Swastik Pipe comes out with an IPO to raise Rs 62.52 crore

Swastik Pipe

• Swastik Pipe has come out with a 100% book building; initial public offering (IPO) of 62,52,000 Equity Shares of face value of Rs 10 each in a price band Rs 97-100 per equity share.
  
• The issue has opened on September 29, 2022 and will close on October 3, 2022.
  
• The shares will be listed on NSE Emerge Platform.
  
• The face value of the share is Rs 10 and is priced 9.70 times of its face value on the lower side and 10 times on the higher side.
  
• Book running lead manager to the issue is Corporate Capital Ventures.
  
• Compliance Officer for the issue is Banani Sikdar.
  

Profile of the company

Swastik Pipe is manufacturers and exporters of Mild Steel/Carbon Steel ERW Black and Galvanized Pipes, Hallow Steel Pipe, Cold rolled Steel (CR) Strips/ Coils, Swaged Tubular Poles, Solar Structure and Steel Structures. The company use raw material of premium quality i.e. prime steel from SAIL - Steel Authority of India, Tata Steel and high purity zinc is being sourced from Hindustan Zinc, which makes it comfortable to supply the quality material all over the world.

At present, the company has highly sophisticated and technically competent plants are located at Bahadurgarh, Distt. Jhajjar, Haryana (Unit no.1) and at Kotwan, Kosi Kalan, Distt. Mathura, Uttar Pradesh (Unit No. 2). It has diversified its Manufacturing activities towards production of Solar Module Mounting Structures, Transmission Towers, Steel Tubular Poles and Solar Poles Special Structure for Railways, Scaffolding, Formwork and crash barrier. It is one of the oldest manufacturer, exporter and supplier of steel pipes and tubes to various heavy engineering industries in India. Steel pipes and tubes can be used for many purposes such as steel pipes for frames and shafts, steel pipes for bicycle frames, steel pipes for furniture, CDW pipes for shockers, steel pipes for various structural purposes, steel pipes for various engineering purposes etc. It has a very wide range of steel pipes and tubes products. The lengths of the steel pipes & tubes range from 4m to 7m unless otherwise specified by the customers. It manufactures steel pipes and tubes in various shapes and size such square, round, rectangular and elliptical or any special shape.

The company brings the latest modern manufacturing technology. Automatic temperature control of voltage stabilizing and other electrical parameters so that no fluctuation of heat/voltage/current takes place irrespective of the speed/thickness, thereby yielding uniform bead inside the pipe and no friction loss. All pipes are subjected to all required physical and chemical tests before reaching to customer. The company has a well-maintained laboratory with provisions for offline testing at different stages of production. Stringent Quality Control is exercised with latest facility right from the selection of raw material to the finished product. All tubes are subjected to extensive test including the hydraulic test, so that there is no leakages and before leaving, pipes passes through prescribed quality control process to ensure the best quality.

Proceed is being used for:

• Meeting out the working capital requirements.
  
• General corporate purposes.
  
• Meeting out the issue expenses.
  

Industry overview

The Indian steel industry has entered into a new development stage, post de-regulation, riding high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the 2nd largest producer of crude steel during last three years (2018-2020), from its 3rd largest status in 2017. The country was also the largest producer of Sponge Iron or DRI in the world and the 2nd largest finished steel consumer in the world after China in 2020 (provisional), based on rankings released by the World Steel Association. In a de-regulated, liberalized economic/market scenario like India the Government’s role is that of a facilitator which lays down the policy guidelines and establishes the institutional mechanism/structure for creating conducive environment for improving efficiency and performance of the steel sector. In this role, the Government has released the National Steel Policy 2017, which has laid down the broad roadmap for encouraging long term growth for the Indian steel industry, both on demand and supply sides, by 2030-31.

The Government has also announced a policy for providing preference to domestically manufactured Iron & Steel products in Government procurement. The government has also approved a Production-linked Incentive (PLI) Scheme for Specialty Steel. It is expected that the specialty steel production will become 42 million tonnes by the end of 2026-27. This will ensure that approximately 2.5 lakh crore worth of specialty steel will be produced and consumed in the country which would otherwise have been imported. Similarly, the export of specialty steel will become around 5.5 million tonnes as against the current 1.7 million tonnes of specialty steel getting FOREX of Rs 33,000 crore.

