Heranba Industries Ltd. - IPO - Sound Financials & Promising Outlook Augur Well

About the Company

Heranba Industries Ltd. (HIL), incorporated in May'92, is a crop protection chemical manufacturer, exporter and marketing company based out of Vapi, Gujarat. The company, with three manufacturing units and aggregate capacity of 14,024 MTPA, manufactures Intermediates, Technicals and Formulations and is one of the leading domestic producers of synthetic pyrethroids like Cypermethrin, Alphacypermethrin, Deltamethrin, Permitherin, Lambda Cyhalothrin etc. Currently, HIL is present in the entire product value chain of agrochemicals industry i.e. Intermediates, Technicals and Formulations. It has diversified its business from manufacturing and selling of Intermediates to manufacturing, marketing and selling of Technicals and Formulations. Majority of its current Intermediates production is utilized for captive consumption for manufacturing Technicals. HIL has more than 9,400 dealers/distributors supported by 21 stock depots spread across 16 states and one UT in the country in order to meet the demand of its products from farmers. The company also exported its products to more than 60 countries in Latin America, CIS, Middle East, Africa, Asia and South East Asia in FY20.

Financials in Brief

HIL's financials have been relative better compared to its peers. While revenue recorded 13% CAGR through FY18-FY20, EBITDA and net profit clocked 25% and 44% CAGR, respectively during the same period. Further, continued increase in sales contribution from new value-added products enabled HIL to witness consistent improvement in EBITDA margins, which improved from 12.5% in FY18 to 16.2% in 1HFY21. Further, cash flow generation has been quite steady with cumulative OCF and FCF of Rs2.5bn and Rs1.6bn, respectively through FY18-1HFY21. Asset Turnover ratio too is quite commendable at 5.8x in FY20.

Our View: SUBSCRIBE

The IPO is valued at 25.7x and 18.9x EPS for FY20 and annualized FY21, respectively, which looks to be reasonable. Given huge opportunity in domestic and international space in Agri and Chemical space along with growing importance of domestic manufacturer globally, growth trajectory of HIL is expected to sustain, in our view. Additionally, HIL already has built sufficient resources in terms of land and other resources to set-up additional manufacturing unit, which bodes well. Notably, its peer like Rallis India and Sumitomo Chemicals are trading at significant premium to HIL despite HIL has displayed superior earnings growth compared to peers. Hence, we recommend SUBSCRIBE to this issue.

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Source : Equity Bulls

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