Venus Pipes IPO Review – Growth + Boring Industry. Win Win?


Venus Pipes & Tubes is a Gujarat-based manufacturer & exporter of stainless steel pipes & tubes. The company primarily caters to a wide array of industries including chemicals, pharmaceuticals, and food processing industries, among others. Venus Pipes’s IPO review aims to understand the company’s business model, its strengths, and valuations. The upcoming IPO opens on 11 May 2022 to raise as much as INR160.34 crore.

Venus Pipes IPO Review: Market opportunity

Given the diversified nature of steel pipes and tubes, the industry is one of the important segments of the Indian steel sector. However, it accounts for just an 8% share of the overall steel consumption basket. At the same time, India’s per capital stainless steel consumption at 2.5 kg in 2019 is significantly lower compared to the world average of 6 kg per capita. At a broader level, India’s per capita consumption of steel pipes and tubes at 10 kg is less than half of the global average (21-22 kg) and about one-fifth of the Chinese consumption.

This leaves ample headroom for growth from current levels, especially considering the stated objective of National Steel Policy 2017 of increasing the per capita overall steel consumption from the current 63 kg to 158 kg by FY 2031. While the opportunity is quite big, it must be noted that the industry is a mature one and these growth numbers will translate into reality over a long period of time.

Business operations

The company is a specialized producer of stainless-steel pipes and tubes and has a narrow focus in this regard by not producing carbon steel and mild steel pipes and tubes. This narrow focus on a single category has resulted in specialization and high margins. The company has a superior RONW of 59% compared to its competitors Jindal Saw (NS:) Limited and Ratnamani Metal & Tubes Limited. Another strength of the company is multiple demand drivers in a single category. Apart from supplying to new projects, Venus Pipes’ products also get used in repair & maintenance as well as replacement operations across industries.

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Venus Pipes IPO Analysis: Client Concentration

Its top-10 customers accounted for 32.45% of its revenues during the nine months ended 31 December 2021. This diversified set of customers obviously helps the company in managing risks and excessive concentration. In addition, the company started exporting products in 2017 and has exported to 20 countries including countries in European Union, Brazil, the UK, Israel, etc. Going forward, the company wants to develop its export markets further and has appointed representatives and agents in markets like Italy and Kuwait.

Doubling Manufacturing Capacity

Venus Pipes has its manufacturing plant located in Kutch, Gujarat with a total installed capacity of 10,800 metric tonnes per annum (MTPA) as of 28 February 2022. Capacity utilization at its manufacturing plant has increased from 43% in FY 2019 to above 90% in FY2021 and this trend has continued in the current year as well. Given the high utilization levels, there is a clear need for further capacity expansion. Accordingly, the company plans to increase its production capacity by 24,000 MTPA. As part of the backward integration strategy, it also plans to set up a piercing line for manufacturing hollow pipes from the SS round bar.

Venus Pipes IPO Review: Robust Financial performance

The company’s financial performance has been quite strong in recent years with revenues rising every year, thanks to better demand scenarios and higher capacity utilization. This trend is likely to continue in FY2022, and its net income has followed the lead of the top line. A significant reduction in debt levels in recent years has helped the company’s financial operations tremendously. From a debt-equity ratio of 2.62 in FY 2020, it has now come down to 0.42 in the 9 months of FY 2022.

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Venus Pipes IPO Review: Attractive Valuations

So far, we have seen that the company has got robust operations, and is expanding its exports and also production capacity. While the company has posted strong growth on most financial parameters, everything boils down to valuations when it comes to making an investment decision. Its price band of INR310 – 326 per share translates into a PE ratio range of 17.18 – 18.07 on the basis of FY2021 earnings. While this is quite attractive, it gets even better for the latest nine months of FY2022. Venus Pipes’ annualized EPS for FY2022 stands at INR20.67 which translates into a PE ratio range of 15 – 15.77.

Although this is higher than Jindal Saw which is available at a PE ratio of just 4, its RONW of 4.7% is quite less compared to Venus Pipes’ 59%. Probably, for this reason, Venus Pipes commands a nearly 10% premium in the grey market.
All in all, Venus Pipes IPO Review tells that the company has a solid business case with several positives like high capacity utilization, capacity expansion, backward integration, and attractive valuations. While stainless steel pipes are hardly exciting products, it is often a strong business model in boring products which rewards investors in stock markets.

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