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Multiple headwinds to keep performance under pressure!

Result Synopsis

Heranba Industries posted a disappointing set of numbers wherein consolidated revenue declined sharply by 30%YoY and 34%QoQ to Rs2.76Bn. Due to benign demand and higher channel inventory, revenue from technical segment (49% of Revenue) declined sharply by 51%YoY and 45%QoQ. Company reported lowest quarterly margin of 8.6%, as compared to 18% in Q3FY22 and 15.6% in Q2FY23. Margin contracted due to high inventory cost and low volume uptake.  

Usually, in Q3 & Q4 demand from exports is buoyant, but due to on?going global scenario, demand continues to remain lackluster. However, demand from China (25% of exports) is likely to improve post Chinese New?year. Moreover, management expects flattish top?line growth for FY23 (earlier 12?15% growth guidance) and guided for 18?20% growth in FY24E, which will be driven by better demand coupled with contribution from new capacities, introduction of new products & supply to new geographies

Due to ongoing global destocking, declining prices of pyrethroids and other insecticide molecules, we expect near term outlook will continue to be challenging for the company. Owing to multiple headwinds in terms of demand as well as margins, we have revised our FY24E EPS to Rs.37.3 (revised downward by 32%) and revalued the company at P/E(x) multiple of 12x on FY24E EPS. Hence though we maintain our BUY rating on the stock, we have revised our target price to Rs447.   

Result Highlights

* Revenue: Revenue for the quarter stood at Rs2.76Bn, declined by 30%YoY and 34%QoQ. (Vs est of Rs3.76Bn)

* Margin: EBITDA margin for the quarter came in at 8.6% (Vs est of 13%), as compared to 18%/ 15.6% in Q3FY22/Q2FY23 respectively. Margin contraction is due to higher COGS which came in at 68.8% of sales Vs 64% in Q3FY22 and 64.4% in Q2FY22

* Absolute EBITDA stood at Rs238Mn, declined by 67%YoY and 64%QoQ.

* Net profit stood at Rs126Mn, declined by 73%YoY & 76%QoQ. (Vs est of Rs340Mn)

* Segment Revenue: (i) Domestic technical revenue stood at Rs 497Mn, declined by 53% YoY & 59% QoQ, (ii) Revenue from export of technical declined by 50%YoY and 32% QoQ to Rs856Mn. (iii) Branded Formulation revenue stood at Rs856Mn, a growth of 14% YoY but declined sequentially by 46% QoQ, (iv) Export Formulation registered growth of 27%YoY and 250% QoQ to Rs552Mn.

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