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Buy Heranba Industries Ltd For Target Rs.767

Healthy topline growth, Margins expand sequentially. Maintain BUY!

Result Synopsis

Heranba Industries Ltd (HIL) reported revenue of Rs4.20Bn (in line with our estimates), registering a growth of 19%YoY & 16%QoQ. This was primarily led by strong growth in exporttechnical segment(30% of Revenue) which reported 53%YoY & 73%QoQ growth, followed by branded formulation biz (38% of Revenue) which registered a 49%YoY and 83%QoQ growth. EBITDA margins improved sequentially by 291bps but declined by 168 bpsYoY to 15.6% owing to higher raw material prices and rise in fuel cost. Going ahead, management is confident of achieving 16?18% revenue growth in FY23, owing to expected pick?up in demand during rabi season. Moreover, company expects EBITDA margins in the range of 16?18%. During the quarter company has received 1?registration in Europe & HIL is expected to receive 2 more registrations in USA.

We continue to remain positive on company’s growth & believe that with newer technical capacities along with robust registration pipeline, HIL will report strong growth in coming years. Company’s Sarigam Phase?I is expected to get commercialized by Q1FY24 and Phase?II is likely to be operational by Q3FY24. Saykha will be a dedicated Herbicide facility that will be operational in FY25E. However, margins are likely to remain under?check due to elevated input cost coupled with higher power cost.  Hence, we expect Revenue/EBITDA/PAT growth of 16%/10%/8% respectively over FY22?FY24E. We continue to value the company at P/E(x) of 14x on FY24E EPS of Rs55 & reiterate our BUY rating on the stock. 

Result Highlights

* Revenue: Company reported revenue of Rs4.20Bn in line with our estimate (of Rs4.21Bn), reporting a growth of 19%YoY & 16%QoQ. Revenue for H1FY23 stood at Rs7.83Bn, reporting a growth of 11%YoY.

* EBITDA: Operating margins came in at 15.6% (Vs est of 16%), as compared to 17.3%/ 12.7% in Q2FY22/Q1FY23 respectively. EBITDA margin for H1FY23 came in at 14.3% vs 17.9% in H1FY22. Absolute EBITDA stood at Rs658Mn, a growth of 7%YoY & 43%QoQ.

* PAT: Net profit stood at Rs472Mn, reporting a growth of 3%YoY & 41%QoQ. (Vs est of Rs490Mn). PAT margins came in at 11% as compared to 13%/9% in Q2FY22/Q1FY23 respectively.

* Segmental Revenue: (i) Domestic technical revenue stood at Rs. 1.21Bn, declined by 10% YoY & 26% QoQ, (ii) Export technical registered a growth of 53% YoY & 73% QoQ to Rs.1.2Bn, (iii) Branded Formulation revenue stood at Rs.1.59Bn, a growth of 49% YoY and 83% QoQ, (iv) Formulation exports declined by 50% YoY and 60% QoQ to Rs0.16Bn.

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