements of the company.
• General corporate purposes

HMA Agro IPO : About HMA Agro

• Founded in 2008, HMA Agro is the leading exporter of frozen buffalo meat products in India. Notably, the company’s exports consist of more than 10% of the total frozen buffalo export market of India. 
• HMA Agro exports to more than 40 countries including UAE, Saudi Arabia, Egypt and Malaysia among others.
• The company has four fully integrated meat processing plants in Aligarh, Mohali, Agra and Parbhani. Additionally, the company is also in the process of setting up its fifth plant in Haryana.
• To diversify its portfolio, the company recently started dealing in some other products like Frozen Fish Products, Basmati Rice, Poultry and other agri products.
• HMA Agro’s popular brands include “Black Gold”, “Kamil” and “HMA”.

HMA Agro IPO : Industry Overview

• Although the buffalo meat market is fragmented with a large number of unorganized players, the export market is largely dominated by organized players such as Allanasons, HMA Agro, Fair Exports, Al Hamd Agro Food Products, Rustom Foods and Al Dua. These players have cornered close to 60% of the total buffalo meat export market.
• HMA Agro has substantial headroom for growth as it expected to benefit from an eventual rise in export prices for red meat from India. This can be gauged from the fact that while average export prices for red meat in the US stood at $7.06 per kg in 2021, it was a mere $2.85 per kg in India.
• Meanwhile, the value of buffalo meat exports, which peaked in 2015 to $4.78 billion, has been on a declining phase since then, clocking a figure of just $3.17 billion in 2021. However, the same is expected to rise to $4.59 billion in 2023.
• Meanwhile, the low per capita meat consumption among the developing countries like India presents itself as an opportunity for growth for the company.

HMA Agro IPO: Listed Peers

The company has no listed peers. Some of its unlisted peers include Allanasons, Al-Hamd Agro Food Products, Fair Exports (India), Mirha Exports and Rustom Foods.

HMA Agro IPO: Financials

• A decline in revenue from operations over the years stands out as a matter of concern for the company. While in FY 19, the company clocked revenues of Rs 2,742.1 crores, it has steadily declined to Rs 2,372.8 crores in FY 20 and Rs 1,707.5 crores in FY 21.
   
• However prudent expenses management has been a tailwind for the company with the same witnessing a decline over the years. Notably, in FY 19 total expenses for the company came in at Rs 2,735.1 crores, it continued to go down coming in at Rs 2,354.4 crores in FY 20 and Rs 1,622.7 crores in FY 21.
   
• Meanwhile, the company’s revenue mix is skewed heavily in favor of exports. Cornering almost 93%, revenues from exports came in at Rs 1,585.3 crores in FY 22 while domestic sales formed the rest at Rs 122.8 crores. Interestingly, the company has observed that markets like Egypt, Hong Kong and Malaysia generate higher margins for the company. Consequently, the total share of exports to these countries increased from 33.66% in FY 2019 to 46.44% for the half year ended September 2021.
   
• The company’s profits have soared over the years due to its effective management of expenses. Notably, the company reported profits of Rs 31.2 crores in FY 19, steadily growing to Rs 45.9 crores in FY 20 and jumping to Rs 72.6 crores in FY 21.

HMA Agro IPO: Risks

• Too many regulations: HMA Agro operates in a highly regulated environment. If the company fails to comply with any of these regulations, then its normal course of operations stands to be adversely affected.
  
  Moreover, the company is currently facing a slew of litigations, totaling 20 cases in all.
   
• Emotionally sensitive: Since the company operates in a product which has the capacity to be emotionally sensitive, it has to tread its path very carefully. This can hamper its productivity and efficiency and can hinder its operations.
   
• Demand uncertainty: The company’s core product, i.e. buffalo meat is considered to be an unhealthy food choice. Further, the global trend has been towards healthier operations which can have an adverse impact on the demand for the company’s products.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.