The issue comprises a fresh issue of up to Rs 60 crore and an offer for sale (OFS) of up to 9,015,000 equity shares, which are being sold in the price band of Rs 626-627, implying a post-issue implied market-cap of Rs 2,505-2,509 crore.
The IPO of the crop protection chemicals manufacturer is being offered at 22.67 times its trailing 12-month earnings per share (EPS). The company on Monday raised Rs 187.51 crore by allotting 29.91 lakh shares to 18 anchor investors at Rs 627 apiece.
About the company
The company has presence in a wide range of products across the entire value chain of synthetic pyrethroids with a market share of 20 per cent, supported by a distribution network of more than 9,600 dealers spread across 16 states and on Union Territory. The exports business contributed to half of the total revenues in FY20. That included exporting technicals and formulations to more than 60 countries. The company obtained 371 technical registrations till November 2020.
Antique Stock Broking noted that the company management intends to focus on enhancing and streamlining production capacities and operations; entering the highly regulated markets of US and Europe; developing new products at its R&D facility at Unit III and enhancing formulations & technicals business in international markets.
Here’s what brokerages said on the issue:
Samco Securities: Subscribe
Nirali Shah of Samco Securities said Covid-19 also had minimal impact on the company’s operations since all agrochemical companies were allowed to run at full capacities. It said Heranba’s revenues have grown at a CAGR of 13 per cent from FY18-FY20 whereas its PAT has grown at a CAGR of 44 per cent during the same period. The company has recorded average return on equity (RoE) and return on capital employed (RoCE) of 31.3 per cent and 56 per cent, respectively, for the last three years.
“The company has also been reducing debt on its books and the stock trades at a reasonable valuation multiple of 25 times P/E compared to its peers. The company faces a high risk due to rising raw material prices, which form a whopping 70 per cent of its expenses. Moreover, it faces high competition risk from peers such as Rallis India, Bharat Rasayan and Sumitomo Chemical. But despite these risks, Heranba continues to capture a dominant position with sound fundamentals and diversification capabilities,” Shah said.
Samco has recommended investors to ‘subscribe’ to the IPO for listing gains, but also advised investors to be cautious about the prevailing market sentiment before aggressively subscribing to the IPO.
ICICI Securities: Subscribe
This brokerage said the company is benefiting from being an integrated pyrethroids manufacturer with a strong product pipeline, geographical expansion coupled with favourable macro factors are likely to drive growth. Apart from this, it has one of the strongest return ratios in Industry and a healthy balance sheet, ICICI Securities said. This brokerage noted that Heranba is one of the leading domestic producers of pyrethroids with a 19.6 per cent market share. Pyrethroids accounted for 68 per cent of the company’s FY20 revenues.
“It is in the entire value chain of synthetic pyrethroids that provides flexibility to shift between products depending on the demand-supply and pricing dynamics. The company also has a strong pending product pipeline in pyrethroids including formulations filed by partners in domestic, export markets. Apart from this, more than half of the global demand for Pyrethroids comes from China. Hence, due to shutdown of chemical plants in China amid pollution, higher volumes of Pyrethroids are expected to be exported out of India,” it said.
Geojit, Anand Rathi Financial Services: Subscribe
Geojit Financial Services has assigned a ‘subscribe’ rating to the issue on a ‘long-term basis’, considering its strong distribution network, rising export opportunity with healthy margins and profitability. The brokerage said the stock is available at 18.9 times FY21 EPS of Rs 33.20 on an annualised basis, which is reasonable compared with its peers.
Anand Rathi also has a ‘subscribe’ rating. It said the company’s dominant position in the pyrethroids market, strong balance sheet, high return on networth (RoNW) of 30.47 per cent and reasonable valuations make the IPO attractive.
Angel Broking: Subscribe
Angel Broking also talked about the company’s robust past track record of performance. It expects the company to gain market share and improve margins going ahead. “The company has priced its issue at 22.1 times PE on a trailing basis, which is quite reasonable Peers such as Rallis India, Sumitomo Chemicals and Bharat Rasayan are trading at 23.1 times to 47 times PE on a trailing basis. The company’s return ratios are superior to peers with ROE above 30 per cent.. The company has a strong financial position and has been generating positive cash flow. We expect a good listing for the company,” the brokerage said, while recommending a ‘subscribe’ rating to is long-term outlook and listing gains.
Religare, Hem Securities: Subscribe
Religare brokerage has a positive view on the company, given its product portfolio, wide distribution network, valued customers and healthy growth opportunity in the sector. Investors having a long-term view can ‘subscribe’ to the issue, the brokerage said.
Hem Securities said that the company being one of the leading domestic producers of synthetic pyrethroids has shown strong financial performance. With its in-house R&D team for product development and improvisation, the company is in the process of developing two fungicides, two herbicides and one insecticide for exclusive sale in European markets, it said.
“The company has bright future prospects. Hence, we recommend investors to subscribe to the issue from a short- and long-term perspective,” said Hem Securities.
