Hello Guys, From July 2021 onwards, we are adding one more topic in our CrorePati blog & that is the business model. In our blog, we always discuss how to get financial freedom—and Earning passive income is one of the most evergreen ideas to achieve Financial Independence. Also, we have already discussed that investing directly in the stock market is also a good idea to make some extra money. So, we are taking some fantastic listed company’s history & business model as an example for educational purposes.
So, Today we are talking about Heranba Industries Ltd. This article will discuss its details about Heranba Industries Business Model & how Heranba Industries Ltd make money & achieved a listing gain of more than 43 percent.
Where Heranba Industries Operates
Mr. Sadashiv K Shetty & Mr. Raghuram K Shetty formed a company in 1996 to provide innovative products to farmers to maximize their farm output.
First, we will discuss the industry under which this company operates. Heranba Industries Ltd operates in the Agrochemical industry which is actually a crop protection company. Many pest control chemicals are required in this industry, like herbicides, insecticides, fungicides, etc., which is what Heranba manufactures and sells to its customers. Also they are one of the leading domestic producers of synthetic pyrethroids. If you don’t know what pyrethroids are, it will be better to know that pyrethroids are organic compounds made from pyrethrin. And pyrethrin is a natural element found in chrysanthemum. Don’t be confused. [Chrysanthemums are sometimes called mums or chrysanths, are flowering plants of the genus Chrysanthemum in the family Asteraceae. They are native to East Asia and northeastern Europe. However, most species originate from East Asia, and the center of diversity is in China. – Source Wikipedia]
Let’s see the application of Pyrethroids.
Pyrethroids are mainly used for three purposes.
- Public Health
- Animal Health
In agriculture, it is used for Insecticides. It can also be used for protecting fruits, vegetables, cotton, rice, soybeans, etc.
In Public Health, Pyrethroids are used to make mosquito sprays, etc. It is also used in pharmaceuticals to control Head Lice, Mosquitos, etc.
Also, Pyrethroids are used for animal health purposes.
Global Outlook Of The Agrochemical Industry
Let’s speak about the global outlook of the agriculture industry; you will think, why do we need to know the international perspective. Heranba Industries exports its product to 60 countries, and 50% of its revenue comes from these exports. As per companies global forecast from 2020 to 2025, this industry is expected to grow about 4.11% CAGR. Below is the global forecast from 2020 to 2025 of Agrochemical Market.
Now you can see the Agrochemical market share according to different continents.
Indian prospects Of The Agrochemical Industry
Now let’s see its Indian prospects. India is the fourth largest global producers after United States, Japan & China. The value of the agrochemical industry in India in 2019 was $2760 million, and from 2014 to 2019, the industry has shown a growth of 6.5% CAGR. And in the future, too, it has excellent prospects because of the green movements happening in China, due to which export opportunities have risen for India. As a result, there is a contribution of 14% from this industry to India’s GDP.
Understanding of Heranba Industries Manufacturing Products
Heranba Industries are manufacturing three main products.
If I take all these three together, it will make an entire value chain of the agrochemical industry. If I say a company in an agrochemical business, they either manufacture any one or two out of these or make all three products. So let’s understand all of these three products one by one.
Intermediate is a product used to make technicals products. So for better understanding, Intermediate is not an end product. It can not be used directly. It is used to make other products. So, Intermediate is like a Raw material or working progress of Technical products.
Technicals products are nothing but INSECTICIDE, HERBICIDE, FUNGICIDE. But here you need to understand that these products are absolutely in a concentrated format. So, if someone starts spraying technical products directly into the crops, crops might have a very adverse effect.
To reduce the adverse effect, In those technicals, lots of dilution is made. So, you can imagine that in 1 Ltr of formulation product, maybe 1 to 2% is technicals & other 98% percent is something to dilute the entire liquid. This final product is known as formulations. There may be some additive or any other product to dilutes the effect of the technical product & also to increase the shelf-life of the product.
So we have understood that Companies generally use intermediate products & Technicals products to make formulation products. And Formulation products are the end product is used by normal people like You & Me.
Heranba Industries Ltd Business Model
Now let’s speak about the company. Heranba Industries is a Gujarat-based company that manufactures herbicides, insecticides, and pest control and is the leading producer of public health products.
The revenue contribution in 2020 of is on your screen. Domestic institutional sales of technicals showed 31.6% of revenue, technical exports showed 36.48% revenue, branded formulations of 12.67%, formulation exports of 12.83%, and public health of 6.37% revenue.
