Vibhor Steel Tubes Limited IPO Review comes with its IPO issue of Rs. 72 Cr which will open on 13th February 2024. The issue will close on 15th Februaryth February and be listed on the exchange on 20 February 2024. In this article, we will look at the Vibhor Steel Tubes Limited IPO Review 2024 and analyze its strengths and weaknesses. Keep reading to find out!
Vibhor Steel Tubes Limited IPO Review
About the Company
Vibhor Steel Tubes Limited is a 2-decade old steel pipes manufacturer and exporter, which currently
Supplies exclusively to Jindal Pipes Ltd and sold under the brand name Jindal Star. The Company manufactures products such as Mild Steel, Carbon Steel, Hallow Steel Pipe, and much more.
These products are used as shaft frames in automobiles, steep tubes such as bicycle frames, and are also used for structural purposes. The Company has renewed its agreement with Jindal Pipes on April 01, 2023. As per the agreement, Vibhor has secured a contract with Jindal for 6 Years, during which JPL will place an order for a minimum of 1 Lakh MT per annum.
In return, Vibhor agreed to sell to JPL at a discount of 2% over the Gross Sale Price. The company owns two manufacturing units, one in Maharashtra and another in Telangana. Both the units will primarily function to supply steel pipes to Jindal Pipes.
The Company has an internal team of 627 employees led under the helm of Mr. Vijay, Mr. Vibhor and Mr. Vijay Laxmi Kaushik. These promoters have approximately 3 decades of experience in the mild steel and stainless steel welded pipe industry.
About the Industry
India is the second largest steel producer in the world with an installed capacity of 154.1 MT in FY22. It is also the second largest consumer of finished steel with a consumption of 120 MT in FY23. The Indian steel sector has been able to grow over the years due to the domestic availability of raw materials and efficient labour.
The industry was driven by domestic steel demand from sectors such as construction, real estate, and automobiles, while the vast coastline enabled exports and imports, making India one of the leading countries in the global steel industry.
The production of steel tubes and pipes has grown at a CAGR of around 10% in the past 5 years from FY19-FY23. Out of these years, the industry witnessed a decline only in FY21 due to the outbreak of Covid-19. During FY23, production increased by 27.3% YoY supported by healthy domestic demand.
The exports of steel pipes and tubes grew at a CAGR of 3.6% over the last five years from 1,124 thousand tonnes in FY19 to 1,294 thousand tonnes in FY23.
The export market has always been in steady growth except for FY21, as the outflow shipments were affected by the pandemic. However, they grew by 20.5% YoY in FY22 after the relaxation of blockade and restrictions.
During FY23, Exports increased by 8.6% YoY. A significant YoY growth of 24% in outbound shipments to the US, amounting to 310 thousand tonnes, led to an increase in exports during FY23.
Apart from this, shipments to UAE, Canada, Indonesia and Malaysia also supported the export growth. During YTD FY24, the exports registered a growth of 12.4% on YoY.
Vibhor Steel Tubes Ltd – Finances
The Company reported a gross income of Rs. 1,113 Cr in FY23, which was up 35% from Rs. 818 Cr in FY22. Since FY21, Vibhor’s revenue has increased at 48% CAGR.
Net Profits during the period increased by 86%, from Rs. 11 Cr in FY22 to Rs. 21 Cr in FY23. As the Company reported Net Profits of only Rs. 68 Lakhs in FY21, its Net Profits rose to grow at 457% CAGR.
Due to the excessively high cost of raw materials, the Company reported an EBITDA margin of only 4.2%, which resulted in thin Net Profit Margins of less than 2%.
Due to rising input costs and high working capital requirements, the Company’s debt to equity has increased from 1.23x in FY21 to a high of 1.63x currently.
However, Equity returns increased from single digit 1.14% in FY21 to double digit 25.5% in FY23. Return on Capital Employed also increased from 10% in FY21 to 16.5% in FY23.
Vibhor Steel Tubes- Key Players
Given below is the list of major players of Vibhor Steel Tubes. The Company is the smallest steel tube producer by size, falling just behind Rama Steel Tubes.
