The Indian stock market is looking highly bearish if we see the daily chart of Nifty 50. Yet, one company is gaining a lot of attractions in the IPO market. We are talking about Heranba Industries which operates in the ever-growing Agrochemical sector. The company has launched its IPO today. Let’s see what they have for us in store.
About Heranba Industries Limited
Heranba Industries Limited is a crop protection chemical manufacturer which is based in Gujarat. The company was incorporated way back in 1992. The company is not only restricted to one domain but is available in five different verticals.
These five verticals are :
1. Domestic sales of Technicals to companies
2. Technicals exports
3. Domestic sales of Branded formulations under its own brand name
4. Formulations export
5. Manufacturing and selling of insect control chemicals.
One of the strengths of the major company is its strong national and international network. It has more than 8,000 dealers across 16 states in India. Talking about the overseas market, Hernba exports to more than 60 countries.
As a crop protection entity, Heranba is into making a lot of pesticides like insecticides, fungicides, herbicides, and other pest control products. It is India’s leading domestic producer of synthetic pyrethroids like cypermethrin, deltamethrin, lambda-cyhalothrin, etc. They have three manufacturing units in all. Two of these three units are involved in the production of various intermediates. Heranba Industries will be the eighth company to take the public route in 2021. Let’s find out more about the IPO.
About the IPO
The IPO of Heranba Industries will open on 23rd February and will close on 25th February. The total issue size of the IPO is Rs 625.24 crore. The fresh issue aggregates up to Rs 60 crore. The price band of the IPO is Rs 626 – Rs 627 per equity share. You have to apply for a minimum of 23 Shares (1 lot). The upper limit to the number of lots you can apply for is 13, which means, 299 shares. The minimum an investor has to pay for this IPO is Rs 14,421. Only apply for 1 lot as the IPO will most likely be oversubscribed.
Currently, the promoters of the company have 98.1% of the total holdings. After the IPO, this will decrease to 74.1%. This tells that even after the IPO, promoters of the company will have a stronghold on the organisation. The promoters of the company are Sadashiv K. Shetty and Raghuram K. Shetty.
The allotment date and listing date for the IPO are 2nd March and 5th March 2021 respectively. According to Heranba’s red herring prospectus Sadashiv K Shetty, Raghuram K Shetty, Babu K Shetty and Vittala K Bhandary cumulatively are selling 90.15 lakh equity shares.
Heranba Industries will use the net proceeds from the IPO in three ways. Firstly, it will be used to meet public issue expenses. Secondly, a part of the proceeds will help in matching business working capital requirements. Lastly, the remaining sum will be used to meet general corporate purposes.
|.||30 September 2020||31 March 2020||31 March 2019||31 March 2018|
|Profit after Tax||66.31||97.75||75.40||46.87|
As seen in the table above, Heranba Industries has recorded higher net profits over the last three years. In fact, they have doubled their profits in just two years (from 2018 to 2020). This was achieved even though the company failed to earn a higher revenue as compared to the previous year. A fall in revenue can be expected due to the Covid-19 pandemic.
If we look at the company’s first-half performance for this fiscal year, they are on track to record even higher profits by the end of next month. Not only, this, but we might also see them having this year as the highest revenue-generating year. Heranba has consistently invested in its operations which can be seen in its increasing total assets numbers.
The company has a sound Price to Earnings ratio of 25 in comparison to the industry’s P/E ratio of 24.7, meaning that it is not overvalued at first glance. They have a net profit margin of over 10% in 2020 which was at just above 6% in 2018, so that is improving. Their EPS (earnings per share or profits generated per share) has doubled from 12 in 2018 to 25.03 in 2020. It is expected that this EPS might rise over 30 by the end of FY 21-22.
- Coronavirus pandemic has shown how pivotal it is to enter into long-term contracts with customers and suppliers. Heranba Industries lacks a good number of long-term contracts. Thus, there is an uncertainty to the demand of the products as well as the supplies of the raw materials.
- As the company is exposed to international markets, it might be impacted by the sanctions worldwide.
- Heranba Industries has failed to follow various sections of the Companies Act in the past. Any such violation in the future can impose negative sentiments in the mind of the investors.
- Almost 30% of the company’s revenue comes from China. Any future stoppage in business deals between India and China cannot be neglected. Thus, a massive political risk for the entity.
- Many of the products of the company come under the domain of seasonal products. Thus, any imbalance caused in seasons can negatively impact the company’s sales.
This agrochemical company has, without a doubt, a strong financial outlook. A fundamentally robust company is considered a good pick for long-term investment. The highest contribution to Heranba’s revenue in 2020 came from technical exports (36.48%), followed by domestic institutional sales of technicals (31.64%). It has a high return on equity of 30.4%.
The best part is, the company has a debt to equity ratio of just 0.13. That means the company has a very low amount of debt on its books. But while understanding the pros, do take notice of its risk factors. Any impact on their business operations can heavily impact their numbers.
If you are bullish on the industry, which you should be considering the governments will always support it, then Heranba can be a good addition to your portfolio. If you are just looking for quick listing gains, make sure that the institutional portion of the IPO is oversubscribed.
Heranba Industries filed its draft papers last September. You can find it here. What are your opinions on this IPO? Will you be applying for it? Let us know the reasons for your decision in the comments section below!