This company makes pyrethroids which are substitutes for traditional insecticides. There are many benefits of pyrethroids; hence they are used in homes, fields, offices, restaurants to control pests. They have three manufacturing and packing facilities in Vapi, a prime Industrial Township in Gujarat, at a distance of 180 km from Mumbai. These facilities offer a range of Crop Protection and Public Health Solutions. Two of these manufacturing units are involved in production of various Technicals and intermediates, while the third plant is purely a Formulation and Packing facility. In addition, they have an extensive distribution network in India with more than 9400 dealers who can access 21 depos in 16 states and 1 Union Territory. Other than this, they export their products to 60 different countries. Plans include setting up a 2000 sq feet R&D facility in Gujarat and entering Europe and US markets.
How Heranba Industries Achieved 43% Listing Gain?
Financials of the company
On 31st March 2020, the revenue was around 967 Cr and is about 619 Cr till 30th September 2020. As far as profits are concerned, in March 2020 it was 97.75 Cr and is 66.31 Cr till this half-year. If we speak about the company’s valuation, its PE ratio is 25.05 compared to the industry of 24.7. If we speak about profitability, the net profit margin is 10.71%, and ROE is 30.47%. If we talk about risk, the best factor to calculate risk factor is the company’s debt. The company having more debt is more riskier. But thankfully, this company has a debt to equity ratio of only 0.13.
Pros of the Heranba Industries IPO
- Speaking about the first major pro is that the company has a substantial global growth opportunity. One reason being the increase in population in India and China, due to which there has seen self-sufficiency in food grains.
- Rise in urbanization, due to which there is less land left, and their products help increase the production per hectare.
- Another huge pro is that in the financial year 21-22, the agriculture and farmers welfare ministry got 131531 Cr which is 5.63% more than last year.
- Other than this, the government has launched multiple schemes for agriculture like PM-Kisan, eNAM (National Agriculture Market).
- The company’s product portfolio is good as well as its customer base.
- They have registration in domestic as well as international markets. Heranba industries have registered 361 technical in formulation in around 40 countries.
- Due to China’s blue sky program, many agrochemical plants have been shut, due to which exports from India have risen.
- The company’s financials are strong, valuation is also reasonable, profitability is also good, and ROE is 30.71%
So, we have tried to provide you as much information about Heranba Industries’ business model & why Heranba Industries IPO achieved listing gains of more than 43 percent. Now We will talk about some parameters if you want to invest in Heranba Industries stock.
Heranba Industries IPO Details
The bidding date opened from 23rd February till 25th February 2021. If we speak about the price band, it was from 626 till 627, and one lot consisted of a minimum of 23 shares. If we talk about the size of the IPO, it was 625.64 Cr, out of which 60 Cr was a new issue, and the remaining 565.64 Cr was an offer for sale.
Points To Be Noted Before Investing In Heranba Industries Stock
Let’s now speak about the cons, which you should keep in mind before investing.
- This company generates 28.3% revenue from China and imports 13.52% of raw material from China. So in the future, if any trade restrictions are put between India & China, the company’s business will be impacted.
- There is no long-term agreement of the company with its suppliers or customers.
- Whatever products they manufacture, they need to take licenses from CIB and RC (Central Insecticides Board & Registration Committee) as per insecticides act 1968 [[2nd September, 1968.] An Act to regulate the import, manufacture, sale, transport, distribution and use of insecticides with a view to prevent risk to human beings or animals, and for matters connected therewith]. The company also needs to take additional registrations from overseas jurisdictions to export. If any registration is not taken on time or adequately, the financials and operations of the company will be deeply impacted.
- This business is cyclical, and its product demand is seasonal. Typically, we require pesticides in the rainy season, so their branded sales are mainly between June and November.
Conclusions On Heranba Industries Business Model
As per the information we have collected about the company, we finally understood that company is operating well with some unique prospects & growth plans in the future. By looking at these benefits, Heranba Industries achieved more than a 43% listing gain through its IPO in February 2021. If you want to invest in Heranba Industry stock (NSE: HERANBA), you can start investing through your Demat account. Before investing, please check all the Cons Points we have mentioned in the article. Also, we request you to do a proper price analysis of the stock before investing. We have already shared a detailed article on when to buy any particular stock.
Note: Periodically, we update the article as per the information received from the Company. If you want to share any specific information about the Company or company share, share your thoughts with us via the comment section. We will approve the comment as soon as possible so that other readers can also read your comment to learn something new about the Company.
This complete article is based on the Internet research by CrorePati Blog team members & the Company has not shared any information directly with us.