In terms of operational efficiency, the Company is far behind its competition with an EBITDA Margin of only 4.21% compared to an industry median of 4.48%. Goodluck India Ltd has by far the best margins at 7.19%.
Strengths of the Company
- Association with JPL: The Company enjoys a long-standing relationship with Jindal Pipes Ltd, which has resulted in a long-standing agreement with JPL.
- Strategic placement of Ports: The Maharashtra unit is located close to the port, allowing the company to manufacture its goods for export in Unit 1 itself.
- A well-developed distribution: The Company exports to more than 10 countries around the globe under the brand Jindal Star. VST will look to expand these markets in the future.
- Integrated Manufacturing Facility: The manufacturea ring units as well as the warehouse are equipped with the latest technologically advanced tools and machines for efficiently manufacturing steel pipes.
- Stable Financial: With consistent improvement in Annual capacity utilization, followed by scale in margins, the Company has steadily managed to increase its revenue along with margins.
Weaknesses of Company
- Inconsistent Cash Flows: The Company’s operating cash flows are highly volatile with a bumper cash flow in FY20, followed by a huge cash outflow in FY21. These cash flows need to stabilize more to allow the Company to continue to earn.
- Revenue Concentration: Most of the revenue generated by Vibhor is through its agreement with JPL. Vibhor is highly dependent on only one Company to run its operations, which leads to concentration risk.
- Razor Thin Margins: VST’s raw material cost reached an all-time high of 95.58% of Gross revenue in FY23. This results in the Company barely breaking even.
- Working Capital Requirement: The Company‘s working capital requirement for FY24 was Rs. 226 Cr. This caused the Company to take on a lot of debt. Currently it is at a debt-to-equity ratio of 1.63x
- Exposure to Trade Receivables and Inventories: Due to the nature of the business, Inventories and trade receivables form a huge part of its current assets, which is about 60% of its total assets.
Vibhor Steel Tubes Limited – GMP
The shares of Vibhor Steel Tubes Ltd were trading at a premium of 66.89% in the gray market on February 7, 2024. The shares in the Gray Market were trading at Rs 252. This gives it a premium of Rs 101 per share over the limit price of Rs 151.
Key IPO Information
Advertisers: Mr. Vijay Kaushik, Mr., Vibhor Kaushik, Mrs. Vijay Laxmi Kaushik, and M/s Vijay Kaushik Kaushik HUF
Senior Book Manager: Khambatta Securities
Registrar to the Offer: KFintech Ltd
The Purpose of the Subject
- Rs. 55 Cr from the Net proceeds of the matter to be used to fund the working capital requirements of the Company.
- The remaining amount will be used for General Corporate Purposes.
Conclusion
Vibhor Steel Tubes is a manufacturer in the lucrative steel pipes and tubes industry. The industry currently maintains near double-digit growth and benefits from significantly fewer competitors. However, Vibhor is highly dependent on Jindal Pipes. Although it has secured a long-term supply agreement with JPL, it should look to expand operations and diversify its customer base. In addition to this, the Company’s operating margins also remain a concern.
Since Vibhor is not a big player it does not enjoy the bargaining power with steel producers, which eventually eat into its margins. The Company exports to 10 other countries, but it is marketed under the Jindal Star brand. Because of this, Vibhor will fail to create a brand for itself. However, the concentration risk of reliance on a single customer, high working capital requirements resulting in increased debt levels, and razor-thin margins are major weaknesses. The company also faces volatility in cash flows.
However, at the upper price band of Rs. 151, the Company with basic earnings per share of Rs. 14.84 will be valued at Price to Earnings of 10.2x. So what do you think of this rating? Do you think it is too low or does it adequately value the risk taken in investing in the Company? Let us know in the comments below.
Written by Nasir Hussain
By using the stock screener, stock heat map, portfolio backtesting and stock comparison tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also stay up-to-date with stock market news and stay well informed. investments
Start Your Stock Market Journey Today!
Do you want to learn stock market trading and investing? Be sure to check out exclusive Stock Market courses from FinGrad, Trade Brains’ learning initiative. You can enroll in FREE courses and webinars available at FinGrad today and get ahead in your business career. Join now!!