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The 8th IPO so far in the calendar year 2021 is here! Agrichemicals manufacturer Heranba Industries' Rs 625-crore initial public offering (IPO) will open for subscription Today.
The company had originally filed for its IPO in September 2018. It received the market regulator’s approval in February 2019 but failed to launch the issue owing to unfavourable market conditions and volatility on account of general elections.
Let's talk about 10 things you must know before subscribing.
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Incorporated in 1992, Heranba Industries Limited is a Gujarat-based crop protection chemical manufacturer. It is one of the leading domestic producers of synthetic pyrethroids like cypermethrin, deltamethrin, lambda-cyhalothrin, etc. The company manufactures different types of pesticides including insecticides, fungicides, herbicides, and other pest control products.
It has more than 9,400 dealers with access to 21 depots across 16 states and one union territory for distribution of products. It exports to more than 60 nations in Latin America, Commonwealth of Independent States, Middle East, Africa, Asia and South East Asia in the fiscal ended March 2020.
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2) IPO Details:
This IPO is a fresh issue of Rs 60 crore and an offer-for-sale of a cumulative 90.15 lakh equity shares by its promoters Sadashiv K Shetty, Raghuram K Shetty, Babu K Shetty and Vittala K Bhandary. The price band has been fixed at Rs 626-627 apiece. Here are the details:
IPO Date: Feb 23, 2021 - Feb 25, 2021
Face Value: ₹10 per equity share
IPO Price: ₹626 to ₹627 per equity share
Market Lot: 23 Shares
Listing At: BSE, NSE
Finalisation of Basis of Allotment: Mar 02, 2021
Initiation of Refunds: Mar 03, 2021
Credit of Shares to Demat Acct: Mar 04, 2021
IPO Shares Listing Date: Mar 05, 2021
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The company exports and markets crop protection chemicals. It domestically produces:
- Pyrethroids—synthetic chemical compounds procured from Chrysanths flowers—such as cypermethrin, alphacypermethrin, deltamethrin, permitherin and lambda cyhalothrin, among others, used to control pests in farms, homes, communities, restaurants, hospitals and schools.
- Herbicides, fungicides and public health products for pest control.
Heranba has fully integrated and modern manufacturing facilities with an in-house research and development unit. The company has three independent manufacturing units — two involved in production of various intermediates, while the third is purely a formulation and packing facility.
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4) Financials & Key Ratios:
Heranba Industries reported a massive 29.6% increase in profit at Rs 97.75 crore for the financial year ended FY20 compared to FY19 due to lower tax cost and higher other income. But revenue from operations fell 5.3% to Rs 951.37 crore compared to FY19. Profit in FY19 surged 60.9% to Rs 75.40 crore compared to FY18, on revenue of Rs 1,004.4 crore that increased 34.8% over FY18.
In the six-month period ended September 2020, the profit jumped 24.5% to Rs 66.31 crore and revenue rose 23.3% to Rs 618.34 crore compared to the corresponding period.
Heranba’s revenue fell 5.3% in the fiscal ended March 2020, but earnings before interest, tax, depreciation and amortisation rose 1.6%, keeping margin stable above 13.5%. Exports account for 40% of the company’s overall revenue, with China being its biggest market.
Considering the P/E valuation, on the upper end of the price band, the stock is priced at pre issue P/E of 18.46x on its estimated annualised FY21 EPS of Rs 33.96. Post issue, the stock is priced at a P/E of 18.92x on its EPS of Rs 33.14. Looking at the P/B ratio at Rs 627 the stock is priced at P/B ratio of 6.42x on the pre issue book value of Rs.97.62 and on the post issue book value of Rs 126.85 the P/B comes out to 4.94x.
Considering the company’s dominant position in pyrethroids market, strong balance sheet, high RoNW of 30.47% as per FY20 financial statements, strong management and reasonable valuations make the IPO worth subscribing.
6) Grey Market premium:
(As on Feb 23, 2021) The grey market premium of Heranba Industries shares is at 150 Rs. or 23% from the IPO price.
7) Peer comparison:
The company's listed peers are Rallis India, Sumitomo Chemical, Bharat Rasayan among others. At the upper price band, Heranba’s price-to-earnings is in line with Rallis India Ltd. and Bharat Rasayan Ltd. The company is also commanding the highest return on net worth compared to peers.
The net proceed from the IPO will be used towards following purposes:
- To meet business working capital requirements.
- To meet general corporate purposes.
- To meet public issue expenses.
- The company has a presence in a wide range of products across the entire value chain of synthetic pyrethroids.
- The company has obtained product registrations for 371 technicals and formulations in the domestic and international markets enabling global outreach.
- The company has a strong product portfolio and a wide distribution network.
- Heranba has a diversified and stable customer base including Sumitomo Chemical India, Sulphur Mills, Biostadt India, Crystal Crop Protection, NACL, Sharda Cropchem, Meghmani Organics, PI Industries, Krishi Rasayan Group, Agro Life Science Corporation and Shanghai Agricare Chemical, China.
- The company has experienced promoters and management. Raghuram K Shetty is the Promoter and Managing Director of the company. He has experience of more than three decades in the agrochemicals industry.
- The company has neither entered into long-term agreements with customers for purchasing products nor with suppliers for raw materials. Hence, it’s subject to uncertainties in demand. Raw materials constitute nearly 70% of the company’s total income.
- Some of the group companies have incurred losses in the past and entities such as Insunt Trading Pvt., Herana Agro Science and Shakti Bio Science had negative net worth that may hurt reputation and business. Heranba Agro Science and Insunt Trading’s net worth was positive in FY19.
- The company has in the past entered into related-party transactions with promoters and promoter group entities and may continue to do so in the future.
- There can be no assurance that business will not be impacted by international sanctions.
- Heranba’s top five institutional clients constituted 14.89% of its revenue in the first half of financial year ending March 2021. It does not have long-term agreements with institutional customers.
- The company has failed to comply on various sections of the Companies Act in the past leading to regulatory actions and monetary penalties imposed by the regulatory authorities.
- Its promoters received statutory warnings from SEBI in 2011 as part of administrative warnings issued to 780 entities in trading activity of Crazy Infotech Ltd. in 2007-2008. The promoters and directors, however, were not charged by the market regulator but advised to be more careful.
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