IPO Analysis: Vibhor Steel Tubes Ltd

IPO Rating: Apply for the long-term

About the Issue:  

Vibhor Steel Tubes Ltd is launching its initial public offering (IPO) for equity shares valued at Rs 10 each. The IPO price range is set between Rs 141 and Rs 151 per equity share, resulting in a total issue size of Rs 72.17 crore at the upper price band.  

The IPO is scheduled to commence on February 13, 2024, and will conclude on February 15, 2024. The market lot size for the IPO is 99 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 1,287 shares or a total investment of Rs 1,94,337 assuming the upper price band.   

Objects of the Issue  

Considering that the offer is exclusively a fresh issue, it is crucial to note that the company will directly profit from the offer proceeds. The company plans to allocate the net proceeds raised from the fresh issue for funding of working capital requirements of the company and general corporate purposes.

Promoter holding  

Mr Vijay Kaushik, Mr Vibhor Kaushik, Mrs Vijay Laxmi Kaushik and M/s Vijay Kaushik HUF are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 98.24 per cent in the company.   

Company profile  

Vibhor Steel Tubes Limited holds a prominent position as a manufacturer and exporter of steel pipes and tubes, catering to diverse heavy engineering industries in India. Its product range encompasses Mild Steel/Carbon Steel ERW Black and Galvanized Pipes, Hollow Steel Pipe, and Cold Rolled Steel (CR) Strips or Coils.

Steel pipes and tubes serve a multitude of purposes, including but not limited to steel pipes for frames and shafts, bicycle frames, furniture, CDW (Cold Drawn Welded) pipes for shock absorbers, various structural applications, and various engineering purposes. The company has established a longstanding partnership with Jindal Pipes Limited, spanning several years. It manufactures and supplies finished goods for Jindal Pipes under the renowned brand name ‘Jindal Star’.

The Maharashtra unit's stability is ensured by the company’s existing presence in the export market, while the Hyderabad unit is safeguarded by the company’s experience in producing highway guardrail products. The company has been granted an allotment letter for land to establish a new facility of Vibhor Steel Tubes Limited in Odisha. Given that Odisha is the largest market for iron, this move is poised to reduce company’s raw material costs and enhance profit margins in the future.

Financials  

The company has consistently achieved growth in revenue and net profit over the past few years. In FY23, it experienced a remarkable 36 per cent year-on-year growth in revenue compared to FY22, while net profit soared around 86 per cent. Similarly, the figures for H1FY24 remained consistent with those of the previous year. The company boasts a return on equity (RoE) of 26 per cent for the fiscal year 2023.

Valuation and outlook  

The issue is priced with a P/BV ratio of 2.10 times, calculated using its Net Asset Value (NAV) of Rs 71.74 as of September 30, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 13. Therefore, the company has outperformed its listed peers by a considerable margin in terms of both valuation and returns.

The company's strengths lie in its association with Jindal Pipes, strategically located manufacturing units, international accreditations, notable export ventures, and robust financial performance. Hence, we recommend investors to consider subscribing to the issue with a long-term perspective.