Heranba Industries IPO opens tomorrow for subscription and being a chemical player, the company’s offer is likely to attract decent attention. The offer is priced in the range of INR626 – 627 per share with the aim of mobilizing INR625.24 crore at the upper end of pricing spectrum. Through Heranba IPO review, we try to find out positive and negatives aspects of the company’s operations.
Heranba Industries IPO details
| Subscription Dates | 23 – 25 February 2021 |
| Price Band | INR626 – 627 per share |
| Fresh issue | INR60 crore |
| Offer For Sale | 90,15,000 shares (INR564.34 – 565.24 crore) |
| Total IPO size | INR624.34 – 625.24 crore |
| Minimum bid (lot size) | 23 shares |
| Face Value | INR10 per share |
| Retail Allocation | 35% |
| Listing On | NSE, BSE |
Heranba Industries IPO Review: Business Background
Heranba Industries is one of the leading crop protection chemical manufacturers in India and has presence in the entire product value chain of the agrochemicals industry including Intermediates, Technicals and Formulations. This means it has a vast portfolio of products including synthetic pyrethroids like cypermethrin, alphacypermethrin, deltamethrin, permitherin, and lambda cyhalothrin and has a market share of nearly 20% in the domestic market. In terms of business verticals, there are five:
- Domestic bulk sales of Technicals (31.6% of FY2020 sales)
- Technicals bulk exports (36.5% of FY2020 sales)
- Branded formulations (12.7% of FY2020 sales)
- Formulations exports (12.8% of FY2020 sales)
- Insect control chemicals (6.4% of FY2020 sales)
The company also has its own in-house R&D team for product development and improvisation, which is well supported by the product registration team.
It holds registrations for 18 Technicals for manufacture and sale in India, 103 Technicals & Formulations for manufacture and sale in the export markets and 169 Formulations registered for manufacturing and sale in India. In FY2020, Heranba exported its products to more than 60 countries in Latin America, CIS, Middle East, Africa, Asia and South East Asia.
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Heranba IPO Review: Production and Distribution Strength
From the days of starting operations with an intermediate product CMAC in 1996, the company has surely come a long way not just in terms of product portfolio but also production capacity. Heranba has three manufacturing facilities in and around Vapi in Gujarat with an aggregate capacity of 14,024 MTPA.
The company has more than 9,400 dealers having access to multiple states in India. In addition it has access to 21 depots and caters to 16 states and one union territory in the domestic market. This distribution network is naturally a great strength when it comes to sales of insect control chemicals.
Heranba Industries’ financial performance (in INR crore)
| FY2018 | FY2019 | FY2020 | H1 FY2021 | |
| Revenue | 750.4 | 1,011.8 | 967.9 | 619.2 |
| Expenses | 674.1 | 889.7 | 839.1 | 529.1 |
| Net income | 47.0 | 75.6 | 97.4 | 66.3 |
| Net margin (%) | 6.3 | 7.5 | 10.1 | 10.7 |
Heranba IPO Review: Subscribe or Avoid?
Clearly, what is working for the company are factors like strong distribution network in the domestic market, sizeable exports and integrated manufacturing. Heranba’s strong balance sheet (debt equity ratio of just 0.1) has also helped its cause. Going forward, the company is likely to receive tailwinds from supply chain shifts from China to India as well as continued policy support in India for agriculture sector. As it is evident from the numbers mentioned above, Heranba has substantial exports and it is keen to increase the contribution further. In this regard, its application for production and export of 7 Technicals and Formulations is currently in the process of evaluation.
The adoption of “Blue Sky” program by China has resulted in shutdown of several chemical plants and is likely to be a major shot in the arm for Indian chemical players. This is especially true for players like Heranba Industries which have integrated operations and existing distribution network in export markets. It is important to note that this tailwind is not one time and the benefits will be spread over multiple years.
All said and done, valuations are equally important. A good but overpriced business may turn out to be a poor investment. Thankfully, Heranba has priced its offer sensibly at a PE ratio of 25.05 at the upper end of the pricing band. This is in line with its listed peers such as Rallis and Bharat Rasayan which are trading at multiples of 28.8 and 26.9, respectively. Heranba’s Return on Net Worth (RoNW) is also higher at 30.5% when compared with 13.1% and 27.9% for its peers.
Overall, Heranba IPO review indicates that the offer is fairly priced and the company has several growth drivers in place for the coming years. Late last year, Chemcon Specialty Chemicals IPO listed with 115% gains underlining the growing valuation comfort for profitable businesses. However, an investment decision has to be taken by investors keeping their risk appetite in consideration.
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