What you must know about HMA Agro Industries IPO

HMA Agro Industries Ltd was incorporated in the year 2008 as a star export house to deal in food trade. It is a food trade company that basically handles a variety of agricultural product exports including the predominant exports of frozen fresh de-glanded buffalo meat. In addition,  HMA Agro Industries Ltd is also into the export of frozen natural products, vegetables, and cereals. Incidentally, HMA Agro Industries Ltd happens to be one of the largest exporters of frozen buffalo meat products from India and the one company alone accounts for more than 10% of India's total export of frozen buffalo meat. Its products are packaged under the brand name "Black Gold", "Kamil" & "HMA". The company’s products have a vast export market that is spread across more than 40 countries across the world.

The company has its own meat processing plants in India located at different places in India from where it exports to other countries. Currently, HMP Agro Industries Ltd has a total of 4 fully integrated packaged meat processing plants which are located at Aligarh, Mohali, Agra, and Parbhani and is also setting up a fifth fully integrated meat product processing unit in Haryana. In addition, it is also looking at inorganic expansion through acquisitions of similar units. The company has total in-house meat product processing capacity of over 400,000 metric tons per year. It has also diversified its export basket into frozen fish and Basmati Rice. The company is a government recognized Star Export House.

Highlights of the IPO issue of HMA Agro Industries Ltd

The company HMA Agro Industries IPO is coming out with an IPO of ₹480 crore, which will be a combination of a fresh issue and an offer for sale. Here are the highlights.

• The shares of HMA Agro Industries have a face value of ₹10 per share and the price band for the book built IPO has been set in the range of ₹555 to ₹585. All our calculations will assume pricing at the upper end of the price band at ₹585.
   
• The fresh issue portion will approximately comprise of 25,64,103 shares which at the upper price band of ₹585 per share would have a fresh issue value of ₹150 crore. The fresh issue will result in fresh funds coming into the company and also EPS dilutive.
   
• The offer for sale (OFS) portion will approximately comprise of 56,41,026 shares which at the upper price band of ₹585 per share would have an OFS value of ₹330 crore. The OFS is just a transfer of ownership, so it would not be EPS dilutive for the company.
   
• Therefore, the total issue size will comprise of 82,05,129 shares which at the upper price band of ₹585 per share would have a total issue size of ₹480 crore. The IPO being a combination of fresh issue and OFS will dilute the promoter equity holding.
   
• The company has allocated half of the total number of shares available for the QIB investors while the balance is distributed between retail and HNI / NII as under.

• The lot size for the issue will comprise of 25 shares, which is the bare minimum application that can be put in the case of the IPO. The table below captures the relevant lot sizes for various categories of investors.

The promoters of HMA Agro Industries Ltd include Wajid Ahmed, Gulzar Ahmad, Mohammad Mehmood Qureshi, Mohammad Ashraf Qureshi, Zulfiqar Ahmad Qureshi and Parvez Alam. The issue will be lead managed by Aryaman Financial Services Ltd. The registrar to the issue is Bigshare Services Private Ltd.

Key dates for HMA Agro Industries Ltd IPO and how to apply?

The IPO of HMA Agro Industries Ltd opens for subscription on 20th June 2023 and closes for subscription on 23rd June 2023 (both days inclusive). The basis of allotment will be finalized on 29th June 2023 and the refunds will be initiated on 30th June 2023. In addition, the demat credits are expected to happen on 03rd July 2023 and the stock will list on 04th July 2023 on the NSE and the BSE. HMA Agro Industries Ltd will only be the fifth IPO of FY24 and its success would be crucial for the attractiveness of the IPO market.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of HMA Agro Industries Ltd

The table below captures the key financials of HMA Agro Industries Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

There are few key takeaways from the financials of HMA Agro Industries Ltd which can be enumerated as under

1. Revenues are strictly not comparable since FY21 and FY20 earnings were hit badly by the COVID pandemic, which not only impacted the operations in India but also made it tough to bring back the market demand after the virus affliction.
    
2. The profit margins of the company are fairly low, but that is normally for any trading house which tends to operate on high volumes and low margins. Maintaining net margins in the range of 3% to 4% should be good enough.
    
3. The asset turnover looks very attractive on paper, but in a trading business that may not be too relevant. What is important is that the total borrowings, apart from being lower than the net worth, is just about 10% of the total sales revenues. That is comfortable.

In terms of pricing, the weighted average EPS of the last 3 years comes to ₹18.83 and projected to touch ₹25 in FY23. The P/E is over 30 times at current weighted average earnings and about 23 times forward earnings. Considering its business model, it will be a high risk bet on the export market for food products.