Vraj Iron IPO review (Apply)

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Review By Dilip Davda on June 22, 2024

•    The company is engaged in manufacturing and marketing of sponge iron, M.S Billets, TMT Bars under its own brand "Vraj".
•    Its captive power plants are helping them in reduced power costs.
•    It is on expansion spree to meet rising demand for its products. 
•    It's all expansion plans are likely to be on stream from Q1 of FY26
•    Based on its FY24 annualized earnings, the issue appears reasonably priced. 
•    Investors may park funds for the medium to long term. 

ABOUT COMPANY:
Vraj Iron and Steel Ltd. (VISL) is engaged in manufacturing of Sponge Iron, M.S. Billets, and TMT bars under the brand Vraj. It currently operates through two manufacturing plants which are located at Raipur and Bilaspur in Chhattisgarh spread across 52.93 acres. As of December 31, 2023, the aggregate installed capacity of manufacturing plants was 2,31,600 tons per annum ("TPA") (comprising of intermediate and final products). VISL's manufacturing plant at Raipur also includes a captive power plant with an aggregate installed capacity of 5 MW, as of December 31, 2023. The company is in the process of increasing the capacities of its existing manufacturing plants and captive power plant, which is expected to increase aggregate installed capacity (comprising of intermediate and final products) from 2,31,600 TPA to 5,00,100 TPA and captive power plants aggregate installed capacity from 5 MW to 20 MW. The proposed expansion of Sponge Iron and Captive Power Plant are expected to become operational in Q4 of FY 2024-25 whereas MS Billets is expected to become operational in Q1 of FY 2025-26.

Its product offerings such as Sponge Iron, TMT Bar, MS Billets and by-products Dolochar, Pellet and Pig Iron cater to a mix of customers that consist of industrial customers and end-users. The company sells its products directly as well as through brokers / dealers. As part of its initiatives towards continual improvement, the company has obtained the Environment Management System Certification under the new standard of ISO 14001: 2015 for Raipur Plant.

As of December 31, 2023, it had a workforce of 531 employees & workers, comprising of 296 permanent employees including 3 Directors, 9 employees at the Registered Office, 193 employees at Raipur Plant and 91 employees at Bilaspur Plant and 235 contract workers.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of fresh equity shares issue worth Rs. 171.00 cr. (approx. 8260870 shares at the upper cap). The company has announced a price band of Rs. 195 - Rs. 207 per equity shares of Rs. 10 each. The issue opens for subscription on June 26, 2024, and will close on June 28, 2024. The minimum application to be made is for 72 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.05% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 70.00 cr. for repayment/prepayment of certain borrowing, Rs. 59.50 cr. for capex on expansion of Bilaspur Plant., and the rest for general corporate purposes. 

The sole Book Running Lead Managers (BRLMs) to this issue is Aryaman Financial Services Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 18.00 - Rs. 100 per share (based on Rs. 10 FV), between March 2007 and March 2014. It has also issued bonus shares in the ratio of 4 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 3.60, Rs. 4.54, Rs. 5.14, and Rs. 6.00 per share. 

Post-IPO, its current paid-up equity capital of Rs. 24.72 cr. will stand enhanced to Rs. 32.98 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 682.74 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 290.93 cr. / Rs. 10.99cr. (FY21), Rs. 414.38 cr. / Rs. 28.70 cr. (FY22), and Rs. 517.42 cr. / Rs. 54.00 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 44.58 cr. on a total income of Rs. 304.81 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 15.53 and an average RoNW of 33.31%. The issue is priced at a P/BV of 2.73 based on its NAV of Rs. 75.84 as of December 31, 2023, and at a P/BV of 1.90 based on its post-IPO NAV of Rs. 108.69 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 11.49. Based on FY23 earnings, the P/E stands at 12.65. Thus the issue appears reasonably priced.

The company reported PAT margins of 3.78% (FY21), 6.93% (FY22), 10.47% (FY23), 14.79% (9M-FY24), and RoCE margins of 20.68%, 32.14%, 44.98%, 25.34% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has not paid dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Sarda Energy, Godawari Power and Shyam Metalics as their listed peers. They are trading at a P/E of 15.2, 16.5, and 18.0 (as of June 21, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The BRLM associated with the offer has handled 13 pubic issues in the past three fiscals, out of which 4 issues closed below the offer price on the listing date. 

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