The improvement of margins will be aided by Venus Pipes and Tubes‘ 2.8x capacity increase to 33.6ktpa (making it the second-largest manufacturer of SS) and backward integration by Q1FY24E. Currently, Ratnamani Pipes (RMTL), the market leader, has blended EBITDA margins that are around 1,000 basis points lower, according to a report from trading and research company Centrum.
Venus Pipes is positioned to overtake the top spot in India with its expanded capabilities. It is prepared to take advantage of new possibilities, such as import substitution, increased exports, and a significant increase in capital expenditures in demand markets.
“After ramp up, we predict the gap will progressively close and EBITDA will grow at a rate of 46% CAGR. With a BUY rating and a target price of ₹764 per share, we begin coverage on Venus Pipes Shares, the report said.
In the four months since Venus Pipes shares were placed on stock markets in May of this year, the newly listed stock has increased by more than 92%.
“Basis on volume increase, improved customer mix by changing sales from stockists to direct sales/tender based, backward integration, and improving operational efficiencies, Venus Pipes has the potential to achieve 46% EBITDA CAGR during FY22-25E at roughly 15bn in FY25E. The EBITDA margins should increase. After the IPO, about 25% of the equity is dilutive, therefore return ratios are projected to decline from an excellent RoE of 38% in FY22 to 23.2% in FY25E, according to Centrum.
The Gujarat-based business is an expanding producer and exporter of stainless steel pipes and tubes in India. The business provides its products under the Venus brand for use in a variety of industries, including engineering, fertilisers, pharmaceuticals, power, food processing, paper, and oil and gas. Around 1.6 billion in cash is needed for the expansion project, which will be financed mostly using IPO proceeds.
The brokerage said, “We project Revenue, EBITDA, and PAT to rise at CAGRs of 32%, 46%, and 8% over FY22 to FY25E, maintaining the balance sheet robust with Net Debt/EBITDA at 0.59x, a high RoE of 23%, and a ROCE of 20% in FY25E.
