IPO Size: Rs. 745 cr

• Entirely Fresh Issue for (i) debt repayment - Rs. 547 cr of Rs. 681 cr gross debt (ii) working capital Rs. 60 cr

Price band: Rs. 243-256 per share

M cap: Rs. 4,008 cr, implying 19% dilution

IPO Date: Wed 3^rd Jul to Fri 5^th Jul 2024, Listing Wed 10^th Jul 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

India’s 2^nd Largest Steel Wire Manufacturer

Bansal Wire Industries is India’s #2 steel wires manufacturer by volume, with 6% market share. In stainless steel wires, the market share is 20%. Company has 4 manufacturing facilities at Ghaziabad and Jhajjar in North India, with a combined installed capacity of 2.6 lakh MTPA, of which, 1.3 lakh MTPA capacity housed under 76% subsidiary Bansal Steel & Power, was acquired from promoters last year - 26% stake in Nov 2023 and 76% in Dec 2023.  

More than Doubling Capacity by H1FY26E

FY24 capacity utilization stood at 84%. Given company’s products are used in growing sectors of the economy such as automotive, infrastructure, engineering, consumer durables etc., it is building a 3.5 lakh MTPA greenfield plant at Dadri, Uttar Pradesh, with Rs. 450 cr investment, of which, Rs. 360 cr has been invested till March 2024, partly through term loan. 3,000 MTPA capacity has already got operational, with balance to be commissioned in phases over the next 15 months, ultimately increasing capacity by 132% to 6.1 lakh MTPA. Much of this capacity will comprise higher-margin high carbon steel wires and other specialized wires.

Growing Financials

Between FY21 to FY24, revenue and PAT has growtn at 19% and 25% CAGR respectively. Revenue of Rs. 1,477 cr in FY21 rose to Rs. 2,466 cr in FY24, while PAT of Rs. 40 cr in FY21 doubled to Rs. 79 cr in FY24. Ongoing capex will help company maintain double-digit growth rates in future, as historic fixed asset turnover ratio has been around 20x.

Margins Reflect Commoditized Nature of Business

FY24 volume rose 7% YoY, but revenue, comprising standalone business and 3 months of Bansal Steel & Power, remained flat at Rs. 2,466 cr, due to decline in steel prices, a pass-through. EBITDA rose 30% YoY to Rs. 149 cr, leading to 6% margin while PAT also rose 31% YoY to Rs. 79 cr, with net margin of 3.2%. Company’s margins are slim, reflecting low value-add or commoditized nature of business.

Proforma Margin Higher

EPS of Rs. 6.2 was reported for FY24, but proforma EPS (accounting for full year of Bansal Steel) although not given, is estimated at Rs. 7.5, as Bansal Steel operates at 8% EBITDA vis-a-vis 5% for Bansal Wire in FY23.

Current debt equity ratio of 1.6:1 will shrink to a comfortable 0.1:1, with interest cost also reducing partly (not entirely, as interest on long term debt taken for capex is currently being capitalized). Promoter holding of 95.8% will drop to 78.0% post IPO.

Fully Valued

M cap of Rs. 4,008 cr, discounts FY25E EPS of Rs. 9.2 by a PE multiple of 28x, which appears fully valued. Even on an optimistic 50% YoY growth for FY26E, EPS of about Rs. 13 leads to one-year forward PE of 20x, making it fully valued.

• Fast growing peer Usha Martin, with Rs. 3,220 cr topline, 13% net margin, 19% RoE is ruling at FY25E PE multiple of 25x
• DP Wires, with Rs. 1,000 cr topline, net margin similar to Bansal and 17% RoE is trading at FY25E PE of only 18x
• Even smaller peer Bharat Wire with 15% net margin and 23% RoE is ruling at 19x, on FY25E basis
• Rajratan Global is not comparable, as its clocks 8% net margin due to high entry barriers given product’s safety feature.

Bansal Wires offers high volume growth visibility, given sizeable capex already done. But low-single digit margin and IPO-dilution moderating RoE to about 17% going forward from 21% in FY24 more-or-less discounts the IPO price fully, leaving very little scope for PE multiple expansion.