HMA Agro Industries coming up with IPO to raise upto Rs 505.95 crore

HMA Agro Industries

• HMA Agro Industries is coming out with a 100% book building; initial public offering (IPO) of 86,48,647 shares of Rs 10 each in a price band Rs 555-585 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on June 20, 2023 and will close on June 23, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 55.50 times of its face value on the lower side and 58.50 times on the higher side.
• Book running lead manager to the issue is Aryaman Financial Services.
• Compliance Officer for the issue is Nikhil Sundrani.

Profile of the company

HMA Group has been in the meat industry since over four decades. The company is the flagship company of the group and is a three star export house recognized by Government of India. It 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. Its products are mainly packaged under the brand name ‘Black Gold’, ‘Kamil’ & ‘HMA’ and exported to over 40 countries all over the globe. The company deals in buffalo meat and allied products. Unlike beef or pork, buffalo meat is free from religious constraints and has the added advantage of low fat and cholesterol. The meat produced for export is in the form of deboned and deglanded frozen halal buffalo meat.

The company (including its subsidiaries) own four fully integrated packaged meat processing plants which are located at Aligarh, Mohali, Agra and Parbhani and are in the process of setting up its fifth fully integrated owned meat product processing unit at Haryana. It is also in advanced stages to acquire an additional plant at Unnao and it expects to complete this acquisition by Q2 of FY 2023-24. These would make its total in-house meat product processing capacities to more than 4,00,000 metric tons p.a. spread over six different owned plants by FY 2023-24. Further its also own two additional secondary level meat processing units at Jaipur and Manesar. The procurement of raw material is done by the company and then this raw material is sent to various processing units to process the raw material into final products and it exports these branded finished products through its distribution channels. Most of these processing units are owned by its subsidiaries and some are owned by third parties. 

Proceed is being used for:

• Funding working capital requirements of the company.
• General Corporate Purpose.

Industry overview

The livestock sector is an important component of Indian economy in terms of income, employment, and foreign exchange earnings. Besides directly benefiting the rural economy, the buffalo meat industry also provides various by-products. These by products are used as raw material for allied sectors -high-quality hides for the leather industry, processed offal for pharmaceutical and pet food applications, and inedible by-products provides poultry feed, special lubricants, and other products. India has one of the largest cattle populations in the world and it accounts for more than 110 million buffaloes which is 43% of world buffalo population. India is also the fifth largest producer of buffalo meat in the world. According to the Agricultural and Processed Food Products Export Development Authority (APEDA), India accounts for about 43% of the world buffalo meat production, with Uttar Pradesh producing the most, followed by Andhra Pradesh and Maharashtra.

Buffalo meat has the largest share with more than 69% in the total animal products exported from India. In 2020- 21, India remained the fourth largest buffalo meat exporter in the world. The major export destinations were Hong Kong, Vietnam, Malaysia, Egypt and Indonesia. In 2021-22, there has been a marked shift in exports towards Egypt, which topped the major importing country from India. Exports to Indonesia too is on the rise in the last four years which is expected to increase further in 2023. India is seeking access to Medan port of Indonesia to allow the shipment of buffalo meat on its northern coast rather than Jakarta due to the latter’s proximity to the nation. Medan port is located in the north and Jakarta port is located in the southern Indonesia. It can potentially be cheaper to pay for transportation as it takes over 1,500 kilometres to go between the ports of Medan and Jakarta. As per APEDA, the annual export quota of bovine meat from India to Indonesia is also expected to rise.

Pros and strengths

Production Quality and well-established set up: Ever since the company’s inception, the company has been laying paramount importance towards quality improvisation of its products. The company adheres to stringent quality parameters and ensure optimum hygiene and sanitation norms are maintained throughout the processing. All its operations are standardized in tune with the Good Manufacturing Practices (GMP), Good Hygienic Practices (GHP) and Hazard Analysis Critical Control Point (HACCP) which are harmonized with the International Codex Alimentarius Standards. It has introduced Quality Management System based on International Standard ISO 9001:2015, Food Safety Management System based on ISO 22000:2005 and HACCP to ensure the production of highest quality meat with adequate built-in consumer safety and to achieve its aim of producing the perfect product. It is also OHSAS ISO 18001:2007, ISO 14001:2015 and BRC certified.

Long standing relations with its customer base and well-established marketing set up: The company's customers are spread in various geographies over the globe. Its business model is customer centric and requires optimum utilization of its existing facilities, assuring quality supply of raw materials and achieving consequent economies of scale. The company exports its products to re-distributors in various countries and have relations with these distributors for over decades in most cases. Further it has over the last few years executed further such relationships and hence developed new markets by exploring higher margin areas and by maintaining the consistent quality output and delivery timelines. The business model has proved successful and scalable for the company.

One of the well-established brands: The company is one of the top three meat exporter companies of India exporting to more than 40 countries under the brands “Black Gold”, “Kamil” & “HMA”. Its products are bought off the shelf at local stores in these countries by end users. These products have been sold under these brand names from many years and hence due to continuity for over 10 years they carry brand recall values at the end customer level. Ever since its inception, it has been laying utmost importance towards building its brand through focusing on quality of its products which has helped it to get repetitive orders from its customers. Its brand names including its Trademarks are registered under the Trademarks Act in India.

Well diversified market reach: The company caters to both, the domestic as well as international markets. Its products are exported to more than 40 countries. The total exports of the company for nine months period ending December 31, 2022 and the last two fiscal years i.e., 2021-22, and 2020-21 was Rs 21,814.52 million, Rs 26,749.25 million and Rs 15,852.66 million respectively representing 90.22%, 86.76 % and 92.84 % of its total revenue from operations respectively. 

