Heranba IPO opens today: Should you subscribe to the issue?

The Rs 625-crore initial public offering (IPO) of Heranba Industries opened for subscription on Tuesday, February 23, 2021, at a price band of Rs 626-627 per share. The issue closes on Thursday, February 25, 2021.

The issue got subscribed 0.26 times on its opening day. The public issue was subscribed 0.51x in the retail category, 0.00x in the QIB category, and 0.01x in the NII category. The company collected Rs 187.50 crore from 18 anchor investors yesterday.

The basis of share allotment is expected to be finalised on March 2 and shares are likely to be credited to Demat accounts of investors on March 4. Equity shares are proposed to be listed on BSE and National Stock Exchange.

IPO by the Gujarat-based agrichemicals manufacturer comprises an offer for sale (OFS) of up to 90.15 lakh (90,15,000) equity shares, where investors can bid in the lot of 23 equity shares and multiples thereof.

As per the company's DRHP, the net proceeds from the IPO will be utilised to finance the company's working capital requirements and general corporate purposes.

Post the IPO, the promoters and promoter group shareholding will come down to 74.15 per cent from 98.85 per cent. Meanwhile, the public shareholding will rise to 25.85 per cent from 1.15 per cent.

Incorporated on May 17, 1992, the crop protection chemicals manufacturer is one of the leading domestic producers of synthetic pyrethroids, which exports its products to more than 60 countries in the world.

Emkay Global Financial Services and Batlivala & Karani Securities India are the book running lead managers to the IPO while Bigshare Services is the registrar of the issue.

Expert's view

Most analysts term Heranba Industries IPO a good option for listing gains in the short term.

Nirali Shah, Head- Equity Research, Samco Securities said,"Heranba Industries has a strong 19.5% market share in the pyrethroids market and caters to over 60 countries. As of FY20, 49% of its revenues came from the overseas markets which enabled Heranba to sail through the ups and downs locally. Covid-19 also had minimal impact on the company's operations since all agrochemical companies were allowed to run at full capacities. Heranba's revenues have grown at a CAGR of 13% from FY18-FY20 whereas its PAT has grown at a CAGR of 44% during the same period. On top of that it has recorded robust average ROE and ROCE of 31.3% and 56% respectively for the last three years. The company has also been reducing debt on its books and trades at a reasonable valuation multiple of 25x P/E compared to its peers. The company faces high risk due to shoot up in raw material prices which forms a whopping 70% of its expenses. Moreover, it faces high competition risk from peers such as Rallis India, Bharat Rasayan and Sumimoto Chemical.

She added,"But despite these risks, Heranba continues to capture a dominant position with sound fundamentals and diversification capabilities. Therefore, we recommend investors to subscribe to this IPO for listing gains. However, investors should also be cautious about the prevailing market sentiment and their own liquidity before aggressively subscribing to all IPO."

Religare Broking said," On the valuation front, the company is trading at a PE of 25x EPS FY20, which is at a discount to the peers. We have a positive view on the company for the long term, given its strong product portfolio, wide distribution network, valued customers and healthy growth opportunity in the sector. Investors having a long-term view can subscribe to the issue."

Ventura Securities said in its note today," During FY18-20, Heranba's revenue grew at 13.3% CAGR to Rs. 951 cr in FY20. Over the same period, its EBITDA grew at a CAGR of 21.4% to Rs. 129 cr in FY20 while the net profit grew at a CAGR of 44.4% to Rs. 98 cr in FY20. Heranba is in the process of developing 2 Fungicides products, 2 Herbicides products and 1 Insecticides product, for which research and development tests have been initiated. The company has more than 9,400 dealers/distributors supported by 21 stock depots spread across 16 states and 1 union territory in India. At the upper price band of the IPO, Heranba is valued at 25.7x FY20 PE (post issue)"

Keshav Lahoti-Associate Equity Analyst, Angel Broking said, "Heranba Industries has a robust past track record of performance. In the future, we expect the company to gain market share and improve margins. The company has priced its issue at 22.1x PE on a trailing basis, which is quite reasonable by looking at the future prospects of the Company. Its 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%). The company has a strong financial position and has been generating positive cash flow. We expect a good listing for the Company. We are positive on the long term prospects of the Company, we recommend "SUBSCRIBE" to the Heranba Industries IPO for long term as well as for listing gains."

Axis Capital said in its note, "The company has 3 manufacturing and packaging facilities in and around the industrial belt of Vapi, Gujarat having 174 reactors with an aggregate manufacturing capacity of 14,024 MTPA. There is no significant impact on the operations of Heranba and the Company is poised to generate growth in the operations. The impact of the lockdown to the Company was minimal as the company deals with Agro Products and the Government gave relaxation to the Agro Products."

Kotak Securities said in its note," HIL's promoters have more than thirty (30) years of individual experience in the agrochemicals sector and are adequately qualified to manage the operations of the Company from manufacturing, exports and marketing. Its Promoters are completely involved in the day to day affairs of the Company and future business strategies. Various domestic and multinational agrochemical companies operating in and outside India are HIL's customers for the Technicals manufactured by the company. HIL's core strength lies in the R&D of Active Ingredients for creating new Formulations, preparing dossiers for national and international registrations of these new Formulations."

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