Favourable IPO valuation notwithstanding, religiously sensitive business, family-dominated management, non-dividend paying track, promoters’ negative cost of holding, truncated lock-in period, etc., dilute attraction.
|
HMA AGRO OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 150 Cr (25,64,103 equity shares) |
| Offer for Sale | Rs 330 Cr (56,41,026 equity shares) |
| Face Value | Rs 10 |
| Price Band | Rs 555 – 585 |
| Mkt/Bid Lot | 25 Nos. |
| Imp Market Cap | Rs 2,929 Cr |
| Imp Equity Cap | Rs 50.07 Cr |
| Implied Free Float | 16.39% |
| Lead Manager | Aryaman Financial |
| Registrar | Bigshare Services |
| Listing At | BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
| Opening :20-Jun-2023 | Closing :23-Jun-2023 |
| Allotment :29-Jun-2023 | Refunding :30-Jun-2023 |
| Demat Credit :03-Jul-2023 | Trading :04-Jul-2023 |
The Offer
The Agra-registered, HMA Agro Industries Ltd (HAIL) is coming out with its maiden public issue valued Rs 480 Cr (82.05 lakh equity shares at the cap price). The IPO consists of a fresh issue of Rs 150 Cr (about 25.64 lakh shares) by the company and an offer for sale of Rs 330 Cr (about 56.41 lakh shares) by the promoters. The offer is being made through the book-building route with a price band of Rs 555-585 for Rs 10 paid-up share.
Applicants should bid for a minimum lot of 25 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on July 04, 2023. Aryaman Financial Services is acting as manager to the offer while Bigshare Services will play the role of registrar to the issue. The bidding opens on Tuesday, June 20 and closes on Friday, June 23, 2023.
Of the net proceeds of the fresh issue, Rs 135 Cr is proposed to be utilized for funding working capital requirements and the balance amount is earmarked for general corporate purposes.
Lineage
HAIL has been promoted by five brothers namely Wajid Ahmed, Gulzar Ahmad, Mohammad Mehmood Qureshi, Mohammad Ashraf Qureshi and Zulfiqar Ahmad Qurashi who are a part of the Agra-based HMA Group which has reportedly been in the meat business for more than four decades. HAIL is the flagship company of the group and is a three star export house recognized by Government of India. HAIL is currently among the largest exporters of frozen buffalo meat products from India and it accounts for more than 10% of India’s total export of frozen buffalo meat.
The company’s products are mainly packaged under the brand name Black Gold, Kamil & HMA and are exported to over 40 countries across the globe. According to the offer document, HAIL deals only in buffalo meat and allied products and, unlike beef or pork, buffalo meat is free from religious constraints and has the added advantage of low fat and cholesterol.
India, after Brazil, is the second largest exporter of buffalo meat in the world. India is expected to export 1.60 million metric tons (MMT) of buffalo meat with market share of 13% in total meat export across the world. Buffalo meat is the second largest exported product after Rice within the total agri-export basket of India.
Even though the HMA group is in existence for many decades, they are new to the investing public. A disturbing aspect of the promoters is they have disassociated themselves from as many as eight companies during the last three years preceding the date of the Red Herring Prospectus.
Further, two of the promoters were on the board of Al-Baksh Agro Private Ltd, which was struck off in October 2021. Another disturbing aspect of HAIL is the previous company secretary and compliance officer resigned from the company in just two months of joining.
Key Management
The company’s board has six directors (including one woman director) of which three are whole-time directors. All the three whole-time directors are from the promoters’ family. Another three members of the promoters’ family hold key managerial posts. The six members of the promoters’ family are offered a remuneration of Rs 1.8 Cr each irrespective of their respective qualification and experience.
Founder-promoter Gulzar Ahmad (56) is designated as Chairman and Whole Time Director. He is an undergraduate but claims to have vast and diversified experience in the field of trading of livestock and meat exports for over 3 decades. He is currently responsible for overall supervision of the management and affairs of the company.
Chairman’s brother Wajid Ahmed (39) is the Managing Director. He is a Commerce graduate reportedly having more than 16 years of experience in the meat industry. He is currently responsible for overall capital expenditure items such as machinery, equipment, packaging machines etc and ensuring smooth functioning of the processing units.
Chairman’s son Gulzeb Ahmed (34), who has completed his Certificate in Planning and Entrepreneurship Course in Personnel Management and Marketing Management from The Indian Institute of Planning and Management and Bachelor of Business Administration, is a Whole Time Director and is also designated as CFO. He claims to have over 8 years of experience in the business.
Chairman’s elder brother Parvez Alam (60) is the `Head of Operations’ responsible for overall management and affairs of the company including administration and overall development of the business of the company. He is an undergraduate associated with the company since incorporation.