Risks and concerns

Derive significant portion of revenue from meat business: The company derives a significant portion of its revenue from meat business, which primarily comprises the sale of frozen deboned buffalo meat products. Its total income for the nine months ended December 31, 2022, year ended March 31, 2022, March 31, 2021 and March 31, 2020 were Rs 24,178.21 million, Rs 31,389.76 million, Rs 17,203.96 million and Rs 24,166.13 million respectively. As compared to FY 2019 there was a reduction in sales in FY 2020 of 13% and thereafter as compared to FY 2020 there was a further reduction in sales in FY 2021 of 29%. The reason for these reductions in Total Income was due to effects of Covid-19 Pandemic and also due to strategically reducing its focus on low margin markets & gradually shifting towards higher margin markets which can be clearly seen in its financial results wherein its EBIDTA margins have increased from 3.25% in FY 2020 to over 5.60% in FY 2022. Hence, it has not experienced any reduction of demand for its products. However, consequently, any reduction in demand or a temporary or permanent discontinuation of processing of such products could have an adverse effect on its business, results of operations and financial condition.

Do not have long-term agreements with suppliers: The company’s business depends on the availability of reasonably priced, high quality raw materials which are in the form of livestock, all of which are purchased from the open market. The price and availability of such raw materials depend on several factors beyond its control, including overall economic conditions, availability levels, market demand &competition for such raw materials, transportation costs, duties & taxes and trade restrictions. It usually doesn’t enter into long-term supply contracts with any of its suppliers and typically source raw materials from third-party suppliers or the open market. The absence of Long-term contracts at fixed prices exposes it to volatility in the prices of raw materials that it requires and it may be unable to pass these costs onto its customers, which may reduce its profit margins. It also faces a risk that one or more of its existing suppliers may discontinue these supplies to it, and any inability on its part to procure raw materials from alternate suppliers in a timely fashion, or on commercially acceptable terms, may adversely affect its operations.

Rely on third-party transportation providers: The company depends on various forms of transportation to either receive raw materials for its processing purposes or to deliver the finished products to its distributors and other customers for its export and domestic sales. For these purposes, it typically uses third-party transportation providers. Further, it undertakes its export activities from Nhava Sheva Port, Mumbai to which its products are delivered primarily through road transport from its processing facilities and thereafter exported. The company is therefore significantly dependent on transportation and logistics companies that it engages with. The disruption of transportation services due to natural factors such as weather conditions particularly during monsoon or flood seasons, or man-made factors such as strikes, accidents, or other inadequacies in the transportation infrastructure, or any other factor that could impair the ability of its suppliers to deliver raw materials to it and its ability to deliver its products to its retailers and distributors and their ability to deliver products to the end customers in a timely manner, which may adversely affect its sale of its packaged frozen meat products.

Rely on contract labor for carrying out certain of operations: In order to retain flexibility and control costs, the company appoints independent contractors who in turn engage on-site contract labor for performance of certain of its operations in each of its business verticals. It has appointed 68, 65 and 174 different independent labor contractors for the fiscal years 2020, 2021 and 2022 respectively for providing it contract labourers, as per its requirement from time to time. Although it does not engage these laborers directly, it may be held responsible for any wage payments to be made to such laborers in the event of default by such independent contractor. Any requirement to fund their wage requirements may have an adverse impact on its results of operations and financial condition. In addition, under the Contract Labour (Regulation and Abolition) Act, 1970, as amended, it may be required to absorb a number of such contract labourers as permanent employees. In the event of any non-compliance by contractors with statutory requirements, legal proceedings may be initiated against it. Thus, any such order from a regulatory body or court may have an adverse effect on its business, results of operations and financial condition.

Outlook

HMA Agro Industries is the 3rd largest exporter (based on annual revenue) of packaged frozen halal boneless buffalo meat products in India. It is a star export house recognized by government of India and its products are mainly packaged under the brand name “Black Gold”, “Kamil” & “HMA” and exported to over 40 countries all over the globe. Its core products are frozen fresh deglanded Buffalo Meat. In order to take advantage of its robust export business and well-established distribution channels across 40 countries, it has recently diversified its product portfolio by adding Frozen Fish Products and Basmati Rice as business verticals. It intends to also add poultry and other agro products to its portfolio thereby becoming one of the most well recognized food products exporters in India. On the concern side, the company has experienced shutdowns/disruptions in the past with respect to its manufacturing plants in Aligarh, Agra and Punjab. It cannot assure that it may not face any difficulty in its operations due to such shutdowns/disruptions in the future which may adversely affect its business, financial condition and results of operations. 

The company is coming out with an IPO of 86,48,647 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 555-585 per equity share. The aggregate size of the offer is around Rs 480.00 crore to Rs 505.95 crore based on lower and upper price band respectively. On the financial front, in fiscal 2022, the company’s Revenue from Operations increased by Rs 13,756.94 million or 80.57%, from Rs 17,074.97 million in fiscal 2021 to Rs 30,831.91 million in fiscal 2022. Profit after Tax increased by Rs 460.23 million or 64.28%, from Rs 715.97 million in fiscal 2021 to Rs 1176.21 million in fiscal 2022. Meanwhile, the company’s vision is to target new geographies where there is demand for quality products and create operational synergies. Expanding into new locations is an important step for growing businesses and its vision aligns with the same. It seeks to increase its presence in exports markets in developed & emerging countries which are untapped by it. Also, it has recently diversified its product portfolio adding marine products and Basmati rice which will enhance its reach to new customers as well as to new geographies.