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Venus Pipes & Tubes

• Venus Pipes & Tubes is coming out with a 100% book building; initial public offering (IPO) of 50,74,100 shares of Rs 10 each in a price band Rs 310-326 per equity share.

• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.

• The issue will open for subscription on May 11, 2022 and will close on May 13, 2022.

• The shares will be listed on BSE as well as NSE.

• The face value of the share is Rs 10 and is priced 31 times of its face value on the lower side and 32.60 times on the higher side.

• Book running lead managers to the issue are Axis Bank, ICICI Bank and Kotak Mahindra Bank.

• Compliance Officer for the issue is Pavan Kumar Jain.

Profile of the company

The company is one of the growing stainless steel pipes and tubes manufacturer and exporter in India having over six years of experience in manufacturing of stainless steel tubular products in two broad categories: (i) seamless tubes/pipes; and (ii) welded tubes/pipes, under which it is currently manufacturing five product lines, namely, (i) stainless steel high precision & heat exchanger tubes; (ii) stainless steel hydraulic & instrumentation tubes; (iii) stainless steel seamless pipes; (iv) stainless steel welded pipes; and (v) stainless steel box pipes (Products). Under its brand name ‘Venus’, it supply its Products for applications in diverse sectors including (i) chemicals, (ii) engineering; (iii) fertilizers; (iv) pharmaceuticals, (v) power, (vi) food processing;(vii) paper; and (viii) oil and gas.

The company has one manufacturing plant which is strategically located at Bhuj-Bhachau highway, Dhaneti (Kutch, Gujarat) (Manufacturing Facility) in close proximity, around 55 kilometers and 75 from the ports of Kandla and Mundra, respectively, that helps it in reducing its logistic costs on procurement of raw materials and imports and export of its Products. Its Manufacturing Facility has separate seamless and welded divisions with latest product-specific equipment and machineries including tube mills, pilger mills, draw benches, swaging machines, pipe straightening machines, TIG/MIG welding systems, plasma welding systems, etc. As of February 28, 2022, its Manufacturing Facility has a total installed capacity of 10,800 MT per annum. Further, it has a storage facility at its Manufacturing Facility for the purposes of holding inventories of raw material as well as finished products, in addition to a warehouse facility located at Ahmedabad, which ensures stability of operations.

Proceed is being used for:

• Financing the project cost towards capacity expansion, technological upgradation, cost optimization of its operations and support to the manufacturing facility and backward integration for manufacturing of hollow pipes.

• Meeting long-term working capital requirements.

• General corporate purposes, subject to the applicable laws.

Industry overview

The Indian stainless-steel sector, the second largest producer (till 2020) and consumer in the world, has a total manufacturing capacity of more than 5 million tons of stainless steel annually. Since 2011, stainless-steel production has increased at a CAGR of 7.8% per annum from 2.16 Million Tonnes in 2011 to 3.93 Million Tonnes in 2019. Barring 2020 for pandemic led decline, India’s stainless-steel (SS) production has increased steadily between 2014-21. In 2020, India stainless steel production observed a decline of 19.4% over 2019 owing to Covid-19 pandemic induced depressed market condition. However, the industry rebounded well in CY 2021 where India’s annual domestic stainless-steel production was estimated to have reached 3.5 Million tonnes, registering 10.4% y-o-y growth. Despite being one of the largest producers as well as consumers of stainless steel, the per capita stainless steel consumption in India remains low. India’s per capital stainless steel consumption has increased from 1.2 kg in 2010 to 2.5 kg in 2019, however, its consumption is comparatively much lower compared to the world average of 6 kg per capita, This low consumption pattern is an indication of the inherent opportunities existing in the sector.