Another brother, Mohammad Mehmood Qureshi (44) is the `Purchase Head’ of the company. He is also an undergraduate associated with the company since incorporation. He reportedly has vast experience in trading of livestock.
One more brother, Mohd Kamil Qureshi (37) is the `Export Head’ of the company. He is an undergraduate reportedly associated with the company since 2013. He is currently responsible for handling all the formalities required for exports.
Stakeholders
Currently the promoters and their relatives are holding the entire equity capital Rs 47.51 Cr at an abysmal cost. Managing Director Wajid Ahmad is holding 32% at 65 paise per share. Chairman Gulzar Ahmad holds 16% at Rs 1.13 per share. Mohammad Mehmood Qureshi is holding 16% at the rate of Rs 1.29 each. Mohammad Ashraf Qureshi holds 16% at Rs 1.56 a share. Zulfiqar Ahmad Qurashi holds 16% at Rs 1.45 a piece. Parvez Alam is holding 4% at a cost of Rs 0.78 a share.
Post public issue, of the enlarged equity capital of Rs 50 Cr, the promoters and their relatives would collectively hold about 83.61% (41.87 million shares) at an extremely negative cost. Of the post-issue promoters’ holding 20% is locked-in for a period of eighteen months and the balance 63.61% is locked for six months.
Business Profile
HAIL has been in the business of packaged frozen meat products for over 4 decades. The company is currently among the largest exporters of frozen buffalo meat products from India and reportedly accounts for more than 10% of India’s total export of frozen buffalo meat.
The meat processed for export is in the form of deboned and deglanded frozen halal buffalo meat. The procurement of raw material is done by the company and then this raw material is sent to various processing units to process the material into final products. Most of these processing units are owned by HAIL’s subsidiaries and some are owned by third parties. The company pays fixed charges to the processing units.
In order to diversify its business model and add complimenting products to its portfolio, the company has recently ventured into marine product exports which include frozen fish as a core product. Being an integrated line to meat, export of fish enables HAIL to capture new geographies.
HAIL has entered into an outsourcing agreement dated October 01, 2021 with Gausia Cold Storage Private Ltd wherein HAIL sources the orders from the market, procures the raw materials for processing and sends the material to Gausia Cold Storage who processes, freezes and packs the products on a contractual basis and sends the same back to HAIL for exports.
Financial Track
The price of Indian buffalo meat has historically been lower than other country made meat such as USA, Australia, Canada and even other developing countries like Brazil, Argentina etc. in the international markets. Also, traditionally, it is a low margin business. Before COVID-19, HAIL’s OPM was abysmally low at less than 1%. This has vastly improved to over 5% now.
Though the profit margin has significantly grown in recent years, the company’s top line has registered only a mediocre growth during this period. From Rs 2742 Cr in fiscal 2019, the company’s sales have reached Rs 3083 Cr in fiscal 2022. For the first nine months of fiscal 2023, HAIL has posted Rs 2370 Cr sales on which it has netted a profit of Rs 113 Cr. As compared to the company’s existing equity base (Rs 47.51 Cr), its bottom line certainly looks attractive.
|
HMA Agro Industries’ Consolidated Financials (in Cr) |
|||||
| Period Ended |
Dec-22 |
Mar-22 | Mar-21 | Mar-20 |
Mar-19 |
| Months |
9 |
12 | 12 | 12 |
12 |
| Revenue |
2370.48 |
3083.19 | 1707.50 | 2372.79 |
2742.15 |
| Operating Profit |
130.26 |
120.03 | 100.06 | 45.14 |
20.83 |
| OPM% |
5.5 |
3.9 | 5.9 | 1.9 |
0.8 |
| Other Income |
47.34 |
55.79 | 12.90 | 43.82 |
41.88 |
| EBIDTA |
177.60 |
175.82 | 112.96 | 88.96 |
62.71 |
| EBIDTA % |
7.3 |
5.6 | 6.6 | 3.7 |
2.3 |
| Interest |
7.18 |
6.57 | 4.05 | 6.39 |
3.84 |
| Depreciation |
6.89 |
10.67 | 8.31 | 10.02 |
9.97 |
| Except Item |
-12.35 |
0 | -3.15 | -10.34 |
0 |
| Tax |
40.94 |
41.19 | 23.52 | 19.11 |
18.02 |
| Net Profit |
113.24 |
117.62 | 71.60 | 45.90 |
31.17 |
| Equity Capital |
47.51 |
47.51 | 3.73 | 3.73 |
3.73 |
| Reserves |
405.45 |
327.15 | 254.97 | 183.32 |
137.73 |
| Borrowing |
340.68 |
330.02 | 181.33 | 169.18 |
131.98 |
| Fixed Assets |
269.40 |
231.80 | 105.60 | 96.30 |
83.49 |
Valuation
When compared to the other frozen food players, HAIL’s Return on Net Worth and Return on Capital Employed is quite impressive. In terms of price discounting too, HAIL compares reasonably well with frozen food heavy weights like Venky’s. Nevertheless, a disturbing aspect of HAIL is, the promoters and their relatives would be holding more than 83% of the post-IPO capital of Rs 50 Cr at a negative cost which makes the stock vulnerable post lock-in period.
