Heranba IPO: Should you invest in the IPO of crop protection chemicals maker?
With one of the strongest return ratios in industry and a healthy balance sheet, the stock is available at 25.7 times FY20 earnings
About the company
Heranba Industries (Heranba) incorporated in 1992, is an agrochemical company. It is also one of the leading domestic producers of synthetic pyrethroids. Sadashiv K. Shetty and Raghuram K. Shetty are the company promoters.
The company is present in the entire product value chain of the agrochemicals industry. The business verticals include (a) domestic bulk sales of Technicals (31.6% of FY20 sales), (b) technicals bulk exports (36.5%) (c) branded formulations (12.7%), (d) formulations exports (12.8%) and (e) insect control chemicals (6.4%). It has three manufacturing facilities in and around Vapi with a capacity of 14,024 MTPA.
Heranba is one of the leading domestic producers of pyrethroids (68% of FY20 revenues; 19.5% domestic market share in 2019). It is in the entire value chain of synthetic pyrethroids that provides flexibility to shift between products depending on the demand-supply and pricing dynamics.
The company also has a strong pending product pipeline in pyrethroids including formulations filed by partners in domestic, export markets. Apart from this, more than half of the global demand for Pyrethroids comes from China. Hence, due to shutdown of chemical plants in China amid pollution, higher volumes of Pyrethroids are expected to be exported out of India.
In domestic formulations, the company has more than 9,400 dealers having access to 21 depots in multiple states. The company’s International distribution partners have obtained registrations for 371 products in 41 countries across the Middle East, CIS, Asia, South East Asia and Africa. Further, 172 of the company’s products have been filed by its overseas customers, which are pending for registration.
|Open date||Feb. 23|
|Close date||Feb. 25|
|Allotment date||Mar. 2|
|Listing date||Mar. 5|
|IPO size||Rs 625 crore|
|IPO band||Rs 626 to 627|
|Applications||Compulsorily in ASBA mode|
|Bid lot||23 shares|
How do financials look
As per Kotak Securities, Heranba’s restated Total Revenue for the year ended March 31, 2020 at Rs 9,67.9 crore. Restated Profit after tax for the year ended March 31, 2020 Rs 97.75 crore.
Restated Return on Net worth for the financial year ended on March 31, 2020 is 30.47%.
Also, restated Net Asset Value per Equity Share as on March 31, 2020 is Rs 82.14 per equity share.
What is the valuation
According to ICICIdirect, Heranba benefits from being an integrated pyrethroids manufacturer with a strong product pipeline. Geographical expansion coupled with favourable macro factors are likely to drive growth. Apart from this, it has one of the strongest return ratios in Industry and a healthy balance sheet. ICICIdirect gives a ‘subscribe’ recommendation on the IPO. At Rs 627, the stock is available at 25.7 times FY20 earnings.
Angel Broking says that Heranba’s peers such as Rallis India, Sumitomo Chemicals and Bharat Rasayan are trading at 23.1x, 47.3x and 27.0x PE on a trailing basis respectively. “Company return ratios are superior to peers (ROE is above 30%). Company has a strong financial position and has been generating positive cash flow. We expect a good listing for the Company,” Angel said.