Heranba Industries                                                                                                                        22/09/2021

Cmp – 810

Market Cap- 3,257 Cr

Sector- Agro/ Speciality Chem

Business Overview

Present in entire value chain of agrochemicals with domestic market share of 19.5% in
pyrethroid market. This gives company the required flexibility to switch between products based
on market demand-supply & pricing dynamics.

Synthetic pyrethroid – Future molecule of agrochemicals Pyrethroids are cost-effective alternatives & less toxic compound as compared to conventionally used insecticides. They are also replacing organophosphates. Any change happening in the agro chemical value chain, pyrethroid can
stand out to be a big beneficiary.

Out of the 15 major pyrethroids,Heranba is present in 5 majorly used pyrethroids namely Cypermethrin,
Alphacypermethrin, Deltamethrin, Permitherin and Lambda cyhalothrin.

Investment Rationale

Launching of newer molecules (Opportunity size 4,500-5,000 crores in INR)

Company is in process of developing two (2) products of Fungicides, two (2) products of Herbicides and one (1) product of Insecticides, for which research and development tests have been initiated, for exclusive sale to the European markets after registration with the regulatory authority in EU. Company expects to add 4-5 new molecules every year on an ongoing basis. Management has guided that the newer molecules shall have better margin profile.

Strong product portfolio with wide distribution network
 Company has extensive distribution network in India. Company has more than (9,400) dealers having
access to (21) depots of company across sixteen (16) states and one (1) union territory in India.
Company has recently added 7 new products in the fertilizer space. Company has a strong marketing team of 150 employees (B2B : 8 in exports,2 in domestic markets; B2C : 140 in domestic branded formulation) to carry out its distribution & marketing activities.

Capacity expansion & ramp up of existing facilities to drive growth

Company’s total capacity is expected to expand 1.65x (26,000 mtpa) from current levels of 15,000 mtpa by end of FY24 post capex realization of Rs.2,500 mn(majorly through internal accruals).

Current capacity utilization levels:
Technical: 90%
Formulations : 55%

Beneficiary of “China+1” effect
China’s adoption of the’ Blue Sky’ program to realize green GDP has led to the shutdown of several chemical plants. This, in turn, is expected to result in higher volumes of pyrethroids being exported out of India.

Less impact of seasonality due to diversified geographical contribution.
Company derives 50% revenue from exports & 50% revenue from domestic markets thereby hedging the risk of seasonality as the spread of seasons across globe is quite diversified. This provides company stability of revenue across quarters. Also it has low geographical concentration which further reduces the impact of seasonality.

The Financials

• The PAT has more than doubled in the last 2 years vs Revenue growth of only 23% in same period showing strong operating leverage in the business.

• The management has guided to double its revenue in next 4 years which translates into revenue growth of a healthy 18-20% CAGR till FY24-25.

• Strong investments in capacity expansion can be seen in gross block addition. All the capex has been done from internal accruals without addition any debt.

• At cmp, Heranba is available at 19x trailing, one of the cheapest amongst peers ie bharat rasayan & astec.