The entire stake of the promoters will be free from lock-in after 18 months. In fact, more than 63% of the equity held by the promoters will become free-float after six months. Before that, the stock may encounter pressure from anchor investors whose 50% quantity is locked-in for 90 days and the balance 50% is locked for only 30 days.
|
HOW HMA AGRO COMPARES WITH SELECT FROZEN FOODS PEERS |
||||
|
Financials |
||||
| (Amount in Cr) |
HMA Agro |
Venky’s | Apex Frozen |
IFB Agro |
| Market Cap |
2930 |
2376 | 649 |
477 |
| Borrowing |
341 |
186 | 88 |
19 |
| Fixed Assets |
269 |
616 | 260 |
139 |
| Revenue |
3161 |
4234 | 1070 |
1571 |
| Other Income |
63 |
38 | 2 |
16 |
| EBIDTA |
237 |
149 | 85 |
89 |
| Interest |
10 |
18 | 15 |
2 |
| Net Profit |
167 |
70 | 36 |
49 |
| Equity Cap |
50 |
14 | 31 |
9 |
| Reserves |
553 |
1285 | 459 |
539 |
|
Stock Features |
||||
| Current Price (Rs) |
585 |
1686 | 208 |
509 |
| Face Value (Rs) |
10 |
10 | 10 |
10 |
| Book Value |
120 |
922 | 157 |
585 |
| Promoter Stake % |
83.6 |
56.1 | 72.6 |
65.0 |
| Debt/Equity |
0.57 |
0.14 | 0.18 |
0.03 |
|
Profitability |
||||
| OPM % |
5.5 |
2.6 | 7.8 |
4.7 |
| Net Margin % |
5.2 |
1.7 | 3.3 |
3.1 |
| Cash EPS |
34.17 |
75.19 | 17.7 |
72.47 |
| Earnings Per Share |
32.33 |
50.02 | 11.48 |
52.43 |
|
Growth |
||||
| CAGR 3Yr Sales % |
9.1 |
9.1 | 5.8 |
-6 |
| CAGR 3Yr EBIDTA % |
38.6 |
119.8 | -7.2 |
34.5 |
| PEG (P-E/EPS Growth %) |
0.8 |
-0.6 | -1.4 |
-0.6 |
|
Return |
||||
| RONW % |
37.0 |
5.4 | 7.3 |
9.0 |
| ROCE % |
28.7 |
7.7 | 11.3 |
12.3 |
|
Discounting |
||||
| Price/Earnings |
18.1 |
33.7 | 18.1 |
9.7 |
| Price/Cash EPS |
17.1 |
22.4 | 11.7 |
7.0 |
| Price/Book Value |
4.9 |
1.8 | 1.3 |
0.9 |
| Price/EBIDTA |
12.4 |
15.9 | 7.7 |
5.4 |
| Price/Revenue |
0.9 |
0.6 | 0.6 |
0.3 |
| Price/Fixed Assets |
10.9 |
3.9 | 2.5 |
3.4 |
|
Distribution |
||||
| Dividend % |
0 |
60 | 25 |
0 |
| Yield % |
0 |
0.4 | 1.2 |
0 |
| Pay-out % |
0 |
12 | 21.8 |
0 |
Concerns
- The company operates in a highly regulated and environmental and religiously sensitive business. It requires several statutory and regulatory permits, licenses and approvals many of which are granted for fixed periods of time and need renewal from time to time. Non-renewal of the permits, approvals and licenses would adversely affect the company’s prospects.
- On November 5, 2022, income-tax authorities reportedly conducted searches at the premises of the company, its subsidiaries, certain Group Companies, the Promoters and Directors. Further proceedings have been initiated in this regard by the income-tax authorities though no demand has been raised till the date of this Red Herring Prospectus. Any adverse action by the income-tax authorities on the company and/or its subsidiaries, group companies/entities, promoters and directors in this respect will badly affect the stock price.
- Outbreak of livestock diseases in general can significantly restrict meat business prospects and non-eradication of foot-and mouth disease from India could adversely affect the business operations and exports demand.