Venus Pipes IPO Review and Brokerage Calls – May Apply

Venus Pipes & Tubes Limited IPO is to open on May 11 for the subscription. The company is going to raise ₹165.42 crores from the primary market via initial public offerings. They fixed the price band at  ₹310 to ₹326 per equity share. The IPO will remain open till May 13.

Venus Pipes & Tubes Limited is a manufacturer of stainless steel pipes and tubes. As per the current scenario, the commodity prices rising in the sector might give benefit the company with higher margins in its business. The company is aiming to expand its business. The company reported ₹312 crores revenues in 2021 against ₹179 crores in 2022. Based on the earnings it impacted very high on the profit that shown a rise on 6 times in 2021 to ₹23.63 crores against ₹4.13 crores in 2020. The financial results show that 2022 will be a good year as the 3 months data shows good improvement as well.

About Company:

Gujarat Based Venus Pipes Limited is a manufacturer and exporter of stainless steel tubular products like stainless steel pipes and tubes. The company’s manufacturing plant is located in Kutch, Gujarat, The production facility is spread across 11 acres area. They have an installed capacity of 10,800 MT per annum. The company has a global presence in more than 18 countries internationally.

Venus Pipes product range includes Stainless Steel High Precision and Heat Exchanger Tubes, Stainless Steel Hydraulic and Instrumentation Tubes, Stainless Steel Seamless Pipes, Stainless Steel Welded Pipes, and Stainless Steel Box Pipes. They sell their products in local markets of India and countries including Brazil, the UK, Israel, and European Union, etc.

Listed Peers Comparision:

Jindal Saw Limited and Ratnamani Metal & Tubes Limited are the listed peer group companies. The P/E is trading at 32.96 and 6.21 as of May 06, 2022. Jindal Saw is trading in the range between ₹90 to ₹110 last year while Ratnamani Metal & Tubes is trading in the range between ₹1900 to ₹2600 in last one year.

Antique Stock Broking IPO Review:

Doubling capacity in the niche stainless steel pipe segment Venus Pipes & Tubes Limited (Venus) is a Gujarat-based manufacturer & exporter of stainless-steel pipes & tubes, primarily catering to industry-grade requirements with end uses spanning across chemicals, pharmaceuticals, food processing industries and other engineering needs. Global stainless steel (SS) pipes & tubes industry was estimated to be valued at USD32.4 bn in 2019 and is expected to grow at a CAGR of 4% through 2025. India’s per capital stainless steel consumption at 2.5 kg in 2019 is significantly lower compared to the world average of 6 kg per capita indicating the opportunities existing in the sector. Indian per capita consumption of steel pipes and tubes is less than half of the global average (21-22 kg) and about one-fifth of the Chinese consumption.

The company’s FY21 revenue jumped 74% YoY to INR3,093mn 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. The net debt amounts to INR631mn (as on 31.12.2021, including LC of INR 205.1mn) and leverage level at ~0.4x debt/ equity is comfortable. 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 and aims to raise the required funding through the IPO route.

Strong capacity expansion plans to drive revenues

Currently, the company has a total production capacity of 10.8 ktpa, of which 3.6 ktpa is dedicated to seamless SS pipes & 7.2 ktpa for welded SS pipes. The company plans to expand its seamless capacity to 9.6 ktpa and welded capacity to 14.4 ktpa, in addition to 9.6 ktpa of new capacity towards backward integration to manufacture mother hollow pipes.

Total capacity would double from 10.8ktpa to 24ktpa.

Backward integration and enriched product mix to improve margins Backward integration with in-house production of hollow pipes, acquisition of slitting machine for cutting steel strips/coils as per desired width and enriched product mix with higher diameter pipes would lead to continued improvement in margins.

Export and domestic opportunities to increase with removal of Chinese export rebate

China accounted for 54% of India’s total SS pipes & tubes imports in FY21. The cancellation of export rebates on Chinese steel products including welded and seamless steel pipes, as announced by the Chinese Government on 28 April 2021, is expected to erode away the cost advantage enjoyed by Chinese manufacturers, providing impetus to domestic pipes and tubes manufacturers. Domestic manufacturers are also protected with the stipulation that only BIS-certified products can be used for projects in the country.

