Heranba Industries Limited IPO Financial Analysis (Subscribe)

Heranba Industries Ltd Business Overview

Incorporated in 1992, Heranba is a crop protection chemical manufacturer, exporter, and marketing company based in Vapi, Gujarat. The company manufactures Intermediates, Technicals, and Formulations. The company is a leading domestic producer of synthetic pyrethroids like cypermethrin, alphacypermethrin, deltamethrin, permethrin, lambda-cyhalothrin, etc. The pesticides range includes insecticides, herbicides, fungicides, and public health products for pest control. The company exports the products to more than sixty (60) countries in Latin America, CIS, Middle East, Africa, Asia, and South East Asia in Fiscal 2020.

Heranba has three 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.

The company has an in-house R&D team for product development. Heranba’s new R&D facility shall become operational from Dec 2020. It is in process of developing 2 products of fungicides, 2 products of herbicides and 1product of Insecticides, for which research and development tests have been initiated, for exclusive sale to the European markets after registration with the regulatory authority in EU.

Strengths

Leading domestic producers of synthetic pyrethroids. Offers a wide range of products across the entire value chain of synthetic pyrethroids.
Product registrations and wide distribution network in the domestic and international markets enabling global outreach.

Challenges

Entering the highly regulated markets of the USA and Europe- Registration in the USA and EU of a new product generally takes 2-4 years and involves a lengthy and tedious process of submissions, representations, and reports with the respective regulatory authorities before approval is finally received from them.

The R&D in the agrochemical sector involves a long gestation period and high capital requirements. In general, it takes an investment of $100-350 Million, along with a period of 10 years, to develop a new market for agrochemicals.

Financial Review of Heranba Industries Ltd

Heranba earned revenues of Rs 619.21 crore in H1FY21. The company’s PAT was Rs 66.31 crore in the corresponding year. Total revenues reduced marginally by 4% in FY20 to Rs 967.91 crore as against Rs 1011.84 crore in FY19. Though PAT in FY20 improved to Rs 97.75 crore from Rs 75.40 crore in FY19. The decrease in revenues was driven by a fall in sales in the last quarter of FY20 due to the lockdown.

The operating and the net margins show an increasing trend being 15.33%, 13.82%, and 12.5% for FY20, FY19, and FY18 respectively. Net margins were 10.10%, 7.45%, and 6.25% for the corresponding years.

Return on net worth is strong at 30.47% and 33.04% in FY20 and FY19 respectively.

Table 1 -Heranba Ltd Financials and Ratios (Amount in Rs Crore)
Title	H1FY21	FY2020	FY2019	FY2018
Total Revenue	619.21	967.91	1011.84	750.41
PAT	66.31	97.75	75.40	46.88
EBITDA	100.14	145.88	138.80	93.13
Total Assets	788.12	624.76	560.44	450.47
Cash and Bank	25.28	3.19	20.97	11.78
Cash generated from Operations	52.31	54.21	87.7	51.95
EBIDTA Margin	16.19%	15.33%	13.82%	12.50%
Net margin	10.71%	10.10%	7.45%	6.25%

Heranba Ltd Valuation and Peer Comparison

Table 2 -Heranba Ltd Valuation and Peer Comparison
Title	Rallis	Sumitomo	Bharat Rasayan	Punjab Chemicals	Heranba
Face Value Per Share	1	10	10	10	10
Total Income for FY20 (INR Crores)	2286	2435	1231	562	967
EPS (as on 18th Feb 2021)	11.37	6.3	-	35.28	25.03
NAV per share	72.51	24.48	1327.73	79.72	82.14
Return on net worth	13.11%	16.75%	27.94%	11.00%	30.47%
P/E (as on 18th Feb 2021)	22.9	47.33	26.87	24.29	25.05
P/B(as on 18th Feb 2021)	3.6	12.19	7.17	10.75	7.63

Table 3 -Heranba Ltd Valuation Parameters
Title	EPS	P/E	NAV	P/BV
Parameters	25.03	25.05	82.15	7.63

Future Outlook and Conclusion

Agrochemicals have gained popularity in the agriculture industry in recent years because they help farmers boost their crop quality and quantity as well. It is expected that the global agrochemicals market would grow at a CAGR of 4.11% during 2020-2025, reaching a value of US$ 73.39 billion by 2025.

Heranba is a leader in the pyrethroid segment. It offers a diversified range of products globally. Increasing revenues, reasonable margins, and future growth prospects of the company are the positives for the company. The IPO appears to be fully priced at P/BV of 7.63 and P/E of 25.05 when compared to its peers. Hence, Investors may subscribe to the IPO.

Reviewer recommends Subscribe to the issue.

Review By CA Priyanka Choudhary on 10th Feb 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

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