Objects of the issue:
- To meet long-term working capital requirements.
- General corporate purposes.
- Financing project costs for capacity growth, technology upgrades, operational cost optimization, manufacturing facility support, and backward integration for hollow pipe manufacturing.
Investment Rationale:
International Accreditations and product approvals
Currently, Venus Pipes has a total production capacity of 10.8 ktpa, of which 3.6 ktpa is dedicated to seamless SS pipes & 7.2 ktpa for welded SS pipes. The company plans to expand its seamless capacity to 9.6 ktpa and welded capacity to 14.4 ktpa and 9.6 ktpa of new capacity towards backward
integration to manufacture mother hollow pipes. Total capacity would double from 10.8ktpa to 24ktpa. Their products are largely used in industries like pharmaceuticals, food processing, etc. The
GoI has announced Production Linked Incentive (“PLI”) schemes for boosting the domestic manufacturing in certain sectors, which shall have a consequent positive impact on their order book. Backward integration with in-house production of hollow pipes, acquisition of slitting machine for cutting steel strips/coils as per desired width and enriched product mix with higher diameter pipes would lead to continued improvement in margins. At the upper end of the price band, the issue is valued at a P/E of 21x based on FY22 annualized earnings, which we believe is reasonably priced. Hence, we recommend a “SUBSCRIBE” rating on this issue for the long term.
