Venus Pipes IPO Opens For Subscription On May 11th: Should You Subscribe?

Venus Pipes & Tubes IPO
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Venus Pipes & Tubes Limited (VPTL) IPO opens for subscription on the 11th May. The company is looking to raise up to Rs 165.48 crore through the public issue. 

Venus Pipes & Tubes Limited IPO Details:

VPTL IPO Date: 11 May - 13 May 2022

VPTL IPO Price band: Rs 310 - Rs 326

VPTL IPO Issue Size: Rs 165.42 crore (Fresh issue of 5,074,100 shares)

Reservation: QIB 50%, Retail 35%, NII 15%

Post Issue Implied Market Cap: Rs 661.65 crore (on upper price band)

Minimum Investment: Rs 14,996

Bid lot: 46 shares, and in multiples of 46 shares

Venus Pipes & Tubes IPO: Objects of the Issue

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

  • General Corporate purposes.
  • To meet long-term working capital requirements.
  • Financing project costs for capacity growth, technology upgrades, operational cost optimization, manufacturing facility support, and backward integration for hollow pipe manufacturing.

VPTL IPO: About the company

  • Venus Pipes & Tubes Limited is one of the growing stainless steel pipes and tubes manufacturers and exporters in India with over six years of experience in manufacturing stainless steel tubular products.
  • Under its brand name 'Venus', VPTL supplies Products for applications in diverse sectors including chemicals, engineering, fertilizers, pharmaceuticals, power, food processing, paper, and oil and gas.
  • The company has one manufacturing plant which is strategically located at Bhuj-Bhachau highway, Dhaneti (Kutch, Gujarat) having a capacity of 10800 MT per annum.
  • The company sells products in both domestic and international markets. VPTL exports its products to 18 countries including Brazil, the UK, Israel, and countries in the European Union, etc.

Industry Overview

  • The Indian stainless-steel sector, the second-largest producer ( till 2020) and consumer in the world, has a total manufacturing capacity of more than 5 Mn tons of stainless steel annually.
  • Globally, 10% of the steel produced is estimated to be converted to tubes. Higher demand for oil & gas and chemical & petrochemical industry - two of the largest consumers of steel pipes and tubes – is driving the demand across the world. 
  • Globally, the SS pipes and Tubes industry was estimated at nearly USD 32.4 billion in 2019 contributing a 23% share in the global pipes & tubes industry. The SS pipe & tube is expected to grow at 4% through 2025 with the total market size estimated to cross USD 40 billion.

Financials

  • The company has reported revenue of Rs 119 crore, Rs 178 crore, and Rs 309 crore for FY19, FY20, and FY21, respectively. During this period, the revenue grew at 61.4% CAGR.
  • The EBITDA for FY19, FY20, and FY21 is Rs 8.3 crore, Rs 11.6 crore, and Rs 34.8 crore, respectively. The EBITA has grown at a CAGR of 104.8% in this period. The EBITDA margin percent in the same period is 7%, 6.5%, and 11.2%, respectively.
  • The net profit reported by the company for FY19, FY20, and FY21 is Rs 3.8 crore, Rs 4.1 crore, and Rs 23.6 crore, respectively.
  • The company has posted an average EPS of 10.55 and an average RoNW of 19.58% for the last three financial years.
  • For annualized FY22 earnings and attributing it to fully diluted post IPO equity capital, then the asking price is at a P/E of 21.03.
  • The revenues from exports aggregated to Rs 14.8 crore, Rs 6 crore, and Rs 13.4 crore for FY21, FY20, and FY19, respectively, and as a percentage of revenue from operations, were 4.78%, 3.38%, and 11.28%, respectively. 

Listed Peers

  • The company's listed peers include Jindal Saw Limited and Ratnamani Metal & Tubes Limited. 
  • Among the three companies, Jindal Saw is the largest player in terms of revenue or total income followed by Ratnamani Metal & Tubes.
  • Jindal Saw has the lowest P/E among the listed peers with a P/E of 9.69 and Ratnamani Metal & Tubes has a P/E of 41.51.
  • Ratnamani Metal & Tubes has the highest EPS (59.07) among the three companies followed by VPTL.
  • RoNW is the highest for RoNW at 59.18% compared to its listed peers Jindal Saw and Ratnamani Metal which was RoNW of 4.69% and 13.9%, respectively.

