Thread by @mmali09

#Heranba Anti-Thesis (Regulatory Risk)

1/ Started reading about the co. since it has one of the best ROCE in the AgroChem Industry with decent margins and reasonably valued.

Although growth levers are in place one long term risk stood out for me. Here's a 🧵on it

#Agrochemical

2/ About the co. - Great export biz - almost 50% Revenue from sales in 60+ countries (Exports). No client concentration risk with top 10 making 23% sales only.

3/ Leading forward integrated domestic producer of Synthetic pyrethroids & has has presence across its value chain (intermediates, technicals & formulations).

4/ Growth strategy - Entering the highly regulated USA and EU market got me excited along with other growth levers.

5/ But then it occurred to me what are Pyrethroids ? Here's where I started searching internet and this become my biggest Anti-Thesis point.

6/ Pyrethroids are less acutely toxic than organophosphate pesticides, but are associated with neurological disorders in humans and are harmful to pollinators and fish (remember this).

cen.acs.org/environment/pe…

7/ What's EPA ?

U.S Environmental Protection Agency (EPA) is the authorized body which publishes guidelines and regulations impacting the Agrochemicals among other environmental aspects.

epa.gov/aboutepa/our-m…

8/ Before introducing Pyrethroids more of Organophosphate based insecticides were in use but as more & more research provided evidence of its major health hazards EPA started banning the products.

Most recently, Chlorpyrifos was banned.👇

theconversation.com/the-epa-is-ban…

9/ Fun fact:

Organophosphate origin story: Dates back to Nazi regime (1970s), developed along with deadly nerve agent Sarin Gas.

Falsely presumed safe for usage its poisoning was found to have caused 200,000 deaths worldwide in a single year.

theverge.com/2014/2/19/5423…

9/ Back to Pyrethroids now.

Organophosphate pesticides are being replaced by these now & what ever little research done so far there are signs that it isn't really the best replacement and is causing health issues among other hazards.

See 6/ also

beyondpesticides.org/dailynewsblog/…

10/ Reading this article gives you a sense of the corruption in the approval & testing phase. The authorized officer waived toxicity test for pyrethroids when concerns were raised and then joined a private co. that made the product.

theintercept.com/2021/06/30/epa…

11/ Came across several other articles as well talking about the toxicity of Pyrethroids.

Now, assuming more research takes place giving further evidences of its health hazards and with mounting pressure from the environmental groups.

12/ There is regulatory risk that EPA may start banning these products as well. This could be further pushed with the adoption of much safer substitutes.

How long it'll take and when that may happen is the Million Dollar question. I may just stay away due to hazardous nature.

13/ Now, what impact could this have on a co. like Hiranba ?

Well, >60% revenue comes from Pyrethroids.

Highly concentrated !!!

14/ Reading this I feel with the current focus on health, clean chemicals & ESG. I may want to avoid this risk although I may be extrapolating the extent.
But can't deny that this risk exists.

Also, coz I have enough regulatory risk facing pharma businesses in PF- Risk Appetite

15/ With this exercise I think I'll be more thoughtful of the products that a chemical company manufactures and its environmental risks.

Let me know what do you think about this regulatory risk.