What you must know about Vibhor Steel Tubes IPO?

Vibhor Steel Tubes Ltd – About the company

Vibhor Steel Tubes Ltd was incorporated in the year 2003 to manufacture and export steel pipes and tubes to various heavy engineering industries in India. Its product portfolio comprises of ERW pipes, which find application in water transport, oil, gas, and other non-toxic supplies; as well as hot-dipped galvanized pipes, which find extensive application in agriculture and infrastructure. In addition, the company also makes hollow section pipes in square and rectangular forms, primer painted pipes as well as crash barriers for application in railways, highways, and roads. Currently, the company has 2 manufacturing facilities located at Raigad in the state of Maharashtra and at Mahabubnagar District in the state of Telangana. For storing its products,  Vibhor Steel Tubes Ltd  also has a warehouse in Hisar in the state of Haryana. The company has a total of 636 employees on its rolls.

The products manufactured by Vibhor Steel Tubes Ltd find application in industries like aerospace, ship building, construction, power plants, oil & gas extraction units and oil refineries. The fresh funds will be used to fund long term working capital needs and for general corporate purposes. Promoters currently hold 98.24% in the company, which will get diluted post the IPO to 73.48%. The IPO will be lead managed by Khambatta Securities Ltd. KFIN Technologies Ltd will be the registrar to the IPO.

Highlights of the IPO issue of Vibhor Steel Tubes Ltd

Here are some of the key highlights to the public issue of Vibhor Steel Tubes IPO.

• Vibhor Steel Tubes IPO will be open from February 13th, 2024 to February 15th, 2024; both days inclusive. The stock of Vibhor Steel Tubes Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹141 to ₹151 per share.
   
• The IPO of Vibhor Steel Tubes Ltd will be entirely a fresh issue of shares and with no offer for sale (OFS) component. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The fresh issue portion of the IPO of Vibhor Steel Tubes Ltd comprises the issue of 47,79,470 shares (47.79 lakh shares approximately), which at the upper price band of ₹151 per share will translate into a fresh issue size of ₹72.17 crore.
   
• Since there is no OFS portion, the fresh issue portion will also double up as the overall IPO size. Thus, the total IPO of Vibhor Steel Tubes Ltd will also comprise of the issue of 47,79,470 shares (47.79 lakh shares approximately) which at the upper end of the price band of ₹151 per share aggregates to total issue size of ₹72.17 crore.

The IPO of Vibhor Steel Tubes Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Vijay Kaushik, Vibhor Kaushik, Vijay Laxmi Kaushik and M/s. Vijay Kaushik HUF. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, as indicated above. There is an employee quota allocation as mentioned in the prospectus, but the actual number of shares set aside for employee quota is yet to be finalized and communicated by the company. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the IPO of Vibhor Steel Tubes Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Vibhor Steel Tubes Ltd, the minimum lot size is 99 shares with upper band indicative value of ₹14,949. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Vibhor Steel Tubes Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Vibhor Steel Tubes Ltd IPO and how to apply?

The issue opens for subscription on 13th February 2024 and closes for subscription on 15th February 2024 (both days inclusive). The basis of allotment will be finalized on 16th February 2024 and the refunds will be initiated on 19th February 2024. In addition, the demat credits are expected to also happen on 19th February 2024 and the stock will list on 20th February 2024 on the NSE and the BSE. Vibhor Steel Tubes Ltd will test the appetite for commodity stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 19th February 2024 under ISIN (INE0QTF01015). Let us now turn to the practical issue of how to apply for the IPO of Vibhor Steel Tubes Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Vibhor Steel Tubes Ltd

The table below captures the key financials of Vibhor Steel Tubes Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Vibhor Steel Tubes Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been robust and stable at around 40-50%, which has led to the sales nearly doubling in the last two years. However, the company net profits appear to be relatively low if you compare with the steel products peer group in terms of net margins. However, this is more due to front-ending of costs.
    
2. For Vibhor Steel Tubes Ltd, the net margins may be facing pressure due to the front-ending of costs, but the ROE and ROA are fairly attractive. That is largely on account of the low equity base as well as the low asset base.
    
3. The company has a very robust sweating of assets at about 3.8X in the latest year, with the average of the last 3 years being above 3, which is extremely attractive. When you combine this with the impact of the robust ROA, the impact surely gets magnified on the positive side.

Let us turn to the valuations part. On the upper band pricing of ₹151 per share, the EPS of ₹14.85 in the latest year, translates into P/E ratio of about 10.17 times. That is attractive even stand alone considering the growth that the company has shown on top line and bottom line. Also, these are FY23 numbers and forward numbers would look at FY24 and FY25, wherein the valuations should look more attractive than these.

Here are some qualitative advantages that Vibhor Steel Tubes Ltd brings to the table.

• Vibhor Steel Tubes Ltd has a complete in-house design, engineering, and execution team, which ensures better control over quality and costs.
   
• It has developed and nurtured strong relationships with the clients over the years with its strong execution and quality track record.
   
•  Some of its products are specialized products, where the competition is quite limited and hence the company has become the default supplier.

The nature of value added steel products business is such that it the costs get front-ended so margins tend to be under pressure for some time. However, this is a case of higher risk in the initial phase and lower risk in later phases, once the roll out is completed. That is what the investors can bet on in the IPO at this juncture, considering that the company is already a profit making and growing company. Investors in the IPO of Vibhor Steel Tubes Ltd must be prepared for higher levels of risk to handle commodity demand cycles. Hence, a longer holding time frame would be advisable from the perspective of investors.