USPs

International Accreditations and product approvals: They are one of the growing brands in stainless steel pipes/tubes with a presence in both seamless pipes and welded pipes/tubes segments. They follow international standard manufacturing practices, and their Manufacturing Facility benefits from the quality benchmarking certifications.

Specialized production: They are a pipes and tubes manufacturer with the sole focus on manufacturing welded and seamless pipes in a single metal category, i.e., stainless steel. Over the years, the company has built expertise in the production process, inventory management, and marketing of products in the stainless steel pipes and tubes segment.

Multi-fold product demand: The company gets business from broadly three categories - new projects, repair and maintenance, and replacement. Considering the number of sectors serviced by them, the demand for its Products is expected to increase in the future placing them in a competitive position. 

Customer Diversification: They sell their products both in the domestic as well as international markets. In the domestic market, they sell products to the end customers and traders/stockists. In the international market, they supply products through traders/stockists, authorized distributors, and certain marketing representatives in the European Union market. 

Growth potential

Increasing manufacturing capacity: The company plans to expand its existing manufacturing capacity for welded pipes/tubes and seamless pipes/tubes for manufacturing higher diameter welded pipes/tubes (up to 1219.2 mm) and seamless pipes/tubes (up to 168.3 mm). 

Plans to improve margins: By setting-up, up an in-house piercing line for manufacturing of hollow pipes will help the company achieve seamless backward integration of different processes and shall have a positive impact on improving manufacturing control over the production of seamless pipes and reducing dependence on raw material imports.

New geographies to increase export: To increase share in the international market, the company has appointed sole distributors in Italy and Kuwait and a marketing representative for servicing the European market. They also plan to expand to new markets.

Risks

Dependency on few customers: The top 10 customers constitute 37.49%, 44.51%, and 35.52% of total sales for FY21, Fiscal FY20, and FY19, respectively. They have long-term relationships with some of the customers, but they have not entered into long-term agreements with them. They may continue to derive a significant portion of their income from the top 10 customers. However, if they are not able to renew the contracts, it will impact the business.

Fail to manage growth: Company's operations have expanded as a result of its strategy to expand into the domestic and international markets. There is no assurance that they will be successful in their expansion endeavors. If they fail to improve existing systems or controls or to manage growth and expansion effectively, it will impact their business.

Competition from large players: The company faces competition, including from other large and established competitors, and they may fail to compete successfully against existing or new competitors, which may reduce the demand for their products which may lead to reduced prices, operating margins, profits and further result in loss of market share. 

Venus Pipes IPO: INDmoney Review

  • Robust rise in revenues: Revenue increased at 61% per year between FY19 and FY21, driven by capacity expansion. 
  • Strong Profit growth: Venus Pipe has seen an exponential rise in profits over the past three years, on the back of strong asset utilization. The Profit has risen to Rs 24 crore in Fy21 from Rs 4 crore in FY19. 
  • Improving margins: The company’s EBITDA margin has seen a healthy rise over the years. The EBITDA margin has risen to 12.8% in FY 21 from 6.5% last year, indicating improved operating efficiency.   
  • Reasonable valuations: At the higher end of the price band, Venus Pipes IPO is priced at a PE ratio of ~21 times FY22 annualized EPS. This is cheaper compared to Ratnamani Metals (33 times) but costlier than Jindal Saw (5 times). Notably, Venus Pipe has a much higher return ratio as compared to these listed peers.  
  • Final recommendation: Given factors such as robust growth in topline due to capacity expansion, exponential growth in bottomline, healthy margins, strong asset utilization, efficient operations and reasonable valuation, we remain “Positive” on the long-term prospects of this issue.
  • Venus Pipes & Tubes IPO date: When does it open for subscription?
  • Venus Pipes & Tubes IPO issue size: How big is this IPO?
  • How to apply for Venus Pipes & Tubes IPO?
  • What is the lot size for Venus Pipes & Tubes IPO?
  • When will Venus Pipes & Tubes IPO allotment happen?
  • When is Venus Pipes & Tubes IPO going to get listed?
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