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Aditya Ultra Steel

• Aditya Ultra Steel is coming out with an initial public offering (IPO) of 74,00,000 equity shares in a price band Rs 59-62 per equity share.
• The issue will open on September 09, 2024 and will close on September 11, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 5.90 times of its face value on the lower side and 6.20 times on the higher side.
• Book running lead manager to the issue is Swastika Investmart.
• Compliance Officer for the issue is Vikas Babusingh Panwar.

Profile of the company

Aditya Ultra Steel was originally incorporated as Aditya Ultra Steel Private Limited on July 27, 2011 under the provisions of the Companies Act, 1956 in the State of Gujarat by Dipen Rameshbhai Faldu, Pramodkumar Madhavjibhai Makadia, Yogesh Premjibhai Suvariya and Chirag Lakhani (erstwhile promoters). During the year 2016 -2017, Varun Manojkumar Jain and Varuna Jain acquired all the equity shares of the company from the erstwhile promoters and other shareholders. Subsequently, the company was converted into a public limited company and the name was changed to “Aditya Ultra Steel Limited” vide fresh Certificate of Incorporation dated July 26, 2018 issued by the Registrar of Companies, Gujarat at Ahmedabad.

The company is engaged in the business of manufacturing of rolled steel product i.e. TMT bars under the Kamdhenu brand catering mainly to the construction industry and for infrastructure development. The company manufactures TMT bars from billets through reheating furnace and rolling mill. It has a history of more than 12 years in manufacturing of TMT bars industry. It designs and manufactures TMT bars and sells it on B2B Basis. Its customer base is mainly spread across the State of Gujarat. It has its manufacturing plant located in Rajkot, Wankaner, Gujarat, which is equipped with testing laboratories, workers’ accommodation, canteen and well-connected transport facilities.

Proceed is being used for:

• Capital expenditure 
• Meeting working capital requirements
• General corporate purposes
• Meeting public issue expenses

Industry Overview

The steel industry is often considered as an indicator of economic progress, because of the vital role played by it in infrastructural and overall industrial development of a country. Indian Steel Industry contributes to all the facets of economy, including GDP, industrial and infrastructural development. India is currently second largest steel producer in the world. The growth in the Indian steel sector has been driven by the domestic availability of raw materials such as iron ore and cost-effective labour. Consequently, the steel sector has been a major contributor to India's manufacturing output. The Indian steel industry is classified into three categories - major producers, main producers and secondary producers. The Indian steel industry is modern, with state-of-the-art steel mills. It has always strived for continuous modernisation of older plants and up-gradation to higher energy efficiency levels.

The TMT (Thermo-Mechanically Treated) bar market in India is on a growth trajectory, driven by the expanding construction and infrastructure sector. India ranks seventh globally as a producer of crude steel, with the iron and steel sector contributing significantly to the country's socio-economic development. The TMT bar market is expected to grow at a CAGR of 4.34% between 2022 and 2027, reaching a market size of $84.39 billion. The market is driven by the benefits of TMT steel bars over other steel bars, the expanding global industry, and the rising need for steel. TMT bars are known for their exceptional ductility, strength, weldability, and corrosion resistance, making them suitable for a wide range of construction applications. They are available in various grades such as Fe-415, Fe-500, Fe-550, and Fe 500D, and in diameters ranging from 8 to 40 millimeters. The Indian market has a variety of TMT bar producers, including Shyam Steel, Essar Steel, TATA Steel, Jindal Steel & Power Ltd., JSW Steel Ltd., Kamdhenu Ltd., Primegold International Ltd., and Rashtriya Ispat Nigam Ltd. In terms of regional analysis, the TMT bar market in India can be segmented into Northern Region, North-Eastern Region, Eastern Region, Central Region, Western Region, and Southern Region.

The availability of substitute materials is a major challenge faced by the TMT steel bar market. The growth of the global TMT steel bars market can negatively impact the availability of substitute materials in the construction industry during the forecast period. Reinforced concrete is a common alternative to steel in construction. It involves embedding steel bars (rebar) within the concrete to provide tensile strength. The increasing use of electric arc furnaces is a key trend in the TMT steel bar market. The steel industry accounts for the major consumption, and high energy usage has caused the cost of production to increase. The processes and sources of energy required for manufacturing crude steel are the deciding factors of the required amount of energy. Traditionally, blast furnaces are used in processing iron ore to pig iron, which is further used to manufacture crude steel. However, according to the demand for steel on the market, as well as the availability of material, EAF shall be able to accommodate a flexible production volume of steel. Therefore, the added advantage of EAF is attracting steelmakers toward it, which will drive the growth of the market in focus during the forecast period.

Pros and strengths

Strategically located manufacturing plant: The company’s manufacturing plant is located at Bhalgam, Rajkot within the State of Gujarat. Its manufacturing plant has infrastructure facilities such as power supply, roads, water supply etc. Its manufacturing plant enjoys the good connectivity through roads which makes the movements of the raw-material as well as finished goods easy and hassle free. Thus, it helps in smooth procurement of raw material from the various suppliers spread in the State of Gujarat and dispatch of finished goods to its various distributors and dealers located in the State of Gujarat. Moreover, in order cater to increased demand of TMT bars, the company has entered into an MoU with Maheshwar Ispat Private Limited for manufacturing of TMT bars for minimum committed production capacity of 3000 MT/Per month on job work basis. The manufacturing facility of Maheshwar Ispat Private Limited located in the Kheda, Gujarat.

