Heranba Industries grey market premium up nearly 25% ahead of IPO; issue opens Feb 23, should you subscribe?

Heranba Industries’ Rs 625-crore initial public offering (IPO) will open for subscription on Tuesday, February 23, 2021. While the subscription for anchor investors has opened today. Ahead of the public issue, Heranba Industries shares were seen quoting a grey market premium of Rs 105 or 24 per cent over the IPO price of Rs 627 apiece. The issue which closes Thursday for subscription is likely to finalise the basis of allotment by March 2, and initialisation of funds will take place by March 3. Agrichemicals manufacturer is expected to make its stock market debut on March 5, 2020.

Analysts at SMC Global Securities Ltd said that considering the P/E valuation, on the upper end of the price band, the stock is priced at pre issue P/E of 18.46x on its estimated annualised FY21 EPS of Rs 33.96. Post issue, the stock is priced at a P/E of 18.92x on its EPS of Rs 33.14. Looking at the P/B ratio at Rs 627 the stock is priced at P/B ratio of 6.42x on the pre issue book value of Rs.97.62 and on the post issue book value of Rs 126.85 the P/B comes out to 4.94x. Analysts added saying that a long-term investor may opt the issue.

There have been some corporate governance lapses by the company in the past, therefore Anish Moonka, Head of Research, JST Investments, has given no rating for the long term on this company. “But given Heranba Industries grey market premium of Rs 100-105 over issue price, it seems that it may list at a small premium,” he said.

Raw materials constitute a significant percentage of the Company’s total expenses. Those at Anand Rathi Financial Services said that any increase in prices and any decrease in the supply would materially adversely affect Heranba Industries’ business. Emkay Global Financial Services and Batlivala & Karani Securities India are the book running lead managers to the IPO, while Bigshare Services Pvt Ltd is the registrar of the issue. “Considering the company’s dominant position in the pyrethroids market, strong balance sheet, high RoNW of 30.47% as per FY20 financial statements, strong management and reasonable valuations; we give this IPO a ‘subscribe’ rating,” they said.

Heranba Industries exported its products to more than 60 countries in Latin America, CIS, Middle East, Africa, Asia and South East Asia in FY20. It has more than 9,400 dealers/distributors supported by 21 stock depots spread across 16 states and one UT in the country in order to meet the demand of its products from farmers. Vikas Jain, Senior Research Analyst, Reliance Securities, said that given huge opportunity in domestic and international space in Agri and Chemical space along with growing importance of domestic manufacturers globally, growth trajectory of Heranba Industries is expected to sustain. The agrichemicals manufacturer already has built sufficient resources in terms of land and other resources to set-up additional manufacturing unit, which bodes well. “Notably, its peers like Rallis India and Sumitomo Chemicals are trading at a significant premium to HIL despite HIL has displayed superior earnings growth compared to peers. Hence, we recommend ‘subscribe’,” Jain added.

(The recommendations in this story are by the respective research and brokerage firm. The Outlooker Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)