Since 2000, steel production in the country has seen a phenomenal increase as the sector witnessed high investments in capacity addition as well as technology upgradation. In 2018, India surpassed Japan to become the second largest steel producer in the world, after China. According to World Steel Association (WSA), India produced 118.13 million tons of crude steel in CY 2021 and accounted for 6.1% share in global crude steel production. In 2021, India’s crude steel production registered a robust y-o-y growth of 18% against 10% contraction in the previous year while it grew at a CAGR of 4% between 2017-21. On consumption side, India is also the second largest consumer of finished steel. The emergence of a middle-class consumer segment has altered the consumption landscape in India, and with it the industrial production. The country’s overall finished steel consumption in India is estimated to have been growing at 7% per annum since 2016 till 2019 to reach 102.6 million tons but in 2020, it dropped by 14% against 6% y-o-y growth in 2019. International statistics indicates steel pipes & tube segment constitute ~8% share of the total steel consumption. Subdued industrial activity, and economic uncertainty have dampened the demand scenario, leading to lower consumption. 

Pros and strengths

International Accreditations and product approvals: The company is one of the growing brands in stainless steel pipes/tubes having presence in both seamless pipes and welded pipes/tubes segments. It follows international standard manufacturing practices and its Manufacturing Facility benefits from the quality benchmarking certifications such as (i) ISO 9001:2015, ISO 14001:2015, ISO 45001:2018 from Bureau Veritas, a third-party inspection organization accredited by the United Kingdom Accreditation Service; (ii) certification under the Indian Boiler Regulation (IBR) for manufacturing and supply of stainless steel seamless and welded pipes; and (iii) PED 2014/68/EU and ADW/AD 2000 –Merkblatt W0 from TUV, which is a requirement for supply in the European Union countries. Such practices and accreditations, coupled with its technical capabilities and know-how enable it to manufacture products for both domestic and international customers as per ASTM (US), EN (Europe), JIS (Japan) and DIN (Germany) standards.

Specialised production of stainless steel pipes and tubes: The company is a pipes and tubes manufacturer with the sole focus on manufacturing of welded and seamless pipes in a single metal category, i.e., stainless steel. As it has been catering to customers (both domestic and international) in only one metal segment since its inception, over the years it has built expertise in terms of production process, inventory management and marketing of products in the stainless steel pipes and tubes segment. This gives it the benefit of segment expertise thereby placing it in a position of advantage vis-à-vis its competitors in accurately assessing and responding to customer preferences in this segment as there are very few manufacturers in this single metal product segment.

Multi-fold demand of products: The company supply its Products for new projects across a diversified range of sectors, including but not limited to, oil and gas, pharmaceuticals, engineering, chemical, etc., on a regular basis throughout the year. It has maintained its presence in these sectors on a consistent basis in the last three financial years and has continued to secure orders both from existing and new customers. It regularly supply its Products to existing / new customers consequent to normal wear and tear of the products being used by them. The frequency of such orders is dependent on the relevant sector and typically an instruction / order is raised to supply a specific number of pieces in order to rectify the deficiency.

Customer diversification: The company sell its Products both in the domestic as well as the international markets. In the domestic market, it sell its Products to the end customers as well as traders/stockists while in the international market it supply its Products through traders/stockists, authorized distributors and through certain marketing representatives in the European Union market. It started exporting its Products in the year 2017 and as on February 28, 2022 it has exported to 20 countries including countries in European Union, Brazil, UK, Israel etc. In order to increase its share in the international market, it has appointed sole distributors in markets like Italy and Kuwait in addition to appointing marketing representatives for the European market.

Risks and concerns

Face competition: The company face increasing competition from its existing and potential competitors in India and in overseas markets that may have substantially greater brand recognition, longer operating histories, greater financial, product development, sales, marketing, more experienced management, access to a cheaper cost of capital and other resources than it does. Some of its competitors may have lower costs, or be able to offer lower prices and a larger variety of products in order to gain market share. Its competitors may also make acquisitions or establish cooperative or other strategic relationships, among themselves or with third parties, including dealers and distributors of its Products, thereby increasing their ability to address the needs of its targeted customers and offering lower cost products than it does which may have a negative effect on its sales. Further, new competitors may emerge at any time.

