Hexagon Nutrition Files IPO Papers To Raise Up To Rs 600 Crore

Mumbai-based Hexagon Nutrition filed its draft red herring prospectus with Securities Exchange Board of India to raise up to Rs 600 crore through an initial public offering.

The pure-play nutrition company plans to raise capital through a fresh issue of shares worth Rs 100 crore, and an offer for sale of more than 3.01 crore equity shares by promoters and investors, according to its prospectus.

The offer for sale comprises 1.78 crore equity shares by promoters Arun Purushottam Kelkar, Subhash Purushottam Kelkar, Anuradha Arun Kelkar, and Nutan Subhash Kelkar. Among the investors, Somerset Indus Healthcare Fund I will offload 1.22 crore equity shares, and Mayur Sirdesai is going to sell 73,668 shares via offer for sale.

In 2016, offshore private equity firm Somerset Indus Healthcare Fund-I, along with Mayur Anand Sardesai, an advisor and director at Somerset Health Capital Advisors, had invested Rs 25 crore for a 10% stake in the company. Both these investors will now exit the company through its public issue. Currently, Somerset holds 1,21,35,056 compulsorily convertible preference shares and Mayur Sirdesai holds 73,156 such shares.

According to its draft paper, all outstanding convertible preference shares will be converted into maximum 1,22,76,818 equity shares comprising 1,22,03,250 equity shares to Somerset and 73,568 shares to Mayur Sirdesai before filing the red herring prospectus with the Registrar of Companies.

Equirus Capital and SBI Capital Markets are the book running lead managers to the issue.

Where will the proceeds go?

The issue size will be approximately in the range of Rs 500-600 crore.

Of the net proceeds from its fresh issue, about Rs 33.5 crore will be used for repayment of debt, the company said. Besides, Rs 15 crore will be used for funding incremental working capital requirements and Rs 19.17 crore for expansion of Nashik facility. The company also plans to pump in Rs 7.15 crore towards capital expenditure requirements of its subsidiary's - Hexagon Nutrition (International) Private Limited - Thoothukudi plant.

The rest of the net proceeds will be used for general corporate purposes.

Key Financials

Revenue from operations was impacted in FY20 due to lower export sales of premix formulations owing to global disruptions caused due to Covid-19 pandemic. Its revenue, however, rose to Rs 209.97 crore in FY21 from Rs 203.84 crore in FY20 as demand for premixes and therapeutic foods rose.

The Mumbai-based company has seen its Ebitda margin improve to 16.38% in FY21 from 11.16% in FY19. It has also managed to reduce its consolidated net debt significantly. As of September 30, 2021, it had a positive cash flow at Rs 4.45 crore, the company said in its draft RHP.

What Does Hexagon Nutrition Do?

Founded by Arun Kelkar and Subash Kelkar in 1993, Hexagon Nutrition offers products across clinical products, micronutrient premixes and therapeutic products. Its product portfolio comprises fortification of foods, therapeutic nutrition, clinical nutrition, and alleviation of malnutrition.

Currently, the company has three factories located in Nasik, Chennai, and Thoothukkudi and it sells its products across 70 countries.

The company had set up a trading company in South Africa in 2019 and has plans to build a facility there. It is also setting up a factory in Uzbekistan that is expected to commence operations by the first quarter of 2022.

The product mix of the company can be classified into branded nutrition products, premix formulations, and ready-to-use foods.

Their premixes are supplied to brands like Coca Cola, Amul, Dabur India, Lt Foods Ltd and Marico. In it filings with the market regulator, the company also said that it plans to introduce nutritional products in newer therapy areas like gynaecology, fertility, sexual wellness, healthy ageing etc.

In its prospectus, the company said the Covid-19 pandemic has made consumers increasingly aware of health and nutrition, a trend which is anticipated to boost sales of its fortified foods as well as health foods.

Key Risks

• The company is heavily reliant a select group of customers in the premix segment. Its top 10 customers constituted 51.7% of revenue in FY21 and its future operations is essentially linked to continuance of these relationships.

• The company does not maintain long-term contracts with third-party suppliers. As a result, its business may be adversely affected by a shortfall in supply, or increase in price of raw materials.

• Inability to obtain or renew requisite statutory and regulatory permits and approvals for our business operations could affect cash flows.

• It's a distribution-based business model in India and overseas markets. It has 25 regional distributors in Latin America, South East Asia, Africa and the Middle East. Ability to expand and grow depends on the reach and effective management of distribution network. Failure to manage the distribution network efficiently will adversely affect business.

• The outbreak of Covid-19, or outbreak of any other similar severe communicable disease could have a potential impact on its business.