Anand Rathi Suggests Buy This Small Cap Agrochemical Stock, Sees 28% Potential Upside

Leading brokerage firm Anand Rathi in its recent report on Heranba Industries Ltd. placed a buy call for a target price of ₹650 per share. According to the given target price, the stock is likely to surge up to 28% from its current level.

Heranba Industries Limited, established in 1992, is one of the largest manufacturers of Synthetic Pyrethroids and its intermediates in India. With a market capitalisation of Rs 2,047.69 crore, Heranba Industries is a small cap Agro Chemicals sector company.

Business Overview

The company is a crop protection chemical manufacturer, exporter and marketing company based out of Vapi, Gujarat, with Corporate and Administration Offices in Mumbai. It manufactures Intermediates, Technicals and Formulations & is one of the leading domestic producers of synthetic pyrethroids. Its Pesticides range includes insecticides, herbicides, fungicides and public health products for pest control.

The company's business mix include: Domestic Institutional sales of Technicals (37%), Technicals Exports (25%), Domestic Formulations (31%) and Formulations Exports (7%).

Stock Outlook & Returns

On NSE, the current market price (CMP) of Heranba Industries is ₹510 per share. At the time of writing, the stock is trading 0.25% down compared to its previous close of ₹511.30 per share. According to the data on NSE, the stock recorded its 52-week high level on 21 January 2022 at ₹744.70 and the 52 week low on 16 August 2022 at ₹480, respectively.

On NSE, the stock listing was on March 5, 2021. Since its listing, it has given 37.11% negative returns. It moved down 1.2% in a week and moved down 9.2% in 3 months. However, in 1 month, it moved up by 0.35%. In a year, it has given 23.91% negative returns on investments.

Q2-FY23 Result Update

The company reported good set of numbers for the quarter under review with revenue growth of 19.8% year-on-year to ₹4,233 million on standalone driven by strong performance in domestic market navigating uneven monsoon distribution. The management expects domestic agrochemical industry to do well in H2 FY23 due to residual moisture owning to late withdrawal of the southwest monsoon, higher reservoir levels and a rise in MSP (Minimum selling price) of Rabi crops for the upcoming 2023-24 marketing season.

On profitability front, the EBITDA from operations for the quarter increased by 8.4% year-on-year at ₹664 million with an operating margin of 15.3%. The company achieved the reported PAT of ₹477 million, an increase of 4.5% year-on-year with a net margin of 11.2% translating into EPS of ₹11.92 per share for the quarter.

Buy for a target price of Rs 650

The company has spent ₹410 million on capex at their Sarigam facility during H1 FY23 and will be spending additional ₹1000 million in H2 FY23. The commercial production of technical grade pesticides and intermediates from Sarigam facility is likely to commence from Q1FY24 adding meaningful contribution to the company's revenues. The company's management gave an annual revenue and EBITDA margin guidance similar to what is maintained now.

"We are positive on Heranba Industries Ltd, the company has diverse product range, strong margins, strong balance sheet, capacity expansion and further opportunities from off patent products in highly regulated markets. We maintain BUY rating on the stock with a revised target price of ₹650 per share," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.