Venus Pipes IPO review (May apply)

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Review By Dilip Davda on May 6, 2022

•    VPTL is in the business of stainless steel pipes and tube manufacturing and marketing.
•    In line with rising commodity prices, this company reaped benefits with higher margins.
•    Based on super earnings, the issue is fully priced. 
•    It is on an expansion spree and aiming for more than doubling its capacity.
•    Investment may be considered for medium to long term rewards.

ABOUT COMPANY:
Venus Pipes & Tubes Ltd. (VPTL) is one of the growing stainless steel pipes and tubes manufacturers and exporters in India having over six years of experience in manufacturing stainless steel tubular products in two broad categories: (i) seamless tubes/pipes; and (ii) welded tubes/pipes, under which it is currently manufacturing five product lines, namely, (i) stainless steel high precision & heat exchanger tubes; (ii) stainless steel hydraulic & instrumentation tubes; (iii) stainless steel seamless pipes; (iv) stainless steel welded pipes; and (v) stainless steel box pipes ("Products"). 

Under its brand name "Venus", VPTL supplies 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 has one manufacturing plant which is strategically located at Bhuj-Bhachau highway, Dhaneti (Kutch, Gujarat) having a capacity of 10800 MT per annum. As of February 28, 2022, it has a total of 362 employees on its payroll. 

Post completion of the expansion, its overall capacity will stand enhanced to 24000 MT per annum. This leads to bright prospects going forward.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its funding requirements for capacity expansion, technology up-gradation, cost optimization (Rs. 107.95 cr.), working capital (Rs. 25.00 cr.) and general corporate purposes, VPTL is coming out with a maiden IPO of 5074100 equity shares of Rs. 10 each via book building process. It has fixed a price band of Rs. 310.00 to Rs. 326.00 per share and mulls mobilizing Rs. 165.42 cr. at the upper cap. The issue opens for subscription on May 11, 2022, and will close on May 13, 2022. The minimum application to be made is for 46 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25% of the post-IPO paid-up capital of the company. VPTL has allocated 50% for QIBs, 15% for HNIs and 35% for Retail investors.

The issue is solely lead managed by SMC Capitals Ltd. and KFin Technologies Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company issued further equity at Rs. 280 per share in October 2021. It has also issued bonus shares in the ratio of 1 for 2 in September 2021. The average cost of acquisition of equity shares by the promoters is Rs. NIL, Rs. 7.66, Rs. 13.72 and Rs. 29.89 per share. 

Post-IPO, VPTL's current paid-up equity capital of Rs. 15.22 cr. will stand enhanced to Rs. 20.30 cr. Based on the upper price band of the IPO pricing, the company is looking for a market cap of Rs. 661.65 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, VPTL has posted turnover/net profits of Rs. 120.51 cr. / Rs. 3.75 cr. (FY19), Rs. 179.32 cr. / Rs. 4.13 cr. (FY20) and Rs. 312.03 cr. / Rs. 23.63 cr. (FY21). For the first nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 23.60 cr. on a turnover of Rs. 278.28 cr. It has posted bumper growth in its top and bottom lines for the last 21 months working following rising demands coupled with spiralling commodity prices.   

For the last three fiscals, it has posted an average EPS of Rs. 10.55 and an average RoNW of 19.58% The issue is priced at a P/BV of 4.12 based on its NAV of Rs. 79.15 as of December 31, 2021, and at a P/BV of 2.31 based on its post-IPO NAV of Rs. 140.86 per share. 

If we annualize FY22 earnings and attribute it on fully diluted post IPO equity capital, then the asking price is at a P/E of 21.03. 

COMPARISON WITH LISTED PEERS:
As per offer documents, VPTL has shown Ratnamani Metals and Jindal Saw as its listed peers. They are currently trading at a P/E of 32.96 and 6.21 (as of May 06, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not declared any dividend for the reported periods of the offer documents. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
SMC Capital has not handled any public issue in the last three fiscals (including the ongoing one). Hence it has no recent track record for these periods. 

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