Well diversified customers:
Company sells products both in the domestic as well as the international markets.
In the domestic market, company sell products to the end customers as well as traders/stockists
while in the international market they supply products through traders/stockists,
authorized distributors and through certain marketing representatives in the European
Union market.
In the international market, they have appointed sole distributors in markets like Italy and Kuwait in addition to appointing marketing representatives for the European market.
Revenue from operation
Sector | FY19 | % of Revenue | FY20 | % of Revenue | FY21 | % of Revenue | 9MFY22 | % of Revenue |
---|---|---|---|---|---|---|---|---|
Chemicals | 184 | 15.5 | 320 | 18.0 | 574 | 18.5 | 310 | 11.2 |
Engineering | 247 | 20.8 | 291 | 16.4 | 448 | 14.5 | 735 | 26.6 |
Fertilizers | 3 | 0.3 | 26 | 1.5 | 61 | 2.0 | 13 | 0.5 |
Pharma | 26 | 2.2 | 49 | 2.8 | 34 | 1.1 | 11 | 0.4 |
Power | 7 | 0.6 | 2 | 0.1 | 17 | 0.6 | 4 | 0.2 |
Food Processing | 9 | 0.7 | 13 | 0.7 | 8 | 0.2 | 41 | 1.5 |
Paper | 1 | 0.1 | 1 | 0.1 | 3 | 0.1 | 21 | 0.8 |
Oil & Gas | 1 | 0.1 | 1 | 0.0 | 0 | 0.0 | 2 | 0.1 |
Others | 25 | 2.1 | 14 | 0.8 | 10 | 0.3 | 27 | 1.0 |
Export | 134 | 11.3 | 60 | 3.4 | 148 | 4.8 | 264 | 9.5 |
Stockist/ traders | 550 | 46.3 | 1000 | 56.3 | 1790 | 57.9 | 1,339 | 48.4 |
Total | 1,188 | 1,778 | 3,093 | 2,768 |
Capacity expansion to further aid to growth:
Venus has been consistently adding capacities at a slower pace as they were new
and were in the process of establishing themselves. During FY19, total capacity
of SS(Stainless – Steel) pipes was 6,900tpa, which increased by 2,400tpa to
9,300tpa in FY20 and by 1,500tpa to 10,800 tpa in FY21. Venus tapped new demand
markets and exports opportunities and quickly rampedup capacity utilisation from
68% in FY19 to 90% in FY21 despite addition to capacity levels in welded pipes.
Similarly, it ramped up capacity utilisation in seamless pipes from 43% in FY19
to 92% in FY21. As a result, total pipes production increased significantly by 54%
CAGR over FY19-FY21 to 9,901t.
With further capacity expansion to 24,000 tpa by FY23-end. Post commissioning, welded pipes will be 14,400tpa (60%) and seamless pipes 9,600tpa (40%).
(tpa) | FY19 | FY20 | FY21 | Q1FY22 |
---|---|---|---|---|
Capacity | ||||
Seamless Pipe | 2,100 | 2,100 | 3,600 | 3,600 |
Welded Pipe | 4,800 | 7,200 | 7,200 | 7,200 |
Total | 6,900 | 9,300 | 10,800 | 10,800 |
Production | ||||
Seamless Pipe | 903 | 1,250 | 3,311 | 767 |
Welded Pipe | 3,283 | 6,436 | 6,590 | 1,636 |
Total | 4,186 | 7,686 | 9,901 | 2,403 |
Capacity Utilisation % | ||||
Seamless Pipe | 43 | 60 | 92 | 85 |
Welded Pipe | 68 | 89 | 92 | 91 |
Total | 61 | 83 | 92 | 89 |
Backward integration and a more diverse product mix to improve margins:
In order to enhance backward integration, Venus is setting up piercing plant with
capacity of 9600tpa. This will help in manufacturing of hollow pipes from SS round
bars which is raw material for seamless pipes. Currently it buys hollow pipes from
market. It also plans to set up slitting machine for backend process of cutting
steel strips/coils for welded pipes.
As part of technological enhancement, it will set up Acid regeneration plant to reduce acid usage which will help to reduce down time and enhance productivity. With increase in existing capacity, Venus intends to setup additional effluent facility along with existing plant to ensure compliance with pollution norms. It will significantly improve operating margins through cost optimization.
Present in single metal product provides an advantage over competitors:
Venus Pipes is catering to customers (both domestic and international) in only one
metal segment since their inception, and has built expertise in terms of production
process, inventory management and marketing of products in the stainless steel pipes
and tubes segment. This gives them the benefit of segment expertise thereby placing
them in a position of advantage vis-à-vis their competitors in accurately
assessing and responding to customer preferences in this segment as there are very
few manufacturers in this single metal product segment.
China export rebate cessation and BIS norms provide industry tailwinds:
China is the largest exporter of SS tubes and pipes to India and accounts for nearly
half of India’s total imports. Effective May 2021, the Chinese government
cancelled export rebates (13%) on seamless pipes and tubes and other steel products
to encourage Chinese steel manufacturers to focus on the domestic market. This move
is expected to benefit steel pipe and tube manufacturers in India as Chinese steel
becomes costlier. Moreover, only BIS certified products can now be used for all
projects in the country, which may lead to import substitution.
