StockAxis

Venus Pipes & Tubes Ltd. - IPO Note

Pipes - Metal

Venus Pipes & Tubes Ltd. - IPO Note

Pipes - Metal

Price range
Rs. 310 to 326
Issue Period:
May 11, 2022
May 13, 2022
Rating
Subscribe
May 11, 2022

Stock Info

Sensex
53992.48
CNX Nifty
16113.05
Face value (Rs.)
10
Market lot
46 Shares
Issue size
Rs. 157 – 165 cr.
Public Issue
0.5 cr. shares
Market cap post IPO
662 cr.
Equity Pre - IPO
1.5 cr.
Equity Post - IPO
2.0 cr.
Issue type
Fresh Issue

Shareholding (Pre IPO)

Promoters
55.64
Public
44.36
Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Promoters
41.73
Public
58.27
Source: Ace equity, StockAxis Research

Key Strengths & Strategies

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.

Industry

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

Risks

  • The primary raw material for the company is raw steel whose prices are very volatile in nature. This adversely affects the pricing capability and the operating costs for the company. The effect can be seen across the industry, as the EBITDA margins can vary year on year cutting the profitability of the company.
  • The company is in the business of manufacturing of SS pipes/tubes since approximately six years whereas its peer group industry players have the benefit of longer operating history in comparison with the company, and therefore, its brand development is at a relatively nascent stage.
  • The industry constituting of steel pipes and manufacturing is highly fragmented and has very low entry barrier which makes it a very competitive industry. Both organized as well as the unorganized players are competing for the market share.

Company Description

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.

Valuation

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.

Key Information

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.

Financial Statement

Profit & Loss Statement:- (Consolidated)

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