Heranba Ind IPO review (May apply)

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Review By Dilip Davda on February 16, 2021

•    HIL is in the business of manufacturing and marketing crop protection chemicals.
•    The company exports its products to more than 60 countries.
•    It currently has 50% revenue from exports and this is likely to rise going forward.
•    HIL is one of the leading manufacturers of synthetic pyrethroids variants.
•    The issue is reasonably priced and worth investing in with long term perspectives.

PREFACE:
This company originally filed its DRHP in October 2018 for IPO through Guiness Corporate Advisors Pvt. Ltd. and also got SEBI node, but the suspension of Guiness group under penal action derailed their plans for the soft launch of IPO in early 2019. After changing the guards i.e. appointing two merchant bankers it refilled the DRHP in September 2020 and got green signal soon thereafter and is finally seeing the light of the day. A detailed review of this IPO is given hereunder:

ABOUT COMPANY:
Heranba Industries Ltd. (HIL) is a crop protection chemical manufacturer, exporter and marketing company based out of Vapi, Gujarat. The company manufactures Intermediates, Technicals and Formulations. It is one of the leading domestic producers of synthetic pyrethroids like cypermethrin, alphacypermethrin, deltamethrin, permitherin, lambda-cyhalothrin etc. HIL's Pesticides range includes insecticides, herbicides, fungicides and public health products for pest control.

It's 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 own distribution network in India; (d) Formulations Exports: Export of Formulations in bulk and customer-specified packaging outside India; and (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. Having started its manufacturing activities in 1996, HIL has expanded and diversified its product range and has reached its current status.

The company has its in-house R&D team for product development and improvisation which is well supported by product registration team. Its R&D facilities at Unit I and II are recognized by the Department of Scientific and Industrial Research, Ministry of Science & Technology, Government of India (DSIR). HIL's new R&D facility at Unit III, Sarigam has become operational from October 2020. The company exports its products to more than sixty (60) countries in Latin America, CIS, Middle East, Africa, Asia and South East Asia in Fiscal 2020. As of November 15, 2020, HIL's International Distribution Partners have successfully obtained 371 registrations of Technicals and Formulations in 41 countries across the Middle East, CIS, Asia, South East Asia and Africa. It has presently filed 172 registration applications for Technicals and Formulations products which are pending before the regulatory authorities in respective countries.

HIL's key Branded Formulations like 'Jayam', 'Progress Plus', 'Param', 'Cypraplus', 'Dyken', 'Mantra', 'Astron', 'Signor', 'Prompt', 'Cypra', 'Heraban', 'Sarag', 'Alpha Shakti', 'Henoxa' 'Glory', 'Chakde', 'Heraquat', 'Zinta', 'Glory 71', 'Shera', 'Pendant', 'Atria', 'Macamba', 'Sulphy', 'Mask', 'Silicon Plus', 'Propizole', 'Vintage', 'Exort', 'Tulip', 'Mandy', 'Silicon', 'Shado', 'Heraphon', 'Temper' and 'Rat Kill' command a strong brand recall in India.

HIL's International Distribution Partner in Europe has already received registration for Deltamethrin Technical. Company's other International Distribution Partner has incorporated a company, Heranba Europe S.L. wherein registration of Alpha Cypermethrin Technical has been recently received. Applications for registration of Lambda Cyhalothrin Technical and Metribuzin Technical filed by its International Distribution Partners are in process before the relevant authority in EU.

The company is in process of developing two (2) products of Fungicides, two (2) products of Herbicides and one (1) product 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. India has emerged as the largest pyrethroid manufacturer over the years. More than half of the global demand for Pyrethroids comes from China, after importing intermediates from India, which is used to produce pyrethroid.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital (Rs. 50 cr.) and general corpus fund needs, HIL is coming out with its maiden combo IPO of fresh equity issue worth Rs. 60 cr. and an offer for sale of 9015000 shares. It has fixed a price band of Rs. 626-Rs. 627 per share for shares having a face value of Rs. 10 per share and mulls mobilizing Rs. 624.24 cr. to Rs. 625.24 cr. (based on lower and upper price bands). The Minimum application is to be made for 23 shares and in multiples thereon, thereafter.  HIL will be issuing 956938 fresh shares (based on upper price band). Thus the overall issue size will be 9971938 equity shares. The issue opens for subscription on February 23, 2021, and will close on February 25, 2021. The issue constitutes 24.92% of the post issue paid-up capital of the company. Allocation of IPO quota is 50% for QIBs, 15% for HNIs and 35% for Retail investors.

Having issued initial equity at par, HIL issued further equity in the price range of Rs. 100 to Rs. 200 per share (FV of Rs. 10 per share) between March 2006 and May 2015. It has also issued bonus shares in the ratio of 1 for 2 in September 1997, 1 for 1 in May 2014 and 4 for 1 in July 2018. The average cost of acquisition of shares by the promoters and selling shareholders is Rs. 0.67, Rs. 1.00, Rs. 1.33, Rs. 1.79 and Rs. 20 per share.

HIL's current paid-up equity capital of Rs. 39.06 cr. will stand enhanced to Rs. 40.01 cr. Based on the upper price band of the issue, the company is looking for a market cap of Rs. 2508.84 cr.

Book Running Lead Managers for this issue are Emkay Global Financial Services Ltd. and Batlivala & Karani Securities India Pvt. Ltd. (B&K) while Bigshare Services Pvt. Ltd. is the registrar to the issue. Post allotment, shares will be listed on BSE and NSE.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, HIL has posted total income/net profits of Rs. 750.41 cr. / Rs. 46.88 cr. (FY18), Rs. 1011.84 cr. / Rs. 75.40 cr. (FY19) and Rs. 967.91 cr. / Rs. 97.75 cr. (FY20). For the first half of FY21 ended on September 30, 2020, it has earned a net profit of Rs. 66.31 cr. on a turnover of Rs. 619.21 cr. The company did not witness any severe impact of COVID-19 pandemic as expressed in the performance. According to management, thrust for new value-added new products helped the company for earning higher margins in the last two fiscals and such trends will continue going forward.

For the last three fiscals, HIL has posted an average EPS of Rs. 20.95 and an average RoNW of 31.22%. The issue is priced at a P/BV of 6.42 (at the upper price band) based on its NAV of Rs. 97.62 per share as of September 30, 2020.

If we annualize latest earnings and attribute it on post-issue fully diluted equity capital, then asking price is at a P/E of around 18.91 against an industry average of 60+.

COMPARISION WITH LISTED PEERS:
As per offer documents, HIL has shown Rallis India, Sumitomo Chemicals, Bharat Rasayan and Punjab Chemicals and Crop as its listed peers. They are currently trading at a P/Es of around 25.35, 48.26, 27.37 and 24.96 (as of 16.02.2021). However, they are not truly comparable on an apple to apple basis.

MAJOR CONCERNS:
The company is engaged in the business that generates more hazardous effluents and thus changes in Government policies for such segments is a major concern. However, management has clarified that it engages itself in regular dialogues with regulatory bodies and follows the guidelines from time to time.

DIVIDEND POLICY:
The company has paid a dividend for the last four fiscals including the ongoing one. For FY18 it paid 55% on pre-bonus equity. After that, it paid a dividend on ex-bonus equity at 10% for FY19 and FY20 and 15% for FY21. Thus the company is confident of maintaining prudent dividend policy going forward.

BRLM'S TRACK RECORDS:
The two Book Running Lead Managers associated with the offer have handled just 1 public issue (from B&K) in the past three years and it closed above the issue price on listing date. This is the first mandate from Emkay Global Financial.

Heranba Industries IPO FAQs