Skilled and dedicated manpower: The company is managed by a team of experienced personnel. Its management team’s experience and their understanding of the industry enable it to continue to take advantage of both current and future market opportunities. It takes pride in relation to the performance of its employees for their consistent efforts and dedication they have shown towards the company. The company requires application of high levels of technology at key stages of design and manufacturing processes.

Fleet of company owned vehicle: Having a fleet of Company-owned vehicles empowers the company with greater flexibility and responsiveness in meeting customer demands. Whether it’s accommodating urgent orders, adapting to fluctuating production schedules, or navigating unforeseen logistical challenges, owning transportation assets allows companies to exert greater control over delivery timelines and ensure timely fulfillment of customer requirements. This agility in responding to market dynamics can enhance customer satisfaction and loyalty, ultimately driving business growth and market share expansion. As on March 31, 2024, the company owns 23 trucks. 

Risks and concerns  

Business of the company is dependent on Kamdhenu Brand: The company is engaged in the manufacturing of TMT bars under a retail license agreement for the Kamdhenu Brand in the Kutch and Saurashtra region of Gujarat, faces several risks due to its dependency on the Kamdhenu brand. Firstly, the company's reputation and market perception are heavily tied to the Kamdhenu brand, making it vulnerable to any negative publicity, quality issues, or controversies associated with the brand. This could adversely affect its business and the market acceptance of its products. Additionally, its reliance on the Kamdhenu brand limits its ability to differentiate itself in the market. It lacks control over branding, marketing strategies, and product positioning, which hinders its ability to effectively respond to market dynamics and consumer preferences. 

Geographical constrain: Operations of the company is entirely concentrated in the state of Gujarat. The company is engaged in the business of manufacturing of TMT Bars under the Retail License Agreement with Kamdhenu for Kutch and Saurashtra region of State of Gujarat. The company sells the TMT bars in the distribution channel having 1 distributor and 73 dealers under the Kamdhenu Brand. More than 98% of its revenue from operations for the period FY 2023-24, FY 2022-23 and FY 2021-22 is derived from Gujrat. Its manufacturing plant is also located in the Rajkot District of Gujrat. It does not have any alternate arrangement apart from its existing setup in Gujarat. Any adverse situation in Gujarat may affect its operational efficiency and ultimately profitability of the company.

Maximum revenue comes from limited customers: The company’s top ten customers contribute 94.27%, 95.63% and 94.11% of its total sales for the year ended on March 31, 2024, March 31, 2023 and March 31, 2022 respectively. Moreover, dependency of the company for sales of top 1 customer was 56.84%, 47.50% and 41.63% of its total sales for the year ended on March 31, 2024, March 31, 2023 and March 31, 2022 respectively. The company is engaged in the business of manufacturing of rolled steel product i.e. TMT bars. The company’s business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows.

Outlook

Aditya Ultra Steel manufactures rolled steel products, i.e. TMT bars, under the brand name 'Kamdhenu'. The company manufactures TMT bars from billets in a reheating furnace and a rolling mill, mainly catering to the construction industry and infrastructure development. The company's manufacturing facility is located in Wankaner, Gujarat and has a production capacity of 1,08,000 MT for TMT bars. On the concern side, the company is dependent on few numbers of customers for sales. Loss of any of this large customer may affect its revenues and profitability. Moreover, the company is dependent on a few suppliers for purchase of product. Loss of any of these large suppliers may affect its business operations. Further, entire operations of the company are limited in the state of Gujarat. Any adverse development affecting its operations in this region could have an adverse impact on its business, financial condition and results of operations.

The company is coming out with a maiden IPO of 74,00,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 59-62 per equity share. The aggregate size of the offer is around Rs 43.66 crore to Rs 45.88 crore based on lower and upper price band respectively. On performance front, total revenue from operations of the company for the year ended on FY 2023-24 was Rs 58,780.08 lakh as compared to Rs 53,044.78 lakh during the FY 2022-23. Revenue from operations mainly includes revenue from Manufacturing of TMT Bars and other Products such as Scrap, Billets and other by products. Revenue from operations increased by 10.81%. Profit after tax (PAT) increased to Rs 792.34 lakh in FY24 from Rs 277.66 lakh in the FY23. PAT was 1.35% and 0.52% of total revenue of the company for the year ended on March 31, 2024 and March 31, 2023 respectively. The company constantly strives to enhance its production processes, upgrade worker skills, and modernize machinery to optimize resource utilization. It regularly analyzes its raw material procurement and manufacturing processes to address any key concerns. These efforts help improve its efficiency and productivity. Over the years, the company has developed strong relationships with its suppliers and clients, which has established its reputation in the TMT Bar industry. It plans to invest in further building and enhancing this reputation through communication and promotional initiatives. This ongoing effort aims to increase its sales and profitability.