Hariom Pipe IPO closes on April 5th: Should you subscribe?

Hariom Pipe Industries Limited IPO to raise up to Rs 130 crore has been subscribed by more than 3 times at the end of Day 4 of the issue. The company is looking to raise up to Rs 130.05 crore through the public issue. Here are the details:

Hariom Pipe Industries IPO Details: 

Hariom Pipe IPO Date: 30 March - 5 April 2022

Hariom Pipe IPO Price band: Rs 144 - Rs 153

Hariom Pipe Industries IPO Issue Size: Rs 130.05 crore (Fresh Issue aggregating up to Rs 130.05 crore)

Reservation: QIB 30%, Retail - 35%, NII 35%

Minimum Investment: Rs 14,994

Post Issue Implied Market cap: Rs 367 crore to Rs 390 crore

Bid lot: 98 shares, and in multiples of 98 shares

Hariom Pipe Industries IPO: Objects of the Issue

The net proceeds from the IPO will be utilized for the following purposes :

• Funding the working capital requirements of the company.
• Funding capital expenditure requirements.

General corporate purposes.

About Hariom Pipe Industries

• The company was incorporated in 2007 and is an integrated manufacturer of Mild Steel (MS), Scaffolding, HR Strips, MS Billets, Pipes, and Sponge Iron.
• It sells the products mainly in the western and southern Indian markets. Their MS Pipes are marketed and sold in these regions under the brand name - Hariom Pipes.
• The company’s integrated plant at Mahabubnagar District in Telangana (Unit I) manufactures finished steel products from iron scrap and Sponge Iron. The other plant at Anantapur District, Andhra Pradesh (Unit II), exclusively manufactures Sponge Iron. Unit II is located near Bellary.
• It sells MS Pipes through more than 200 distributors and dealers. They also sell MS Pipes and Scaffoldings to certain developers and contractors directly as B2B sales.

Hariom Pipe: Financials

• The revenue from operations reported by the company for FY19, FY20, FY21 is Rs 133.60 crore, Rs 160.78 crore, Rs 254.14 crore, respectively. The company has almost doubled its revenue in this period.
• EBITDA for the same period was Rs 17.35 crore, Rs 23.86 crore, and Rs 34.97 crore, respectively. The EBITDA margin increased from 12.95% in FY19 to 13.72% in FY21.
• The net profit for the same period was Rs 8.02 crore, Rs 7.91 crore, and Rs 12.87 crore, respectively.
• The average EPS (Basic) and RoNW for the last three financial years is 7.99 and 20%, respectively.

Hariom Pipe Industries IPO: Listed Peers

• The listed peers include APL Apollo Tubes, Hi-Tech Pipes, Rama Steel Tubes, JTL Infra.
• Among the listed peers, APL Apollo is the largest player in terms of revenue with revenue of Rs 6,052 crore, followed by Hi-Tech Pipes.
• JTL Infra has the highest EPS among the peers, while Hariom Pipes is second last on the list with an EPS of 10.64.
• For Return of Net Worth (RoNW), Hariom Pipes tops the chart and is followed by JTL Infra.

USPs

Integrated nature of operations - Their ability to change the product mix as per market demand and supply dynamics gives us the flexibility to serve a wider spectrum of customers across various sectors.

Environmental friendly manufacturing process - The company consciously preferred and installed the hot charging process for manufacturing their products as it significantly reduces the usage of coal and power.

Cost advantage in manufacturing our products - They have established a manufacturing process that keeps costs low, leading to a competitive price advantage as compared to others in the industry. 

Competitive pricing of products - It can face competition from other industry players effectively as its products are a result of backward integration which leads up to the Sponge Iron stage of manufacturing. 

Growth potential

Expand geographical network - They plan to continue developing and nurturing existing markets and creating new distribution channels in under and non-penetrated geographies.

Organic growth by expansion of manufacturing capacity - Using the proceeds from the IPO, they will expand MS Pipe manufacturing capacity by setting up two additional pipe mills adjacent to existing Unit I.

Upgrade existing manufacturing facilities - They constantly endeavor to improve their productivity levels by optimum resource utilization, improvement in the manufacturing process, skill up-gradation of our workers, modernization of machineries to achieve better asset turnover. 

Risks

• They have not entered into long-term agreements with customers for purchasing products nor for the supply of raw materials from suppliers. There is no assurance that these customers and suppliers will continue to purchase products or sell raw materials to them. If it happens, the business will be impacted.
• Raw materials and stores spares and consumables consumed constitute a significant percentage of its total expenses. Any substantial increase in prices and any decrease in the supply would materially adversely the business.
• The demand and pricing in the steel and steel products industry are volatile and are sensitive to the cyclical nature of the industries it serves. A decrease in steel prices may have a material adverse effect on the business.

Hariom Pipe IPO Review: Analysis

Hariom Pipe Industries has reported a healthy 34% CAGR rise in revenue between FY19 to FY21. The company’s profit has also expanded at a good 38% CAGR in the period. The EBITDA margins have been in a healthy range of 12-14% in the last 3 year period. There has also been a good rise in the company’s earnings. The net profit margin has been in the range of 4.9 to 6% (FY19 to FY21).

At the higher end of the price band, Hariom Pipe Industries IPO is priced at a PE ratio of ~15.20 times FY22 annualised EPS (on a post-issue basis). This is lower than APL Apollo Tubes (98 times), Rama Steel Tubes (60 times), and JTL Infra (32 times). Notably, Hari Om Pipes has reported a higher Return ratio as compared to these peers. 

Given factors such as a good rise in revenues, strong profitability, healthy return ratios, healthy margins, good growth visibility, and reasonable valuations, analysts remain “Positive” on the prospects of this issue.