Tapping new geographies to increase export:
Although Venus Pipes does not have a long operating history and their revenues from
exports have not been significant historically, they have established their credentials
in the international market with stockist/traders and sole distributors in a short
span of 4 years and they intend to leverage their existing relationships to further
deepen their presence in the international market, particularly in the European
Union. Further, the announcement by the Chinese Government on April 28, 2021 with
respect to cancellation of the export rebates on several steel products including
welded and seamless steel pipes with effect from May 1, 2021 is expected to benefit
domestic pipes and tubes manufacturers in India.
Peer comparison
Particulars (Rs. in Crores) FY21 | Revenue CAGR (FY19 - FY21) | EBITDAM (%) | RoE (%) | RoCE (%) | EPS | PE (x) |
---|---|---|---|---|---|---|
Venus Pipes & Tubes Ltd | 61.00% | 11.24% | 59.00% | 36.00% | 18.04 | 18.10 |
LISTED PEERS | ||||||
Jindal Saw Ltd | 7.00% | 12.00% | 4.64% | 8.02% | 9.97 | 5.88 |
Ratnamani Metal & Tubes Ltd | 6.00% | 17.00% | 14.90% | 18.60% | 59.09 | 32.50 |
Venus Pipes & Tubes is a stainless steel pipes & tubes manufacturer & exporter in India, having over 6 years of experience in manufacturing of stainless steel tubular products in two broad categories - (i) seamless tubes/pipes, and (ii) welded tubes/pipes. These products have applications in sectors such as chemicals, engineering, fertilizers, pharmaceuticals, power, food processing, paper and oil & gas. They sell their products in the domestic market through traders' stockists, authorized distributors & certain marketing representatives. They started exporting in 2017. They have a single manufacturing plant with a total cumulative production capacity of 10.8 ktpa, located at Dhaneti (Kutch, Gujarat), in close proximity, around 55 kms and 75 kms from the ports of Kandla and Mundra, respectively.
The company offers a wide range of products under their own “Venus” brand including (i) stainless steel high precision and heat exchange tubers; (ii) stainless steel hydraulic and instrumentation tubes; (iii) stainless steel seamless pipes; (iv) stainless steel welded pipes and (v) stainless steel box pipes.
Under their brand name “Venus”, they supply their Products for applications in diverse sectors including (i) chemicals, (ii) engineering; (iii) fertilizers; (iv) pharmaceuticals, (v) power, (vi) food processing; (vii) paper; and (viii) oil and gas.
The company's FY21 revenue jumped 74% YoY to INR309.3cr aided by increased volume, higher capacity utilization driven by a robust growth of domestic and export demand. Venus increased its capacity from 6.9ktpa to 10.8ktpa over FY19-21. Increasing capacity utilization has driven a 60% revenue CAGR over the period. Return ratios have improved strongly with strong asset utilization & improved profitability. Venus Pipes is planning to double capacity to meet the rising demand, enrich the product portfolio, enhance operational efficiency through backward integration.
At the upper end of the IPO price band the stock is offered at 15.5x its FY22E annualized earnings.
The Company have delivered good growth in Sales over past few years along with stable margin profile. When compared to its listed peers, Venus Pipes is fairly valued. We recommend a “Subscribe” rating to this IPO.
Use of Proceeds:
The company has proposed to raise Rs157-165.4 cr by issuing fresh shares. At an
IPO price band of Rs310-326/share.
Out of the net proceeds, Venus intends to use Rs107.9 cr to fund ongoing capacity expansion and Rs25 cr for working capital requirement and general corporate purposes.
Book running lead managers:
SMC Capitals Limited
Management:
Jayantiram Motiram Choudhary- Chairman&Non-Executive Director, Arun Axaykumar Kothari-Managing
Director and CFO, Megharam Sagramji Choudhary - Promoter and whole time Director.
Particulars (Rs. in Crores) | FY19 | FY20 | FY21 | 9MFY22 |
---|---|---|---|---|
Revenue from Operations | 118.75 | 177.81 | 309.33 | 276.77 |
COGS | 101.63 | 156.99 | 261.48 | 227.19 |
Gross Profit | 17.12 | 20.82 | 47.85 | 49.58 |
Gross Margin (%) | 14.42% | 11.71% | 15.47% | 17.91% |
Employee Benefit Expenses | 2.53 | 2.67 | 3.20 | 4.22 |
Other Expenses | 6.29 | 6.52 | 9.88 | 9.85 |
EBITDA | 8.29 | 11.64 | 34.78 | 35.51 |
EBITDA Margin (%) | 6.98% | 6.54% | 11.24% | 12.83% |
Depreciation | 1.99 | 2.11 | 0.97 | 1.06 |
EBIT | 6.30 | 9.53 | 33.81 | 34.45 |
EBIT Margin (%) | 5.31% | 5.36% | 10.93% | 12.45% |
Finance Cost | 3.11 | 4.55 | 5.56 | 4.26 |
Oher Income | 1.75 | 1.51 | 2.70 | 1.51 |
Profit Before Exceptional Items & Tax | 4.94 | 6.49 | 30.95 | 31.70 |
Exceptional Items | - | - | - | - |
Profit Before Tax | 4.94 | 6.49 | 30.95 | 31.70 |
Tax | 1.20 | 2.36 | 7.32 | 8.11 |
Effective Tax Rate (%) | 24.19% | 36.36% | 23.64% | 25.58% |
Profit After Tax | 3.75 | 4.13 | 23.63 | 23.59 |
PAT Margin (%) | 3.16% | 2.32% | 7.64% | 8.52% |
Earnings Per Share (Rs.) | 2.86 | 3.15 | 18.04 | 15.50 |