Vibhor Steel Tubes Ltd. IPO
Published by Sharekhan Education | February 13, 2024
Amit Pathak | Sharekhan Education
Vibhor Steel Tubes is coming up with an IPO having an Issue size of₹ 72.17 Cr, Price Band in the range of ₹ 141-151. The issue opens on Tuesday, 13th Feb’2024 and closes on: Friday, 15th Feb’2024
Vibhor Steel Tubes Company Overview:
Vibhor Steel Tubes Ltd. manufactures and supplies steel pipes and tubes to various heavy engineering industries in India. Its products have applications in the construction, agriculture, and industrial sectors. The company operates two manufacturing facilities – one in Sukheli, Maharashtra, and another in Mehboob Nagar, Telangana. Since 2003, they have collaborated with Jindal Pipes and supplied finished goods to Jindal Pipes under the brand name Jindal Star.
Why Vibhor Steel Tubes Ltd is coming up with an IPO:
The IPO represents a fresh issue of equity shares aggregating Rs 72.17 crores. The proceeds from the fresh issue will be utilized for funding long-term working capital requirements and general corporate purposes. The minimum application is for 99 shares, with multiples thereafter. Post allotment, shares will be listed on BSE and NSE, contributing to the enhancement of the brand name.
Industry Overview:
In CY2022, the per capita finished steel consumption in India was 81.1 kg, significantly lower than the world average of 222 kg per capita. The National Steel Policy 2017 envisions an increase in per capita steel consumption to 158-160 kg by FY2031. Steel tubes and pipes play a significant role in construction activities, water supply, plumbing, drainage, sewage systems etc.
What are the Competitive Strengths of Vibhor Steel Tubes?
Vibhor Steel Tubes manufactures steel pipes and tubes in various shapes and sizes, catering to diverse purposes like frames, shafts, and furniture. While having a long-term agreement with Jindal Pipes, there is no exclusive agreement, allowing them to sell products in the open market without the brand name of Jindal Star.
Business Strategy of Vibhor Steel Tubes Ltd:
Vibhor Steel Tubes Ltd. has diversified its product portfolio by adding new products like crash barriers and square pipes in the current fiscal year. It is also in the process of enhancing its manufacturing and galvanizing capacity at the Telangana plant. The company has acquired land in Odisha for a new facility to reduce raw material costs and improve margins, with production expected to commence in FY2025.
Key Concerns regarding Vibhor Steel Tubes IPO:
The company is heavily reliant on Jindal Pipes, with approximately 90% of its revenue coming from sales to them, exposing it to concentration risk. Fluctuations in steel prices may adversely impact the business, and its working capital-intensive nature poses challenges. Compliance with environmental laws is crucial for operating their manufacturing facility, and procedural lapses may lead to regulatory actions and penalties.
Financials:
Vibhor Steel Tubes Ltd. has demonstrated robust financial performance, with revenue growth of 47.6% CAGR over FY21-23. EBITDA has grown at 55.4% CAGR, expanding EBITDA margins from 3.7% to 4.1%. PAT has shown significant growth at 451.8% CAGR, and in FY23, RoE stood at 25.5%. At the upper end of the price band (₹141-151), the issue appears reasonably valued with a P/E of 13.7x on post-issue FY23 earnings.
Source: IPO Red Herring Prospectus
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