IPO Size: Rs. 165 cr

• Entirely fresh issue, for capex Rs. 106 cr and working capital Rs. 25 cr

Price band: Rs. 310-326 per share

M cap: Rs. 662 cr, implying 25% dilution

IPO Date: Wed 11^th May to Fri 13^th May 2022, Listing 24^th May 2022

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

Gujarat based Seamless and Welded Pipe Maker

Company is 7 year old regional steel pipe maker, with 10,800 MTPA installed capacity, and 90% current utilisation. 2/3^rd of Rs. 310 cr revenue in FY22 come from home state Gujarat, while order book of Rs. 64 cr, as of 28.2.22, has declined marginally from Rs. 66 cr as of 30.11.21. It raised Rs. 59 cr from preferential allotment to individuals at Rs 280 per share in Oct 2021, taking net worth to Rs. 120 cr, as of 31.12.21.

More than Doubling Capacity

Company is increasing capacity to 24,000 MTPA via Rs. 108 cr capex, which is sizeable, as fixed assets are presently only Rs. 21 cr. But this is likely to come on stream by only in FY24E. This expansion is being funded through a massive dilution, wherein promoter holding of 64% at present will decline to 48% post IPO. Besides, business is highly working capital intensive, with inventory + receivables outstanding at 5 months.

Magic of Material Cost

9MFY22 revenue stood at Rs. 277 cr and company’s material cost as a percentage to revenue has declined from 88% in FY20 to 84% in Q1FY22 and further to 82% during 9MFY22. This is surprising as the whole world was struggling with unprecedented raw material inflation during this period and company’s ability to expand margins in a commodity business raises more questions than answers! Reported PAT for 9MFY22 stood at Rs. 24 cr, same as FY21, with 9MFY22 EPS of Rs. 15.5.

Despite Rs. 59 cr fund raise in Oct 2021, company’s debt level has also been rising, from Rs. 50 cr as of 31.3.22 to Rs. 78 cr as of 7.4.22, some of which is being serviced at 13.5% interest rate.

Lax in drafting DRHP

Page 62 of draft red herring prospectus (DRHP) is titled Summary of Financial Statements, but does not have financials at all. If company and BRLM are so casual with the offer document, should an investor trust their investments in such hands?

Aggressive Pricing

16% premium to last fund raise at Rs. 280 per share, just 7 months ago, is not justified given B2B sales, commodity nature of business, working capital intensive and barely 12% gross margin. Recently listed Hariom Pipe, with Rs. 400 cr topline and 30% gross margin is ruling at FY22 PE multiple of 10x, whereas Venus’ with half the gross margins is looking at a PE of 16x, based on 9MFY22 annualised EPS. Hariom’s fundamentals are stronger than Venus, with margins more consistent, unlike Venus, whose PAT margin jumped from 2-3% pre-covid to 7-8% in 9MFY22 and FY21, just before the IPO.