Heranba Industries IPO Review – Should you invest?
Heranba Industries IPO would open for subscription on 23rd February, 2021. It is a crop protection chemical manufacturer, exporter and marketing company based out of Vapi, Gujarat. Company has many known brands in its portfolio. The company has filed for an IPO in 2018 and has withdrawn as its merchant banker Guiness Corporate Advisors was penalized by SEBI. Company has now appointed two merchant bankers for this issue and has come up as mainline IPO now. Should you invest in a Heranba Industries IPO? What are the risk factors an investor should keep in mind before applying for this IPO?
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About Heranba Industries Limited
They are a crop protection chemical manufacturer, exporter and marketing company based out Gujarat.
Company manufacture Intermediates, Technicals and Formulations. They are one of the leading domestic producers of synthetic pyrethroids like cypermethrin, alphacypermethrin, deltamethrin, permitherin, lambda cyhalothrin etc.
Its Pesticides range includes insecticides, herbicides, fungicides and public health products for pest control.
Its business verticals include
(a) Domestic Institutional sales of Technicals: manufacturing and selling of Technicals in bulk to domestic companies
(b) Technicals Exports: Exports of Technicals in bulk to customers outside India
(c) Branded Formulations: Manufacturing and selling of Formulations under its own brands through its own distribution network in India
(d) Formulations Exports: Export of Formulations in bulk and customer specified packaging outside India
(e) Public Health: Manufacturing and selling of general insect control chemicals by participating in public health tenders issued by governmental authorities and selling to pest management companies
Heranba Industries IPO Details |
|
|---|---|
| IPO Opening Date | 23-Feb-21 |
| IPO Closing Date | 25-Feb-21 |
| Issue Type | Book Built Issue IPO |
| Face Value | Rs 10 per equity share |
| IPO Price band | Rs 626 to Rs 627 per equity share |
| Market Lot | 23 Shares |
| Min Order Quantity | 23 Shares |
| Listing at | BSE and NSE |
| Issue Size | Total Rs 625 Crores Fresh: Rs 60 Crores Offer for Sale: Rs 565 Crores |
Objects of issue – Heranba Industries IPO
Here are the objects of the IPO issue.
1) Offer for sale (OFS): Under OFS, it would allow selling shareholders to sell equity shares. The company would not get any proceeds from this issue.
2) Fresh Issue: The proceeds from the fresh issue of equity shares would be utilized for working capital requirements and towards general corporate purpose.
Who are the company promoters?
Sadashiv K. Shetty and Raghuram K. Shetty are the promoters of the company.
Company Financials
Here is the summary of the financial information of the company.
| Fin. Year ending |
Total Revenues (Rs in Millions) | Profits after tax (Rs in Millions) |
Profit % |
|---|---|---|---|
| Mar-2018 | 7,504.1 | 468.7 | 6.2% |
| Mar-2019 | 10,118.3 | 754.0 | 7.5% |
| Mar-2020 | 9,679.0 | 977.2 | 10.1% |
| 6 Months ending Sep-20 | 6,192.1 | 663.1 | 10.7% |
Its EPS for FY2020 is Rs 25.03 and last 3 years average EPS is Rs 20.95.
What are the key strengths of Heranba Industries Limited?
Every investor should understand the company’s key strengths so that one can compare with its competitors to know how unique is such company in their business. Their investment decision would change based on these facts. Here are the key strengths of the company.
1) Presence in a wide range of products across the entire value chain of synthetic pyrethroids
2) Product registrations in the domestic and international markets enabling global outreach
3) Strong product portfolio and wide distribution network
4) Diversified and stable customer base
5) Experienced Promoters and Management Team
What are the various strategies of Heranba Industries Ltd?
Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.
1) Enhancing and streamlining production capacities and operations
2) Development of new products at R&D facility at Unit III (Sarigam Unit)
3) Entering the highly regulated markets of USA and Europe
4) Enhancing Formulations & Technicals business in the international markets
5) Branded Formulations and Public Health products segment
Positive Points to invest in this IPO
Here are a few reasons to invest.
1) Heranba Industries is crop protection, chemical manufacturer in India. The company has 50% of its revenue coming through exports. It exports to 60+ countries. It expects that exports to increase in coming years.
2) It has generated stable revenue growth in the last 3 years.
3) It generates consistent and improved margins in the last 3 years. Its margins were at 6.2% in FY2018 Vs 10.1% in FY2020.
4) Company has been paying a consistent dividend in the last 4 years.
Risk Factors of investing in this IPO
These risk factors can impact company revenue and margins which would affect its share price. Investors should go through these points and understand them before investing.
1) There are outstanding legal proceeding involving company, promoters and directors, which may adversely affect its business
2) Its top 5 institutional customers constitute 11% to 15% in the last 5 years. Any loss / reduction in sales would affect its business
3) The company does not have long term agreements with its customers for purchasing products, nor with suppliers for supply or raw materials. Uncertainty in demand can impact the financial performance of the company
4) Raw material constitutes a significant portion of company expenses. Any increase in price or decrease in supply can affect company business.
5) Company is required to obtain or renew certain registrations from CIB&RC for its products manufactured in India. They also need to register for 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 in international markets can affect its operations and financial condition.
6) For complete internal and external risk factors, you can refer the RHP of the company.
| Heranba Industries IPO Dates / Schedule | |
|---|---|
| Offer Open | 23-Feb-21 |
| Offer close | 25-Feb-21 |
| Finalization of Allotment | 02-Mar-21 |
| Initiation of Refunds | 03-Mar-21 |
| Credit to Demat Account | 04-Mar-21 |
| IPO Shares Listing Date | 05-Mar-21 |
Heranba Industries IPO price – Is it under priced or overpriced?
Let us check on IPO price valuations front now.
1) On the upper price band of Rs 627 and EPS of Rs 25.03 for FY20, the P/E ratio works out to be 25x.
2) For the last 3 years average EPS of Rs 20.95, the P/E ratio is 30x.
3) If we annualize its 6 months ending Sep-20 EPS for FY21, the P/E works out to be 18x.
4) Means, the company asking price of Rs 627 the upper price band in the P/E range of 18x to 30x.
5) There are listed peers like Punjab Chemicals which is trading at P/E 95x (Highest) and Bharat Rasayan at P/E 27x (Lowest) and industry average P/E is 60x. We may not be able to do apple to apple comparison here as the business models are little different. However, company issue price of Rs 627 at P/E of 18x to 30x can be considered as reasonably priced.
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Heranba Industries IPO – Should you invest?
Heranba Industries have stable revenue growth.
Its generating consistent and improved margins. The company expects that its exports would increase and generate better margins in coming years.
It has a dividend track record in the last 4 years.
The issue price is reasonably priced.
High risk investors can invest in this IPO for medium to long term perspective.
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Good Analysis! Thank you Suresh
Thank you Raja
best analysis. Great Job
Thank you