Face certain challenges because of limited operating history: The company commenced its commercial operations in the calendar year 2015 and are a fairly new player in the stainless steel pipes and tubes market. Companies in their initial stages of growth present substantial business and financial risks and may present comparatively higher investment risks than seasoned market players. Further, due to its limited operating history it may not yet be the supplier of first choice and may not command goodwill and trust of market intermediaries across markets, both domestic and international, along with corporate buyers, as compared to other established players. Although it has been able to achieve reasonable market penetration commensurate with the limited period of its business operations and presence in the stainless steel pipes and tubes market, there can be no assurance that its limited operating history shall not adversely impact its rate of growth and its ability to succeed in realizing its growth strategy including the proposed business expansion.

Portion of revenues and expenses are denominated in foreign currencies: Apart from the company’s operations in India of which its sales are denominated in Indian Rupees, it also sell its Products in and source its raw materials from several other countries and receive/make payments in foreign currencies. Fluctuation in foreign currencies exchange rates could have adverse effects on its business, results of operations and financial condition. It import a majority of raw material i.e. hollow pipes required for manufacturing of seamless pipes, mainly from China and stainless steel coils are mainly procured from Malaysia and Indonesia. Its imports constituted 12.98%, 14.33%, 5.48%, and 12.94% of its total purchase for the nine-month period ended December 31, 2021 and Fiscals 2021, 2020 and 2019, respectively.

Rely on manufacturing facility in Kutch: The company currently operate only one Manufacturing Facility for manufacturing all of its products, which is located in Dhaneti, Kutch, Gujarat, India. Its Manufacturing Facility is subject to operating risks, such as the breakdown or failure of equipment, power supply or processes, performance below expected levels of output, efficiency, labour disputes, strikes, environmental issues, lockouts, non-availability of services of its external contractors etc. Further, any significant malfunction or breakdown of its machinery or equipment at the Manufacturing Facility may entail significant repair and maintenance costs and cause delays in its operations. In the event that it is forced to shut down its Manufacturing Facility for a significant period of time, it would have a material adverse effect on its earnings, its results of operations and its financial condition as a whole.

Outlook

Venus Pipes & Tubes is a manufacturer and exporter of stainless steel pipes and tubes. The company is manufacturing stainless steel tube products in two broad categories - seamless tubes/pipes and welded tubes/pipes under which five categories of products are manufactured namely, stainless steel high precision & heat exchanger tubes, stainless steel hydraulic & instrumentation tubes, stainless steel seamless pipes, stainless steel welded pipes and stainless steel box pipes. It has one manufacturing plant which is located at Bhuj-Bhachau highway, Dhaneti (Kutch, Gujarat) with an installed capacity of 10,800 MT per annum. It has an in-house quality team comprising of 27 dedicated personnel working under the overall supervision of its board of directors. Its quality control team ensures that its raw materials as well as end products are tested on all quality parameters to ensure that it is compliant with the international product standards. On the concern side, the company faces the risk of loss resulting from product liability, intellectual property, contractual, warranty, and other lawsuits, whether or not such claims are valid. In addition, its insurance may not be adequate to cover such claims or may not be available to the extent it expect. Besides, it has continuous working capital requirements for maintaining sufficient raw material, stores and inventories of finished products, sundry debtor and other current assets during the course of its business operations.

The issue has been offered in a price band of Rs 310-326 per equity share. The aggregate size of the offer is around Rs 157.30 crore to Rs 165.41 crore based on lower and upper price band respectively. On the performance front, the company’s revenue from operations increased by 73.97% to Rs 309.33 crore for Fiscal 2021 as compared to Rs 177.80 crore for Fiscal 2020. This increase in revenue from operations was primarily due to increased sales of its products resulting from a robust growth of domestic and export demand. Its profit for the year increased by 472.48% to Rs 23.63 crore for Fiscal 2021 compared to Rs 4.12 crore for Fiscal 2020. Meanwhile, the company is proposing to expand its existing manufacturing capacity for welded pipes/tubes and seamless pipes/tubes for manufacturing higher diameter welded pipes/tubes (up to 1219.2 mm) and seamless pipes/tubes (up to 168.3 mm). It plans to set up a piercing line for manufacturing of hollow pipes with the capacity of 800 MT per month, as its backward integration strategy. It is proposing to install an acid regeneration plant (ARP) wherein the consumption of acid in its manufacturing process shall be reduced substantially and the same shall help company in improving its operating margins.