IPO Alert: Vibhor Steel Tubes Limited

Vibhor Steel Tubes Limited IPO is generating buzz in the market, but is all of the hype justified? 

In today’s blog, we will be uncovering the key IPO details and delving deep into the company’s financials and the business model of this red-hot IPO! 

Company Overview

Vibhor Steel Tubes Limited is India’s leading manufacturer of high-quality steel products. The company deals with high-end mild steel tubes and pipes, ranging from galvanised pipes to welded black tubes and pipes used in the domestic, agricultural, and industrial sectors.

It was founded on April 16, 2003, and is headquartered in Hisar, Haryana. It has a strong distribution network in India and exports its products to over 20 countries.

Some of the major competitors of the company are APL Apollo Tubes, Rama Steel Tubes, Hi-tech Pipes, Hariom Pipes, Venus Pipes, and Swastik Pipes.

Business Model

VSTL manufactures multiple products. Let’s have a look at its portfolio.

Products Portfolio

The company offers a diverse range of products including ERW Pipes, hot-dipped galvanised pipes, hollow section pipes, primer-painted pipes, and crash barriers.

The top customers of the company are Jindal Pipes, G.B.M Building Equipment, Kruthika Traders, and Bansal Pipe. The raw material is provided to the company by SAIL, JSW Steel, Amex Resources, and some dealers of Hindustan Zinc.

The basic raw materials include HR Coils and Zinc. They are procured based on market availability, pricing, and quality through domestic suppliers such as steel manufacturers. 

The major raw materials suppliers of Vibhor Steel are JSW Steel and SAIL. Apart from this, the company also has an in-house IT system that helps in various business functions, including materials management, inventory management, etc. 

Recent Developments

In February 2023, VSTL announced plans to set up a new manufacturing plant in Gujarat with an expected capacity of 100,000 tonnes annually.

In March 2023, Vibhor Steels entered into a joint venture with Jindal Steel and Power Limited to manufacture and supply steel pipes, which is expected to start in 2024.

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IPO Details

1. Vibhor Steel IPO is a book-built IPO; the entire issue is a fresh issue of INR 72 crore.
2. The issue will open for subscription on February 13, 2024, and close on February 15, 2024.
3. The allotment is expected to be finalised on Friday, February 20, 2024.
4. The Vibhor Steels IPO will be listed on the NSE and BSE on Tuesday, February 20, 2024 (tentative).
5. The IPO price band for the company is set at INR 141 to INR 151 with a minimum lot size application of 99 shares.
6. The net proceeds of the IPO will be utilised for funding the working capital requirements of the company and general corporate purposes.

IPO Date	February 13, 2024 to February 15, 2024
Price Band	INR 141 – 151 per share
Listing Date	Tuesday, February 20, 2024
Issue Type	Book Built Issue
IPO Type	Mainboard IPO
Initiation of Refunds	Monday, February 19, 2024

Financial Highlights

Key Metrics	As of March 31, 2023	As of March 31, 2022	As of March 31, 2021
Total Assets	293.63	248.53	172.93
Total Liabilities	200.43	176.56	112.44
Revenue	1114.38	818.48	511.51
Expenses	1086.15	803.12	507.35
Net Profit	21.07	11.33	0.69
PAT Margin (%)	1.89%	1.39%	0.13%
EBITDA Margin (%)	4.21%	3.69%	3.90%
Debt-to-Equity Ratio (x times)	1.63	1.77	1.23
ROCE (%)	16.48%	12.09%	9.90%
Basic EPS (Rs.)	14.85	7.99	0.49

VSTL has displayed remarkable growth in terms of revenue and profit. The existing distribution network ensures efficient product reach to the customers. Improvements in operational efficiency have led to cost savings and thus contributed to higher margins.

Strengths

1. Expanding business – Healthy expansion plans for oil & gas pipeline infrastructure, government push on infrastructure development, and an increase in budgetary allocation towards infrastructure, railways, etc. will help the company expand its business operations in the coming years.
2. Government Support – Government initiatives such as ‘One nation, One gas grid’, ‘Jal Jeevan mission’ and ‘Pradhan Mantri Awas Yojana’ will help the company boom. 
3. Consumer Demand – Healthy demand from end-user segments such as real estate, water infrastructure, automobiles, railways, capital goods, etc.
4. Increasing Export – Revenue from export sales has been growing and is expected to increase in coming years due to global demand for cheaper products. 
5. Established Distribution channels – The company holds multiple developed distribution channels across the country, making it easy to supply products.
6. Profitability – Vibhor Steel maintains strong financial discipline with a good and profitable track record

Risks

1. Price – Volatility in steel prices could affect the profitability of the business.
2. Inflation – Persistent inflation may result in low demand for products and cause delays in the execution of projects.
3. Supplier concentration – 90.2% of the supply comes from only two suppliers – Steel Authority of India Limited and JSW Steel. Any changes in contracts with these entities could significantly damage to the company’s profitability. 
4. Revenue concentration – 92.66% of the revenue comes from just 1 entity, Jindal Pipes Limited. Although an agreement is in place with the entity, failure to continue this agreement beyond the tenure would cause significant effects to the company’s topline figures. 

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Conclusion

The decision to invest in the IPO should be made after a careful consideration of your risk profile and financial objectives. VSTL has revealed strong revenue and profit growth in recent years, depicting a promising trajectory. However, the threat of negative surprise still looms as the industry is fragmented, and large players could use underhanded tactics to earn greater profits. 

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