HMA Agro IPO review (May apply)

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Review By Dilip Davda on June 13, 2023

•    HAIL is the star export house for frozen buffalo meat in global markets.
•    It has been posting steady growth in its bottom lines year over year.
•    Based on FY23 earnings, the issue appears reasonably priced.
•    HAIL adheres to the regulatory norms specified for its business.
•    Well-informed/cash surplus investors may park funds for medium to long-term rewards.

PREFACE:
There is a hue and cry for this IPO ever since it was announced. HAIL is one of the three top exporters of frozen buffalo meat and this segment is under regulatory norms with regulators like APEDA, FSSAI, SGS, QMS, EMS FSMS etc. While there is an uproar about this company's business on cow meat, the management clarified this and said that they do not have anything related to cows, but they are exporting frozen buffalo meat after obtaining necessary certifications from the regulatory bodies. Its total revenue has over 91% of exports of buffalo meat and the rest on exports of agro products. 

Since HAIL has gained popularity in global countries for its quality products, the company has also started exporting Agri products like Basmati etc., hoping that their customers may opt for these products as well being the FMCG items of daily consumption.  As the company is doing exports in Dollar currency, it is gaining addition to its other income due to forex volatility and hedging operations. According to the management, the company has a market share of 10% in the total buffalo meat exports from India - the maximum forex earner. At present, the company is diluting only around 16% and later on it will consider further dilution of 9% within the stipulated period.

ABOUT COMPANY:
HMA Agro Industries Ltd. (HAIL) is a three-star export house recognized by the Government of India. It's a flagship company of the HMA group which has been in the meat industry for over four decades. HAIL is currently among the largest exporters of frozen buffalo meat products from India and it accounts for more than 10% of India's total export of frozen buffalo meat (Source: Brickworks Analytics Report). 

Its products are mainly packaged under the brand name "Black Gold", "Kamil" & "HMA" and exported to over 40 countries all over the globe. HAIL deals in buffalo meat and allied products. Unlike beef or pork, buffalo meat is free from religious constraints and has the added advantage of low fat and cholesterol. The meat produced for export is in the form of deboned and deglanded frozen halal buffalo meat.

HAIL (including its subsidiaries) owns four fully integrated packaged meat processing plants which are located at Aligarh, Mohali, Agra and Parbhani and are in the process of setting up a fifth fully integrated-owned meat product processing unit in Haryana. It is also in the advanced stages to acquire an additional plant at Unnao and is expected to be completed this acquisition by Q2 of FY 2023-24. These would make HAIL's total in-house meat product processing capacities more than 4,00,000 metric tons p.a. spread over six different owned plants by FY 2023-24. Further, it also owns two additional secondary-level meat processing units at Jaipur and Manesar. The company meets stringent quality standards as defined by regulators involved in the process and gets certified for the same.

The procurement of raw material is done by the company and then this raw material is sent to various processing units to process the raw material into final products and it exports these branded finished products through its own distribution channels. Most of these processing units are owned by its subsidiaries and third parties own some. These operations cost HAIL less than 1% of its consolidated revenues.

In order to take advantage of its robust export business and well-established distribution channels across 40 countries, the company has recently diversified its product portfolio by adding Frozen Fish Products, Basmati Rice and planning to start Poultry and other Agri products as business verticals. HAIL intends to become one of the most well-recognized food product exporters in India. As of December 31, 2022, it had 926 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a combo book-building IPO of a fresh equity issue worth Rs. 150 cr. (Approx. 2564100 shares at the upper cap) and an offer for sale (OFS) of Rs. 330 cr. (approx. 5641025 shares at the upper cap) to mobilize Rs. 480.00 cr. (approx. 8205125 shares at the upper cap). It has announced a price band of Rs. 555 - Rs. 585 per share of Rs. 10 each. The issue opens for subscription on June 20, 2023, and will close on June 23, 2023. The minimum application is to be made for 25 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 16.39% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 135.00 cr. for working capital and the rest for general corporate purposes. 

Aryaman Financial Services Ltd. is the sole Book Running Lead Manager (BRLM) and Bigshare Services Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 50.00 - Rs. 100.00 between August 2010 and July 2011. It also issued bonus shares in the ratio of 325 for 100 in July 2021 and 2 for 1 in October 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.65, Rs. 0.78, Rs. 1.13, Rs. 1.29, Rs.1.45, and Rs. 1.56 per share. 

Post-IPO, HAIL's current paid-up equity capital of Rs. 47.51 cr. will stand enhanced to Rs. 50.08 cr. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 2929.50 cr. 

FINANCIAL PERFORMANCE:
On the financial performance part, for the last three fiscals, HAIL has (on a consolidated basis) posted a turnover/net profit of Rs. 2416.61 cr. / Rs. 45.90 cr. (FY20), Rs. 1720.40 cr. / Rs. 71.60 cr. (FY21), and Rs. 3138.98 cr. / Rs. 117.62 cr. (FY22). For 9M of FY23, it earned a net profit of Rs. 113.24 cr. on a turnover of Rs. 2417.82 cr. Though the company suffered a minor setback in top line during the pandemic year, it posted improved margins. With a new fully integrated plant and equipment, it is aiming to maintain growth in its margins going forward. 

For the last three fiscals, HAIL has reported an average EPS of Rs. 18.83 and an average RoNW of 28.78%. The issue is priced at a P/BV of 6.14 based on its NAV of Rs. 95.33 as of December 31, 2022, and at a P/BV of 4.86 based on its post-IPO NAV of Rs. 120.41 per share. (at the upper band). 

HAIL's EBIDTA margins have increased from 3.25 % in FY 2020 to over 5.60 % in FY 2022. If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then and asking price is at a P/E of 19.40. The issue appears reasonably priced. 

DIVIDEND POLICY:
The company has paid a dividend of 7% for FY20 and after skipping for FY21 and FY22, it paid a dividend of 20% for FY23 till the filing of this offer documents. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, there are no listed peers for HAIL. 

MERCHANT BANKER'S TRACK RECORD:
This is the 18th mandate from Aryaman Financial in the last four fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at a discount, 2 at par and the rest with premiums ranging from 0.22% to 27.18% on the listing day. 

HMA Agro Industries IPO FAQs