IPO Analysis: HMA Agro Industries Limited

IPO Rating: Apply for long term

About the issue:

Incorporated in 2008, HMA Agro Industries Ltd. (HAIL) is a three-star export house recognized by the Government of India. It's a flagship company of the HMA group which has been in the meat industry for over four decades. HAIL is currently among the largest exporters of frozen buffalo meat products from India, and it accounts for more than 10 per cent of India's total export of frozen buffalo meat.

The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 555 to Rs 585 per equity share. The issue size is Rs 480.00 crore at a higher price band.

The IPO opening date is June 20, 2023, and it will be closing on June 23, 2023. The issue is likely to be listed on the exchange on July 04, 2023. The IPO market lot size is 25 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (325 shares or Rs 190,125) at the upper price band.

Objects of the Issue

The object of the net fresh issue is to raise funds for:

1. Working capital requirements of the company, and
2. General corporate purpose.

About the company

HMA Agro Industries Ltd. (HAIL) is a three-star export house recognised by the Government of India. It is the flagship company of the HMA group, which has been in the meat industry for over four decades. HAIL is currently one of India's largest exporters of frozen buffalo meat products, accounting for more than 10 per cent of the country's total frozen buffalo meat export.

Its products are primarily packaged under the brand names "Black Gold," "Kamil," and "HMA," and are exported to over 40 countries worldwide. HAIL sells buffalo meat and other related products. Unlike beef or pork, buffalo meat is not subject to religious restrictions and has the added benefit of being low in fat and cholesterol. The meat produced for export is frozen halal buffalo meat that has been deboned and deglanded.

HAIL (including its subsidiaries) owns four fully integrated packaged meat processing plants in Aligarh, Mohali, Agra, and Parbhani, and is constructing a fifth fully integrated-owned meat product processing unit in Haryana. It is also in the advanced stages of acquiring an additional plant at Unnao, which is expected to be completed by the second quarter of fiscal year 2023-24. By FY 2023-24, HAIL's total in-house meat product processing capacity would be more than 4,00,000 metric tonnes per year spread across six different owned plants. It also owns two secondary-level meat processing plants in Jaipur and Manesar. The company meets stringent quality standards set by regulators involved in the process and receives certification for it.

The company purchases raw materials and then sends them to various processing units, which convert the raw materials into finished products, which it then exports through its own distribution channels. Most of these processing units are owned by its subsidiaries, with some owned by third parties. These operations cost HAIL less than 1 per cent of total revenue.

To capitalise on its robust export business and well-established distribution channels in 40 countries, the company recently diversified its product portfolio by adding Frozen Fish Products, Basmati Rice, and plans to launch Poultry and other Agri products as business verticals. HAIL intends to become one of India's most well-known food product exporters.

Financial

On the financial performance front, for the last three fiscals, HMA Agro has (on a consolidated basis) posted a revenue/net profit of Rs 2,416.61 crore / Rs 45.9 crore (FY20), Rs 1,720.40 crore / Rs 71.6 crore (FY21), and Rs 3,138.98 crore / Rs 117.62 crore (FY22).

Valuation and Outlook

If we annualize nine-month FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then and asking price is at a P/E of 19.40x. The issue is priced at a P/BV of 6.14x based on its NAV of Rs. 95.33 as of December 31, 2022, and at a P/BV of 4.86x based on its post-IPO NAV of Rs. 120.41 per share. (at the upper band).

The company has paid a dividend of 7 per cent for FY20 and after skipping FY21 and FY22, it paid a dividend of 20 per cent for FY23 till the filing of this offer documents. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.

This company is engaged in frozen buffalo meat exports, and it is rising year over year amidst control of many regulatory bodies including APEDA. Based on its 9MFY23 annualized earnings and return on net worth higher than 30 per cent, the IPO appears reasonably priced. Hence, we recommend subscribing the issue for long term.