HMA Agro IPO: Good pick for medium-term

HMA Agro Industries Ltd is tapping the capital markets with its fresh issue of Rs150 crore and an offer for sale of Rs330 crore in a price band of Rs555-585. The issue opens on Tuesday the June 20 and closes on Friday, June 23. The issue would raise Rs480 crore. The company would be completing allocation to anchor investors. The total allocation to anchors would be of Rs144 crore.

HMA Agro Processors is one of India’s largest buffalo meat processors and exporter. The company has during the last couple of years started exporting basmati rice and frozen fish. Currently these businesses are small, but are growing rapidly. They would however remain fairly small in terms of the total turnover of the company and buffalo meat would remain the dominant business. The company has six plants spread across the Northern and Western part of India with the Haryana plant recently set up being the largest capacity and most modern processing plant anywhere in South East Asia. This plant has a capacity of 570 tons per day or roughly 2 lakh tons. This one plant is equal to the existing five plants capacity put together.

The entire product of the company is exported to over 40 countries globally. It markets its products under its own brand name. The company has registered brands like ‘Black Gold’, ‘KAMIL’, and ‘HMA’ for buffalo meat. It also has a brand ‘Fresh Gold’ for its fish business and ‘Green Gold’ for its rice business. The company HMA Agro, exports over 10 per cent of India’s buffalo meat exports and is currently one of the top three largest exporters doing so. The company enjoys a decent reputation amongst its customers and being a food item, the produce is highly regulated by both the exporting country and the importing country.

Being an exporting company, HMA Agro sells the by-products which fetches about 7 per cent of the turnover to its subsidiaries for further processing. The parent company does not process the by-products as that is not exported. The idea of entering rice and fisheries is to extend the food basket and also as the buyer (wholesaler) is the same. The company sells to wholesalers and is a B-to-B player. Further India’s exports of Rice and Buffalo meat form the top and the second highest item of export in the Agri basket.

The company reported revenues of Rs3,083 crore for the year ended March 2022 and a net profit of Rs117.62 crore for the same year. The EPS for the 12 months is Rs24.39. For the nine months ended December 2022, the company reported revenues of Rs2,370 crore and a profit after tax of Rs113.24 crore. The EPS on a non-annualised basis is Rs22.96. The Haryana plant which would effectively double the capacity of the company has started commercial operations since January 23 and the current year 23-24 would be the first full year of operation of the company. The PE band of the issue based on the 12 months March 22 number is 22.76-23.99. If one were to annualise the 9 months earnings for the period ended December 22, the EPS would be Rs30.6. The resultant PE band would be 18.13 - 19.1. This looks quite attractive for investment purposes.

There are two upsides that an investor putting his money in HMA Agro Industries is betting on. The first is the growth in the business with the company doubling its capacity from 2 lakh tons to 4 lakh tons. The biggest is the price differential between the price at which India exports its meat to the world and the international price of wheat earned by countries like Brazil and Australia. The difference is huge with India setting the floor at $2.85 per kg and Brazil at $4.45 per kg. The USA is at a much higher $7.06/kg. If the gap is narrowed it will increase the profitability significantly.

There are no listed peers for the company. The largest exporter of buffalo meat is Allana Sons and this is not a listed entity. There are a large number of listed players in basmati and rice exports. Further even the aqua and fisheries players have a large number of listed players. HMA Agro becomes a unique player offering buffalo meat exports, fisheries and basmati rice as a combination. The company offers an investment into the meat segment which is a 100 per cent export item and highly regulated by the animal husbandry department. It offers decent returns for investors. Investors with a medium-term outlook should invest for returns. In the long term the company has even better prospects.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)