Heranba Industries, a Gujarat-based agrochemical company from India, is launching an IPO in Feb 2021 to raise funds of approx Rs 625 crore. In this article, i am going to do a detailed analysis of their business profile, Secondly what are its Pros and Cons and at last, final conclusion about Should you bid for its shares? Here is my analysis.
First of All, Some basic details about this latest IPO in india 2021 :
- The price band has been fixed at Rs 626-627 a piece.
- The issue opens on: Feb. 23
- The issue closes on: Feb. 25
- Issue type: book-building
- Face value: Rs 10 apiece
- Minimum bid size: 50 shares
- Promoter holding as a percent of total share capital as on Feb. 10 2021: 98.85%
- Listing on: National Stock Exchange and BSE IPO listing date: By March 5, 2021
IPO Analysis #1. What Does Company do?
As per their Red Herring Prospectus, Heranba Industries India addresses the increasing pollution of our ecosystem because of traditional pesticides. Heranba manufactures and sells an array of insecticides, herbicides, fungicides, and also public-health products based on synthetic pyrethroids.
Pyrethroids are chemical substances made use of to manage insects and also insects in farms, residences, offices, and so on. Check the active ingredients of your mosquito repellent, I assure you it will be a by-product of pyrethroid. Unlike widely-used organophosphate pesticides, pyrethroid-based chemicals cause less harm to the atmosphere and also trigger much less human toxicity.
The company sells both technicals (68 percent of FY20 profits) as well as solutions (25 percent) straight to B2B players in India and outdoors, as well as to farmers with even more than 9,400 suppliers in India. The business exports its items to more than 60 nations, with China being its biggest export market which accounts for 28 percent of its net exports in FY20.
IPO Analysis #2. What are the strengths?
I observed some very important points going through their prospectus. They are operating in a niche market which separates them from competition.
Key Points :
- The pyrethroid market is just witnessing a regrowth, owing to requirements for less-harmful yet economical substitutes for conventional pesticides. The closure of chemical plants in China, combined with a huge pyrethroid consumer base due to environmental issues, can cause a rise in the export quantity.
- The market in India is expected to grow at a yearly development of 8.5 percent during 2020-25 as well as expected to get to a production quantity of 25,398 lots by 2025.
- Heranba Industries is currently paying attention to entering the regulated markets of the US and Europe. It obtained two products registered in Europe in 2020 and is awaiting approval for one in the US.
- As a number of technicals going off-license near future, generic manufacturers like Heranba can profit from this. To establish even more items, the company has recently started an R&D center. They want to utilize funds from IPO to its working-capital requirement and expand its business.
- Heranba India has actually a vertical of operations with a presence across agrochemical intermediaries, technicals, and also formulas at its 3 production centers in and the likelihood of Vapi, Gujarat.
- Integrated operations allow the company to reduce its dependency on 3rd party vendors and also can enhance its margin as this industry expands. The business has a solid registered product profile both in the local and international markets.
- It has authorized registrations for 18 technicals for manufacturing as well as sale in India, 103 technicals and formulas for manufacturing and sale in the export markets as well as 169 solutions signed up for manufacturing and also sale in India.
- Additionally, the firm’s international companions hold a number of enrolments in more than 40 countries. Its sales network is sustained by more than 9,400 dealers/distributors in 16 states.
IPO Analysis #3. What are risks Involved (As per RHP)?
Key Points :
- They are a co-borrower for a term loan of Rs 35 crore given to one of its promoter/group businesses. The promoter and the supervisor of the company have offered individual assurances to safeguard this lending. This can influence the functioning of Heranba Industries.
- They are prone to regulative audits considering that its products, as well as centers, can be harmful to nature. Recently, 2 of its centers were closed for a couple of days, owing to the offense of unfortunate incidents and particular rules.
- In the past, SEBI has warned many members of the promoter team for the implementation of some undisclosed trades in the stock market. Participants of the promoter group were likewise disqualified as supervisors of the firm as they stopped working to submit annual returns and economic statements. Their directorship was restored later once they filed all pending economic statements and annual returns.
- Around 50 percent of Heranba’s revenue comes from exports. Although the company exports to greater than 60 nations, it does not hedge its currency risk.
- The firm is dealing with several legal situations. These situations belong to a wide variety of issues, such as failing to comply with pertinent sections of the firms act, alleged offenses of the climate laws, infractions of the pesticides act as well as hiding details of income tax. In addition to this, the business has actually submitted 526 cheque-bouncing situations versus different events.
- This latest IPO India 2021 comprises a fresh issue of Rs 60 crore and an offer-for-sale of a cumulative 90.15 lakh equity shares. its promoters are Sadashiv K Shetty, Raghuram K Shetty, Babu K Shetty and Vittala K Bhandary, according to its red herring prospectus.
IPO Analysis #4. brief snapshot of Financials
|Heranba Industries’ financial performance (in INR crore)|
|Net margin (%)||6.3||7.5||10.1||10.7|
As you can see, Though in 2020-21 their business got hit because of Covid, Net margins have been consistently growing and expanses are coming down which are good signs.
IPO Analysis #5. How it stands among it peers?
If you look at this figure ,
In 2019, Heranba Industries Limited dominated the India pyrethroids market, accounting for a share of 19.5% of the total
Indian pyrethroids production values.
Final Verdict : Buy or avoid this latest newcomer IPO in India 2021
Things which i like are :
a solid distribution network in the local market, a large number of exports as well as integrated production. Heranba’s strong annual report (financial obligation equity proportion of just 0.1) has actually likewise helped its reason.
Going forward, Heranba is likely to obtain boost from supply chain changes from China to India along with continued policy support in India for the agriculture market. Hereof, its application for manufacturing as well as export of 7 Formulations as well as technicals is presently in the process of evaluation.
The promotion of the “Blue Sky” program in China has led to the closure of numerous chemical plants and also is most likely to be a significant “take us higher” for Indian chemical peers. This is especially true for players like Heranba Industries which have actually integrated procedures as well as existing circulation networks in export markets. It is essential to keep in mind that this major shift is not one time and the benefits will be spread over several years.
Luckily, Heranba has priced its deal smartly at a PE proportion of 25.05 at the upper range of the pricing band. It looks slightly cheap among its listed peers such as Rallis and Bharat Rasayan which are trading at multiples of 28.8 and 26.9, respectively. Heranba’s Return on Internet Worth (RoNW) is likewise higher at 30.5% when compared with 13.1% as well as 27.9% for its peers.