Vraj Iron & Steel IPO: Should You Subscribe?
Vraj Iron and Steel Ltd (VISL), known for its production of sponge iron, MS billets, and TMT bars, is opening its Initial Public Offering (IPO) on June 26, 2024, and closing on June 28, 2024. With a Grey Market Premium (GMP) of 36% and strong financial growth in recent years, the IPO seems promising. However, investors need a clear understanding of both potential rewards and risks before subscribing. This analysis provides a comprehensive review to help make an informed decision.
Vraj Iron & Steel IPO Details
- Issue Size: Rs 171 crore
- Price Band: Rs 195 – Rs 207
- Market Lot: 72 shares
- Minimum Investment Value: Rs 14,904
- Listing Date: July 3, 2024
Vraj Iron & Steel Subscription Status
The IPO received 3.46 times subscription on the first day of bidding on Wednesday. Subscription levels varied among investor categories: The retail individual investors (RIIs) part got 5.05 times subscribed while the non-institutional investors (NII) category saw 3.53 times subscription. The Qualified Institutional Buyers (QIBs) portion received 61% subscription.
Overview of Vraj Iron & Steel Ltd
Founded in 2004, VISL operates two manufacturing plants in Raipur and Bilaspur, Chhattisgarh, boasting an installed capacity of 231,600 TPA. The firm is also planning a major expansion to double its capacity. Its products, under the 'Vraj' brand, serve a broad industrial clientele through direct sales and a network of brokers and dealers.
Financial Highlights
- Exceptional Growth: VISL's operational revenue has seen a CAGR of 33% from FY21 to FY23, with EBITDA growing by 67% and net profit by an impressive 122%.
- Improving Margins: EBITDA margin has increased significantly, from 10.01% in FY21 to 21.61% in 9MFY24, with net profit margins also seeing substantial improvement.
- Strong Returns: Return on Equity and Capital Employed are at 38% and 45%, respectively, indicating efficient management and profitability.
Risk Factors & Considerations
- Cash Flow Concerns: Negative operating cash flows in recent months could signal potential liquidity issues.
- Competitive Market: The steel industry in India is highly competitive, with giants like Tata Steel and JSW Steel dominating the market.
- Legal Concerns & Liabilities: Ongoing legal proceedings and contingent liabilities worth Rs 49.35 crore (~26% of net worth) pose financial risks.
Use of Proceeds
VISL aims to utilize the IPO proceeds for expansion at the Bilaspur plant, debt repayment, and general corporate purposes, positioning the company for future growth.
Investment Recommendation
Despite short-term pain in the steel industry, the long-term prospects appear bright given the government's strong push for infrastructure development. VISL's strong growth trajectory and strategic expansion plans make this IPO an attractive proposition for medium-to-long term investors. The IPO is reasonably priced with a P/E ratio of 11.5x based on projected FY24 earnings, indicating good value for investors.
For a deeper dive into this IPO, explore: IPO Corner on Liquide
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