Evaluating Vraj Iron and Steel Ltd IPO opportunity; Should you invest?

In this analysis, we take a closer look at Vraj Iron and Steel Ltd and present you with the exclusive IPO details.

About the Issue  

Vraj Iron and Steel Ltd is set to launch its initial public offering (IPO) for equity shares, each with a face value of Rs 10. The IPO price range is set between Rs 195 and Rs 207 per equity share, resulting in a total issue size of Rs 171 crore at the upper price band.  

The IPO is scheduled to commence on June 26, 2024, and will conclude on June 28, 2024. The market lot size for the IPO is 72 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 936 shares or a total investment of Rs 1,93,752 assuming the upper price band.

Objects of the Issue  

Considering that the offer is exclusively a fresh issue, it is important to note that the company will directly profit from the offer proceeds. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Funding for capital expenditure towards the expansion project at the Bilaspur plant.

2. Repayment or prepayment of borrowings obtained by the company for the capital. expenditure towards the expansion project.

3. General corporate purposes.

Promoter holding  

Vijay Anand Jhanwar, Kusum Lata Maheshwari, Gopal Sponge & Power Pvt Ltd, V. A. Transport Pvt Ltd, Kirti Ispat Pvt Ltd, Bhinaswar Commercial Pvt Ltd and Utkal Ispat Pvt Ltd are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 99.99 per cent in the company.

Company profile  

The company manufactures industrial products under the brand ‘Vraj,’ offering a range of products including sponge iron, TMT bars, MS billets, and by-products such as dolochar, pellets, and pig iron. These products cater to a diverse customer base comprising both industrial customers and end-users.

The company operates through two manufacturing plants located in Raipur and Bilaspur in Chhattisgarh. These strategically located plants in the mineral-rich state of Chhattisgarh, close to the mineral belt in eastern India, provide easy access to raw materials.

As of December 31, 2023, the total installed capacity of these plants was 2,31,600 tons per annum. The Raipur plant also includes a captive power plant with an installed capacity of 5 MW, as of the same date. The company is in the process of expanding the capacities of its existing manufacturing plants and captive power plants. This expansion is expected to increase the aggregate installed capacity from 2,31,600 TPA to 5,00,100 TPA and the captive power plant's capacity from 5 MW to 20 MW.

The proposed expansion of the sponge iron and captive power plant is expected to become operational in Q4 of FY 2024-25, while the MS billets expansion is anticipated to become operational in Q1 of FY 2025-26.

Financials  

The company has consistently delivered robust growth over the past few years. In FY23, both revenue and net profit witnessed substantial year-on-year growth, with a notable 25 per cent surge in revenue and a remarkable 86 per cent growth in net profit compared to FY22. The 9MFY24 figures were equally considerable, indicating potential profitability growth for FY24, though revenue may face a decline if the current pace continues.

Valuation and outlook  

The issue is priced with a P/BV ratio of 2.73 times, calculated using its Net Asset Value (NAV) of Rs 75.84 as of December 31, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 9. The company outperformed its listed peers in terms of both valuation and returns.

The company is focusing on reducing debt and expanding manufacturing facilities to enhance operational efficiencies and improve returns. Considering the industry's potential future, the company’s strong product mix, and consistent financial performance, it is well-positioned for growth. 

Hence, we recommend investors to subscribe to the issue with a long-term perspective.