HMA Agro Industries
IPO Size: Rs. 480 cr
- Rs. 330 cr offer for sale (OFS) by the promoters (100% stake to drop to 83.6%)
- Rs. 150 cr fresh issue to fund Rs. 135 cr working capital
Price band: Rs. 555-585 per share
M cap: Rs. 2,930 cr, implying 16% dilution
IPO Date: Tue 20th Jun to Fri 23rd Jun 2023, Listing Tue 4th Jul 2023
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Buffalo Meat Exporter
Agra-based HMA Agro is a frozen buffalo meat exporter from India, with 10% market share. Buffalo meat (different from beef and pork which have religious constraints) is India’s second largest agri product exported after rice. However, no FMD-free status restricts exports to developed countries, with exports only to price-sensitive developing countries in South-East Asia and Middle East, capping margins.
Of HMA Agro’s Rs. 3,083 cr revenue in FY22, ~90% was from exports. It exports to 40 countries, but 3 countries (Malaysia 30%, Vietnam 17%, Egypt 10%) accounting for 57% of 9MFY23 revenue, indicating high geographic concentration risk. Also, country-wise revenue has been instable – Hong Kong exports halved to Rs. 147 cr in FY22, from Rs. 338 cr in FY21 and Malaysia exports doubled to Rs. 713 cr in 9MFY23, from Rs. 406 cr in FY22.
ESG Red Flags
As of 31.12.22, HMA Agro has 4 plants, with 2.2 lakh MTPA capacity, but its Aligarh plant has not been operational due to alleged non-compliance of environmental norms.
A greenfield plant in Haryana, with 1.7 lakh MTPA capacity, has begun commercial production from Jan 2023, but factory license has not been granted, as of 5th Jun 2023. Receipt of Consent To Operate (CTO) only implies environmental compliance, while factory license is mandatory in India. Is there a casual approach to RHP disclosure or non-compliance with local laws? These are negative from Environmental, Social and Governance (ESG) point of view.
A 6th plant of 42,000 MTPA is being acquired by Sep 23, which will double processing capacity to 4.4 lakh MTPA. However, present capacity itself is grossly under-utilized, as FY22 utilization was just 45%. Thus, as capacity is not a constraint, revenues may not double Q3FY24 onwards.
Low Margin Business
On FY22 revenue of Rs.3,083 cr, company reported PAT of Rs. 118 cr, inclusive of Rs. 47 cr forex and derivatives gains, resulting in 3.8% net margin. For 9MFY23, revenue stood at Rs. 2,370 cr, with Rs. 113 cr PAT (including Rs. 38 cr forex gain), translating into 4.8% net margin. Excluding forex, company’s effective net margin is at 2.5%-3%, implying no value addition in its business model or any brand strength.
Fully Priced IPO
Annualising 9MFY23 EPS of Rs. 23, leads to FY23E EPS of Rs. 31, which translates into a PE multiple of 19x. However, on core operating income (excluding forex and derivatives income), effective PE multiple works out at 25x, on historic basis. Even if one accounts for 40% increased production in FY24E, effective PE of 18x on core earnings for current year expected earnings makes the IPO fully priced.
Rice exporter KRBL, with Rs. 5,400 cr revenue and 11% net margin is ruling at a PE multiple of 11x, while shrimp feed exporter Avanti Feeds with Rs. 5,100 cr revenue and 6% net margin is ruling at a PE multiple of 17x. Similar is the PE for Apex Frozen Foods with 3% net margin. Thus, HMA Agro’s IPO pricing does not leave anything on the table, even after accounting for higher profits, post capacity expansion.
21st Jun 2023 at 12:51 pm
16th Jun 2023 at 08:24 am
15th Jun 2023 at 08:13 pm
15th Jun 2023 at 12:58 pm