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An export-oriented crop protection player…

Heranba Industries Ltd (HIL), incorporated on July 26, 1996, is one of the leading crop protection chemical manufacturer, exporter and marketing company based out of Vapi, Gujarat. It is one of the leading domestic producers of synthetic pyrethroids (market share of ~20% in 2019) in India. Their pesticides range includes insecticides, herbicides, fungicides and public health products for pest control. HIL currently has 3 manufacturing and packaging facilities in and around the industrial belt of Vapi, Gujarat.

• Enjoys presence in the entire product value chain of the agrochemicals industry i.e. Intermediates, Technicals and Formulations.

• Extensive distribution network of more than 9,400 dealers supported by 21 stock depots spread across 16 states and one union territory in India.

• HIL exports products to more than 60 countries across the world, which contributes ~49% to FY20 total sales.

• Adoption of ‘Blue Sky' program in China (shutdown of agrochemical plants in china due to green movements) is expected to boost exports of pyrethroids in future.

• Indian Pyrethroids market grew at a CAGR of ~7.4% over FY14-FY19 and is expected to grow at a CAGR of 8.5% during FY20-25E.

• Being a dominant player in Pyrethroids market, HIL is well placed to reap the benefits of industrial growth on the back of potential for export, favorable Govt. policies & increased demand for horticulture and forticulture.

• The well-equipped & modern manufacturing facilities in Gujarat has 174 reactors with a combined average capacity utilisation of ~80% in FY20.

• Heranba to enter the highly regulated markets of USA & Europe to tap the growth opportunities with higher margins for their existing and new line of products.

• Revenue grew ~13% CAGR over FY18-20 led by strong volume, increase in export sales and good monsoon. PAT grew at a CAGR of 44%(FY18-20) led by better operating performance and topline growth

• At the upper price band of Rs.627, HIL is available at P/E of 18.9x (annualized basis on FY21E EPS of Rs.33.2) which is reasonable compared to its peers. We assign a “Subscribe” rating for the issue on a long-term basis considering the strong distribution network, increasing export opportunity with healthy margins and profitability.

Purpose of IPO

The Offer comprises of the Fresh Issue and the Offer for Sale. The proceeds from the offer for sale will go to the selling shareholders, while the amount received from the sale of fresh issue will be utilized for funding working capital requirements and general corporate purposes.

Key Risks

* Raw materials cost accounted for ~66% of the total income in FY20.

* Increasing acceptance of organic farming.

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