Vibhor Steel Tubes Limited IPO Review
Vibhor Steel Tubes Limited IPO Review is facing an IPO issue of Rs. 72 Cr opens on February 13, 2024. This issue closes on the 15th.Day It will be listed in February and will be listed on the exchange on February 20, 2024. In this article, we will look at Vibhor Steel Tubes Limited IPO Review 2024 and analyze its strengths and weaknesses. Read on to find out!
Vibhor Steel Tubes Limited IPO Review
About Us
Vibhor Steel Tubes Limited is a 20-year-old steel pipe manufacturer and exporter.
Exclusively supplied by Jindal Pipe Co., Ltd. and sold under its brand name. Jindal Star. The company manufactures products such as mild steel, carbon steel, halloween steel pipe, etc.
These products are also used in shaft frames for automobiles, steep pipes in bicycle frames, and for structural purposes. The company renewed its contract with Jindal Pipes on April 1, 2023. As per the agreement, Vibhor has signed a six-year contract with Jindal, during which JPL will order at least 1 Lakh MT per year.
In return, Vibhor agreed to sell to JPL at a 2% discount off the total selling price. The company owns two manufacturing facilities, one each in Maharashtra and Telangana. Both facilities will be operated primarily to supply steel pipes to Jindal Pipe.
The company has an in-house team of 627 employees led by Mr. Vijay, Mr. Vibhor and Mr. Vijay Laxmi Kaushik. These promoters have approximately 30 years of experience in the mild steel and stainless steel welded tube industry.
Industry introduction
India is the world’s second largest steel producer with an installed capacity of 154.1 MT in FY22. It is also the second largest consumer of finished steel, consuming 120 MT in FY23. The Indian steel sector has been able to grow over the years thanks to the domestic availability of raw materials and effective labor.
Domestic steel demand in sectors such as construction, real estate, and automobiles has driven the industry, while its extensive coastline allows for exports and imports, making India one of the leading countries in the global steel industry.
Steel pipe production has grown at a CAGR of about 10% over the past five years from FY19 to FY23. Of these, the industry only witnessed a decline in FY21 due to the outbreak of COVID-19. In FY23, production increased by 27.3% compared to the same period last year, thanks to strong domestic demand.
Steel pipe exports have grown at a CAGR of 3.6% over the past five years from 1.124 million tons in 2019 to 1.294 million tons in 2023.
The export market has always been on a steady upward trend, except in FY21, as overseas shipments were affected by the pandemic. However, after the easing of lockdowns and restrictions, it grew by 20.5% year-on-year in FY22.
During FY23, exports increased by 8.6% year-on-year. Exports increased during FY23, with outbound shipments to the US increasing 24% year-on-year to reach 310,000 tonnes.
Additionally, shipments to the UAE, Canada, Indonesia and Malaysia also supported export growth. During fiscal year 2024, exports increased by 12.4% compared to the same period last year.
Vibhor Steel Tubes Ltd – Finance
The company reported total revenue of Rs. 1,113Cr in FY23, up 35% from Rs. 818Cr in 2022. Vibhor’s revenue has grown at a CAGR of 48% since FY21.
During the same period, net profit increased by 86% to 190 million won. 11 Cr in FY22 to Rs. 21Cr in FY23. The company reported a net profit of Rs. 68 Lakhs in FY21, net profit soared at a CAGR of 457%.
Because raw material costs were prohibitively high, the company reported an EBITDA margin of only 4.2%, resulting in a very low net profit margin of less than 2%.
Due to rising input costs and high working capital requirements, the company’s debt to equity has increased from 1.23 times in FY21 to 1.63 times now.
However, return on equity 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
Below is the list of major players in Vibhor Steel Tubes: The company is the smallest steel tube manufacturer in size, just behind Rama Steel Tubes.
In terms of operational efficiency, the company lags far behind its competitors, with an EBITDA margin of only 4.21% compared to the industry average of 4.48%. Goodluck India Ltd has the highest margin so far at 7.19%.
Company Strengths
- Association with JPL: The company has a long-standing relationship with Jindal Pipes Ltd, which has led to a long-term contract with JPL.
- Strategic layout of the port: The Maharashtra operation is located near a port, enabling the company to produce products for export from Unit 1 itself.
- Well-developed distributions: that much A company that exports its brand to over 10 countries around the world Jindal Star. VST plans to expand these markets in the future.
- Integrated Manufacturing Facility: that much manufacturingring The unit and warehouse are equipped with latest technologically advanced tools and machinery for efficient manufacturing of steel tubes.
- Stable Financial: As annual capacity utilization continues to improve and margins expand, the company has been able to steadily grow revenue along with margins.
company’s weaknesses
- Inconsistent Cash Flow: The company’s operating cash flow is highly volatile, with huge cash inflows in FY20 followed by huge cash outflows in FY21. These cash flows need to be further stabilized to enable the company to generate sustainable profits.
- Revenue Concentration: Most of Vibhor’s revenue comes from contracts with JPL. Vibhor relies heavily on just one company to run its operations, which creates concentration risk.
- Razor-thin margins: VST’s raw material costs reached an all-time high of 95.58% of total revenue in FY23. This left the company barely able to break even.
- Working capital requirements: that much company‘Working capital requirement for FY24 is Rs. 226Cr. This left the company with a lot of debt. Currently, that is the case. Debt ratio is 1.63 times
- Exposure to Accounts Receivable and Inventories: Due to the nature of our business, inventory and accounts receivable account for a large portion of current assets, which amounts to approximately 60% of total assets.
Vibhor Steel Tubes Limited – GMP
Shares of Vibhor Steel Tubes Ltd were trading at a premium of 66.89% in the gray market on February 7, 2024. The stock in Gray Market was trading at Rs 252. This gives a premium of Rs 101 per share to the ceiling price of Rs 151. .
Key IPO Information
promoter: Seed. Vijay Kaushik, Vibhor Kaushik Wife Vijay Laxmi Kaushik, M/s Vijay Kaushik Kaushik HUF
Book Operations Lead Manager: Khambata Securities
Proposal registered by: K-Fintech Co., Ltd.
purpose of the problem
- The net proceeds of Rs 55 Cr will 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 highly profitable steel pipe and tube industry. The industry is currently experiencing near double-digit growth and benefits from far fewer competitors. However, Vibhor is highly dependent on Jindal Pipes. Although it has signed a long-term supply contract with JPL, it is expected to seek business expansion and customer diversification. In addition, there are still concerns about the company’s operating profit margin.
Since Vibhor is not a large player, it does not enjoy negotiating power with steel manufacturers, which ultimately erodes its margins. The company exports to 10 other countries, but is sold under the Jindalstar brand. This resulted in Vibhor failing to create its own brand name. However, the risk of concentrated dependence on a single customer, increased debt levels due to high working capital requirements and razor-thin margins are significant weaknesses. The company also faces volatility in its cash flows.
Nonetheless, in the upper price range of Rs. 151, basic earnings per share is Rs. 14.84 is valued at 10.2x price-to-earnings. So what do you think about this assessment? Do you think it’s too low? Or do you think it’s an appropriate price considering the risk you take when investing in the company? Please let us know in the comments below.
Written by Nasir Hussein
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