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Venus Pipes & Tubes Ltd IPO – Key Financial Parameters

Venus Pipes & Tubes Ltd is a Gujarat based manufacturer and exporter of stainless steel pipes and tubes. Some of the major industry groups that Venus caters to include chemicals, pharma, food processing and engineering goods. The global stainless pipes and tubes industry is worth over $32 billion so it is a huge market opportunity. The domestic gap is also huge with India’s per capita consumption of stainless steel pipes and tubes at 9kg compared to the 22kg global average and nearly 45kg for China.

Venus Pipes & Tubes Ltd currently has 10.8 KTPA capacity which includes 3.8 KTPA of seamless SS pipes and 7.2 KTPA of welded SS pipes. The fresh funds from the issue will be used to expand its seamless and welded SS pipe capacity. The removal of rebate on Chinese exports is likely to make India more competitive with the Capex cycle in chemicals and pharma turning positive in the next few years. Overall, the demand scenario looks robust.

Here are 3 important things that you must know about the Venus Pipes & Tubes Ltd IPO before deciding whether to apply or not.

  1. The fresh funds will be used to expand its capacity of manufacture seamless and welded SS pipes and this is likely to be value accretive for the valuation of the company. However, the market cap base at Rs.662 crore is quite small.

  2. EBITDA margins have improved from 7% to 12% in the last 3 year and even the ROI has gone up sharply in the last 2 years. Overall, financial numbers are extremely robust for the company.

  3. Its major user industries like chemicals, pharma and engineering are expected to see heavy capex in the coming years and that is likely to directly drive the demand for stainless steel pipes, manufactured by Venus.

Capital issue structuring for the Venus Pipes & Tubes Ltd IPO

  • Venus Pipes & Tubes Ltd IPO entails issue of 50,74,100 shares in the price band of Rs.310 to Rs.326. Issue size at upper price band works out to Rs.165.42 crore.

  • The entire issue of shares in the IPO will be by way of a fresh issue with no offer for sale component. The 50.74 lakh shares will be EPS dilutive and also capital dilutive but the capex expansion will be valuation accretive.

  • Post the issue the total stake of the promoters will go down from 64.27% to 48.20%, while the stake of public holdings will go up to 51.80% from 35.63%.

  • The fresh issue will take the total capital size of the company to 1.52 crore shares to 2.03 crore shares giving the company a post issue indicative valuation of Rs.662 crore.

Application options for retail investors in Venus Pipes & TubesIPO

The investor lot is 46 shares and in multiples of lots of 46 shares thereof. Check the table for different investment options available to the retail investor.

In short, the retail investors can start with application of 1 lot of 46 shares and go all the way up to 13 lots (598 shares) worth Rs.194,948.

Venus Pipes & Tubes Ltd IPO – Key Financial Parameters

The company has consistently built its top line and bottom line on a graded basis with the latest 9 months to Dec-21, improving EBITDA further. In fact, over the last 3 years, the EBITDA per tonne has gone up 77.3% from Rs.19,814 to Rs.35,124 amidst a major rally in the price of metals. Current indicative valuation is at a P/E of 21 times FY22 annualized profits.

Venus Pipes & Tubes Ltd IPO – How should investors take an investment decision?

It is always advisable to consult with your financial advisor before taking an IPO investment decision. However, here are factors to consider ahead of the IPO issue.

  1. The company is in a sweet spot with massive investments in user industries of pipes coming up and India’s per capita usage of pipes and tubes nearly half of the global average and one-fifth of China consumption. That is a huge opportunity matrix.

  2. With a valuation of just about 21 times FY22 earnings and much lower on FY23 basis, one can expect reasonable appreciation on listing, considering that the size of the issue is quite small and the small market cap makes it an easy mover.

At a market cap of Rs.662 crore, the company is microcap and comes with its own set of risks. Investors can invest in the stock but must keep microcap exposure in mind.

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