Agro chemical firm Heranba Industries Limited is set to launch its IPO on Feb 23, 2021 (Live on Groww!). The company proposes to utilize the net proceeds from the fresh issue, totaling up to Rs 625.24 crores, for funding its working capital requirements and managing expenses towards general corporate purposes.
If you are wondering whether to invest in this IPO or not, we have compiled some vital information (Source : RHP) that can help you decide. Read on!
You can apply for Heranba IPO on Groww easily via UPI. Go to IPO. There you would be able to see the list of all open IPOs. Select Heranba IPO and click on ‘Apply’. You would be able to invest in this IPO from February 23, 2021.
Heranba Industries Limited was founded in 1996 with the production of an Intermediate product Cypermethric Acid Chloride (CMAC). Within the next five years, it integrated into the manufacturing of various Technicals like metametron, cypermethrin, alpha, permethrin, and deltamethrin.
It further expanded its product range to Formulation, which are final products sold to farmers as pesticides, herbicides, fungicides for crop protection and into public health products in the FY 2010-11.
The company holds registrations for 18 Technicals for manufacture and sale in India, 103 Technicals & Formulations for manufacture and sale in the export markets, and 169 Formulations registered for manufacturing and sale in India.
Further, applications for registration of 14 Technicals & Formulations for manufacture & sale in India and 7 Technicals and Formulations to manufacture for the export markets have been filed with the CIB&RC and are in the process of evaluation.
Heranba exports its products to more than 60 countries around the world and has close to 50 percent of its revenue from exports.
Financials of Heranba Industries Limited
Here is a quick look at the financial performance of Heranba Industries Limited over the last three years:
|Sep 2020||Mar 2020||2019||2018|
|Profit After Tax||66.31||97.75||75.40||46.87|
All amounts in INR Crore
A quick glance at the financial performance of Heranba Industries over the last three years highlights significant growth. During this period, the total income of the company showed growth at a CAGR of 8.85%. Further, between 2018 and 2020, the profit after tax grew at a CAGR of 27.76%. Also, the company’s total assets grew at a CAGR of 11.52%.
The Indian Pyrethroids market has been growing at a CAGR of 7.4 percent between 2014 and 2019, reaching a sales value of USD110 million.
Since they are synthetic chemical compounds derived from the chrysanthemum cineraria folium flowers, they are cost-effective and display biodegradable properties.
They are also less poisonous for mammals or birds making them a great alternative to organophosphate insecticides.
While there are certain challenges faced by pyrethroids like a high susceptibility to moisture and heat, genetic changes in insects resulting in resistance to pyrethroid treatment, etc., the Indian Pyrethroids market is expected to grow at a CAGR of 19.6 percent and reach a sales value of around USD205 million by 2025.
The Asia-Pacific region accounts for the largest share in the global agrochemicals industry. In India, the Agrochemicals market grew at a CAGR of 6.5 percent between 2014 and 2019 and reached a value of USD2760 million in 2019.
An increasing population and a growing demand for food across the globe are the primary drivers behind this growth. The Indian Agrochemicals industry is expected to grow at a CAGR of 7.9 percent and reach a value of USD3798 million by 2025.
1. Strengths of Heranba Industries Limited
- Heranba Industries Limited has a presence in a wide range of products across the entire value chain of synthetic pyrethroids. The range of its business activities i.e. from the manufacturing of Intermediates to the sale of branded Formulations, both in the domestic and international markets, offers ample opportunities to enhance revenue and profitability.
- The company has obtained registrations for 371 Technicals and Formulations in 41 countries across the Middle East, CIS, Asia, South East Asia, and Africa.
- Heranba has more than 9400 distributors/dealers sponsored by its 21 stock depots spread across 16 states and one Union Territory in India to meet market demand.
- The company has a diverse and stable client base that provides the required stability since the top ten clients don’t contribute to more than 20-odd percent of the company’s revenues.
- The Promoters of Heranba have more than three decades of experience in the agrochemicals sector and are adequately qualified to manage the operations of the company.
2. Weaknesses of Heranba Industries Limited
- While there are no companies in the exact same business as Heranba, it faces competition from other companies in the Agrochemicals sector.
- The products manufactured by Heranba generate hazardous effluents. Therefore, if there is any change in government policies for such industries, then the company can face a challenge.
3. Peer Comparison
Here is a quick look at the performance of Heranba Industries in comparison to its peers on some key aspects for FY 2020:
|Profit After Tax (INR crore)||Long-term Debt to Equity Ratio||Return on Net Worth (RoNW)|
|Rallis India Limited||185.47||0.02%||13.76%|
|Sumitomo Chemical India Limited||205.63||0.01%||20.17%|
|Bharat Rasayan Limited||157.64||0.06%||32.41%|
Since this is not a comparison between direct peers, this table can give you an idea of where Heranba stands with respect to the peer group listed above. With no long-term debt and a promising RoNW ratio, Heranba is steadily growing into an industry leader.
4. Opportunity to investors – valuation of the IPO
Let’s look at the valuation factors of Heranba Industries in comparison with its peers:
|Earnings Per Share||P/E Ratio|
|Rallis India Limited||9.51||28.77|
|Sumitomo Chemical India Limited||4.10||77.38|
|Bharat Rasayan Limited||371.03||26.87|
As per the peer group selected by Heranba in the RHP, the average PE Ratio is 60.99. If we look at the price band of Heranba Industries IPO and calculate the P/E Ratio at the higher price of Rs.627, then we get a value of P/E Ratio of 25.05. This is lower than the industry average.
5. Risk Factors
- There are outstanding legal proceedings involving the Company, Promoters, and certain Directors that may adversely affect its business, financial condition, and results of operations.
- Heranba’s top ten customers constituted not more than 22.03% and 20.85% of its sales for the six months period ended September 30, 2020, and for Fiscal 2020, respectively, both in the domestic and the international markets. Its top five domestic customers across product categories constituted 9.02%, 8.60%, 6.57%, and 7.36% of its total revenue for six months period ended on September 30, 2020, and for Fiscal 2020, 2019, and 2018, respectively. Its top five international customers across product categories constituted 13.04%, 9.60%, 12.68%, and 11.50% respectively, of its total revenue for six months period ended on September 30, 2020, and for Fiscal 2020, 2019, and 2018, respectively. The absence of large customers and dependence on smaller customers increases the uncertainty of demand which may have an adverse impact on its business operations and financial performance.
- Heranba has not entered into long-term agreements with its customers for purchasing its products nor for the supply of raw materials with its suppliers. The company is subject to uncertainties in demand and there is no assurance that these customers and suppliers will continue to purchase its products or sell raw materials to it or that they will not scale down their orders. This could impact the business and financial performance of the company.
- Raw materials constitute a significant percentage of Heranba’s total expenses. Any increase in prices and any decrease in the supply would materially adversely affect its business.
- The company is required to obtain and/or renew certain registrations from the CIB&RC for its products manufactured in India. It also registers its products in overseas jurisdictions through its International Distribution Partners to enable exports to such countries. Any failure to successfully register its products in India or the international markets may affect its results of operations and financial condition.
Promoters of Heranba Industries Limited IPO
- Sadashiv K. Shetty.
- Raghuram K. Shetty.
Things to Keep in Mind Before Investing in the Heranba Industries IPO
Here are some things that you need to keep in mind before investing in the Heranba Industries IPO:
- The product portfolio of Heranba has many known brands
- The company is exporting to developed countries with good margins. This offers an opportunity to generate strong revenues in the future.
- The Agrochemicals industry is highly driven by new products on the back of research and development. Hence, any new product entering the segment can hurt Heranba’s business.
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