Heranba IPO opens on Tuesday; group entity default only negative

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NEW DELHI: The Rs 625 crore IPO of Gujarat-based Heranba Industries is all set to hit the market on Tuesday. The issue comprises fresh issue of up to Rs 60 crore and an offer for sale (OFS) of up to 9,015,000 equity shares, which would be sold in the price band of Rs 626-627, implying a post-issue implied market-cap of Rs 2,505-2,509 crore.

The IPO of the crop protection chemicals manufacturer is being offered at 22.67 times its trailing 12-month earnings per share (EPS). Analysts find the issue attractively priced, but the promoters had some corporate governance issues, which investors may take into account while considering the issue.

Unlisted shares of the company are currently commanding a
33 per cent premium in the grey market.

Heranba Industries is an agro-chemicals manufacturer, exporter and marketeer based out of Vapi, Gujarat, with corporate and administration offices in Mumbai.

It produces intermediates, technicals and formulations and is the producer of synthetic pyrethroids like cypermethrin, alphacypermethrin, deltamethrin, permethrin, lambda cyhalothrin, etc.

Domestic institutional sales of technicals contribute 32.99 per cent of revenue, while technical and formulation exports bring in 41 per cent. The rest comes from the branded formulations and public health segments. For the six months ended September 30, the company’s revenues stood at Rs 618.35 crore.

Geojit Financial Services has assigned a ‘subscribe’ rating to the issue on a ‘long-term basis’, considering its strong distribution network, rising export opportunity with healthy margins and profitability. The brokerage said the stock is available at 18.9 times FY21 EPS of Rs 33.20 on an annualised basis, which is reasonable compared with its peers.

Analysts said the adoption of ‘Blue Sky’ program in China i.e. shutdown of agrochemical plants due to green movements, is expected to boost exports of pyrethroids in future. More than half of the global supply of pyrethroids comes from China.

Heranba is a key player for pyrethroids in India with a 20 per cent market share. The company, which generates half of its sales from exports, is looking to enter the highly regulated markets of US and Europe, seeking higher margins for its existing and new line of products.

“The company being one of the leading domestic producers of synthetic pyrethroids has shown strong financial performance. With its in-house R&D team for product development and improvisation, the company is in the process of developing two fungicides, two herbicides and one insecticide for exclusive sale in European markets . The company has bright future prospects. Hence, we recommend investors to subscribe to the issue from a short- and long-term perspective,” said Hem Securities.

Anand Rathi also has a subscribe rating on the issue. It said the company’s dominant position in the pyrethroids market, strong balance sheet, high return on networth (RoNW) of 30.47 per cent and reasonable valuations make the IPO attractive.

The only cloud over the issue has to do with a group firm. Group entity Shakti Bio Science was declared a wilful defaulter in 2017. The promoters have been disqualified from acting as directors of the group company due to non-compliance in filing annual returns. Markets regulator Securities and Exchange Board of India (Sebi) has also issued few administrative orders against the promoters.

Also, Heranba is a co-borrower of a term loan of Rs 35 crore provided to a group entity and will have to bear the liability in case of default.

“Heranba’s return ratios are superior to peers (RoE is above 30 per cent). The company has a strong financial position and has been generating positive cash flow. We expect a good listing and expect the company to gain market share and improve margins,” Angel Broking said.

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