Capex in chemical and pharmaceuticals industry to drive demand

SS Pipes & tubes are used across the chemical, engineering, pharmaceuticals and food processing Industries, among others. Venus Pipes & Tubes Ltd derives around 33% of its sales from chemicals (19%) and engineering (14%) segment. Approximately 10% of the capital expenditure for a chemical plant is in the form of SS pipes & tubes. The Atmanirbhar Bharat Initiative and other PLI schemes are set to boost these sectors, thus driving the demand for SS pipes & tubes in the country.

Centrum Institutional Research IPO Review:

Impressive growth in short term; operating performance to improve further

During FY19-21, it has grown well with sales CAGR of 61% to Rs3.09bn and EBITDA CAGR of 105% to Rs348mn in FY21. During 9MFY22, it has already surpassed FY21 numbers and recorded EBITDA of Rs355mn. The EBITDA margins improved from ~7% in FY19 to ~12.8% in 9MFY22. Blended EBITDA/t inched up sharply from ~Rs19,813/t in FY19 to ~Rs38,906/t in Q1FY22. As a result, PAT increased by ~94% CAGR to Rs272mn. Significant higher earnings improved return ratios. ROE improved sharply from 31% in FY19 to 59% in FY21 while ROCE improved from 14.7% in FY19 to 36% in FY21.

Doubling SS pipes capacity by FY23 end, backward integrating helps in securing growth

Venus has a manufacturing plant having installed capacity of 10,800tpa of SS pipes and tubes at Kutch, Gujarat. It has high diameter welded pipes of 7,200tpa (66%) and high diameter seamless pipes of 3,600tpa (33%). The capacity utilization has improved from average 61% in FY19 to 92% in FY21. Venus has embarked to expand capacity to 24,000tpa, expected to be commissioned by FY23 end. Post commissioning, welded pipes will be 14,400tpa (60%) and seamless pipes 9,600tpa (40%). The capital outlay required for expansion project is ~Rs1060mn funded through IPO proceeds. Future growth will be fueled from both volume expansion as well as cost saving on account of backward integration as it is setting up 9,600tpa piercing plant for seamless pipes which can help in saving Rs15-20k/t (at full capacity utilization, can save ~Rs150mn).

Our view: Rough calculation suggests ~20% upside to IPO price

The balance sheet is strong with net debt/EBITDA of 1x (FY19: 3.5x). Venus has the potential to generate EBITDA of Rs900mn-1bn/year (~2x from FY22 annualized EBITDA) at full capacity which can happen in FY25. The EBITDA increase should happen on volume expansion (capacity increasing from 10,800tpa to 24,000 tpa), improved customer mix by shifting sales from stockiest to direct sales/tender based, backward integration and improving operating efficiencies. It can generate net profits of ~Rs600mn (assuming EBITDA of ~Rs900mn). Assigning 14x (30% discount to Ratnamani Metal and Tubes’s FY24 consensus P/E), potential market cap could be ~Rs8.4bn, providing ~20% upside.

Venus existing capacity and expansion plans

Venus has manufacturing plant at Dhaneti, Kutch in Gujarat, having installed capacity of SS pipes and tubes of 10,800tpa. It manufactures welded as well as seamless SS pipes. Venus is amid increasing the overall SS pipes capacity to 24,000tpa and increase product offerings of different sizes and higher diameter. Welded pipes capacity is proposed to increase from

existing 7,200tpa to 14,400tpa and seamless pipes from 3,600tpa to 9,600tpa. It is expected to be completed by FY23 end at total capex of Rs1060mn. 

Conclusion: Should You Invest or Not?

As the commodity prices are rising we will see higher growth and the profit margin will increase in the coming quarters and fiscal year. The company is on a plan of expansion, to double the capacity in FY23. The financial results are looking strong and the growing sector will give more boost in the coming years. As the issue size is below Rs.250 crores the listing will be in the “T” Group. There will be a circuit limit of 5% on the listing price on a listing day. As per the data we saw in the above thread we recommend applying IPO with medium to long term perspectives.

Note: All the information published in the article is added as per the research from online sources and brokerage firms. The information is for educational purposes only. We do not claim any facts, or figures mentioned here.