Pros and strengths

Brand image: The company has developed its own brand ‘T.T Swastik’. The recognition and reputation of brand among consumers has contributed significantly to the growth and success of its business.

Strong distribution channel: The company has a strong distribution channel. Its team, through their vast experience and good rapport with clients owing to timely and quality delivery of service plays an instrumental role in creating and expanding a work platform for the company.

Experienced & skill management team: The company has experienced & skill management team to motivate the sub- ordinates & staff to step towards their achievements & organizational goals. With their efficient management skills & co-ordination with sub-ordinate, they are always working as a catalyst to encourage the entire team for the development & nourishment of the organization.

Risks and concerns

Revenue come from top five states in north India: The company has a strong presence in northern India and it contribute to a substantial portion of revenues for the period ended on March 31, 2022 & year ended March 31, 2021. Any factors relating to political and geographical changes, growing competition and any change in the demand for service by customers of these states may adversely affect company’s ability to retain them. The company have maintained good quality standard for its products, however, there can be no assurance that customers of these states will continue to buy the products. The company cannot assure that it shall generate the same quantum of business, or any business at all, from these states, and loss of business from one or more of them may adversely affect its revenues and profitability. 

High working capital requirements: The company’s business is working capital intensive and hence, trade receivables form a substantial part of its current assets and net worth. Its trade receivables as on March 31, 2022 were Rs 14627.46 lakh and inventories were Rs 6,943.32 lakh. Thus, major portion of its working capital is utilized towards debtors and inventory. To effectively manage its trade receivables, it must be able to accurately evaluate the credit worthiness of its customers and dealers and ensure that suitable terms and conditions are given to them in order to ensure its continued relationship with them. However, if its management fails to accurately evaluate the credit worthiness of the customers, it may lead to bad debts, delays in recoveries and / or write-offs which could lead to a liquidity crunch, thereby adversely affecting its business and results of operations.

Operate in highly competitive market: The company operate in highly competitive market segments that are highly fragmented among several market participants. In the steel market, it competes with numerous multinational and Indian companies with sizeable market shares as well as the broader industry comprising numerous small competitors. Free information available on internet websites about steel pipes and sheets may also poses a competitive risk. Moreover barriers to entry for the market segments in which it operate are generally low as the investment cost is very high.

Outlook

Swastik Pipe is the manufacturer and exporter of Mild Steel/Carbon Steel ERW Black and Galvanized Pipes, Hallow Steel Pipe, API Pipe, Stainless Steel Tubes, Cold Rolled Steel (CR) Strips/ Coils, Swaged Type Tubular Poles, and Solar Structure. The company has two plants located at Bahadurgarh, Distt. Jharjjar, Haryana (Unit no.1) and at Kotwan, Kosi Kalan, Distt. Mathura, Uttar Pradesh (Unit No. 2) with an installed capacity, both units aggregating 2,01,250 MT. It has diversified its Manufacturing activities towards the production of Solar Module Mounting Structures, Transmission Towers, Steel Tubular Poles and Solar Poles Special Structure for Railways, Scaffolding and Formwork. It is one of the oldest manufacturers and suppliers of steel pipes and tubes to various heavy engineering industries in India and abroad. On the concern side, the company, being a steel pipe manufacturing company, face a lot of fluctuations in market. Steel is the basic raw material in its manufacturing, and due to its volatile price and highly cyclical nature, it face a lot of competition in the market. The price fluctuation is based on macro-factors such as employment rates, consumer confidence, inflation etc.

The issue has been offered in a price band of Rs 97-100 per equity share. The aggregate size of the offer is Rs 60.64 crore to Rs 62.52 crore based on lower and upper price band respectively. On performance front, total revenue has increased by Rs 8,653.83 lakh and 16.57% from Rs 52,217.03 lakh in the fiscal year ended March 31, 2021 to Rs 60,870.86 lakh in the fiscal year ended March 31, 2022. Net Profit has increased by Rs 1892.47 lakh and 1273.19% from profit of Rs 148.64 lakh in the fiscal year ended March 31, 2021 to profit of Rs 2041.11 lakh in the fiscal year ended March 31, 2022. Meanwhile, the company intends to cater to the increasing demand of its existing customers and also to increase its existing customer base by enhancing the distribution reach of its products. Enhancing its presence in additional regions will enable it to reach out to a larger market. It also plans to increase its customers by increasing the product & geographical base, maintaining its client relationship and renewing its relationship with existing buyers.