Buy Heranba Industries Ltd For Target Rs.670 - Anand Rathi Share and Stock Brokers
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* The company is a crop protection chemical manufacturer, exporter and marketing company based out of Vapi, Gujarat, with Corporate and Administration Offices in Mumbai. It manufactures Intermediates, Technicals and Formulations & is one of the leading domestic producers of synthetic pyrethroids. Its Pesticides range includes insecticides, herbicides, fungicides and public health products for pest control. The company’s business mix include: Domestic Institutional sales of Technicals (37%), Technicals Exports (25%), Domestic Formulations (31%) and Formulations Exports (7%).
* The company reported good set of numbers for the quarter under review with revenue growth of 19.8% year-on-year to ?4,233 million on standalone driven by strong performance in domestic market navigating uneven monsoon distribution.The management expects domestic agrochemical industry to do well in H2 FY23 due to residual moisture owning to late withdrawal of the southwest monsoon, higher reservoir levels and a rise in MSP (Minimum selling price) of Rabi crops for the upcoming 2023-24 marketing season.
* On profitability front, the EBITDA from operations for the quarter increased by 8.4% year-on-year at ?664 million with an operating margin of 15.3%. The company achieved the reported PAT of ?477 million, an increase of 4.5% year-on-year with a net margin of 11.2% translating into EPS of ?11.92 per share for the quarter.
* The company has spent ?410 million on capex at their Sarigam facility during H1 FY23 and will be spending additional ?1000 million in H2 FY23. The commercial production of technical grade pesticides and intermediates from Sarigam facility is likely to commence from Q1FY24 adding meaningful contribution to the company’s revenues. The company’s management gave an annual revenue and EBITDA margin guidance similar to what is maintained now.
* We are positive on Heranba Industries Ltd, the company has diverse product range, strong margins, strong balance sheet, capacity expansion and further opportunities from off patent products in highly regulated markets. We maintain BUY rating on the stock with a revised target price of ?650 per share.
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