India is gradually increasing its focus on the manufacturing industry. In this process, there is a need for modern and robust machinery, equipment, and infrastructure. The iron and steel industry stands strong to cater to these needs. India stood as the 2nd largest steel manufacturer in the world, as of FY 2023. The anticipated production of steel by 2030-2031 is 300 Million Tonnes.
India holds the 5th largest iron ore repository in the world. The growth in iron and steel manufacturing also attracts growth for its raw material supply industries. The raw materials needed for iron and steel production are iron ore, coal, sponge iron, etc.
Vraj Iron and Steel Ltd is one of the key raw material suppliers of steel manufacturing in Chhattisgarh. Read more about this amazing opportunity to invest in the IPO of Vraj Iron and Steel Ltd.
About Vraj Iron and Steel Ltd IPO
The Vraj Iron and Steel Ltd is a Chattisgarh-based company processing iron. The company manufactures raw materials for high-quality steel. It is the subsidiary company of Gopal Sponge and Power Pvt Ltd.
The company started its operations as Phil Ispat Pvt Ltd in 2012. The company has two manufacturing plants in Bilaspur and Raipur (state – Chhattisgarh with a capacity of 2,31,600 tonnes per annum). Moreover, a captive power plant in Raipur with a capacity of 5 MW gives it a strategic edge over local competitors. It is planning to expand the same to 20 MW.
The domestic suppliers provide the raw material like iron ore, iron ore pellets, coal, etc for the company. The company mainly produces these three products:
| Product | Details and Usage | Contribution in Revenue of December 2023 (9MFY24) |
| TMT Bar | Used at construction sites for slabs. | 30.31% |
| Sponge Iron | Raw material for the production of high-quality steel. | 52.58% |
| MS Billets | Semi-finished casting product | 3.12% |
Know more: What Is Initial Public Offer?
Details of Vraj Iron and Steel Ltd IPO
The initial public offering (IPO) of Vraj Iron and Steel is raising funds of 171 crores for mainly its ‘Expansion Project’ in Bilaspur, Chhattisgarh, and repayment of debt to HDFC bank. Moreover, it is planning to gain a strategic edge in the competitive industry of iron and steel manufacturing by listing itself in the equity market.
The following are details of Vraj Iron and Steel IPO:
| IPO price range | ₹195-₹207 per share |
| Lot size | 72 shares |
| Fresh Issue | ₹171 Crore |
| Offer-for-sale | – |
| IPO Opening Date | June 26, 2024 |
| IPO Closing Date | June 28, 2024 |
| Listing Date | July 3, 2024 |
Source: Vraj Iron and Steel Ltd RHP
The IPO of Vraj Iron and Steel Ltd experienced a strong demand on the 2nd day in the grey market. The company issue was subscribed 16.9 times at the start of day 3. The retail investor subscribed to the issue by 25.51 times, and the non-institutional investors subscribed by 53.25 times. The qualified institutional buyers (QIBs) have subscribed to the issue by 0.92 times.
Moreover, post the IPO promoters are going to have the majority shareholding of the company which anchors the confidence of investors.
Read more: Types of IPO: A complete guide to IPO investing
Key financials
| Particulars | For nine months till December 2023 | FY 2022-23 | FY 2021-22 |
| Net worth | 187.49 | 140.91 | 87.13 |
| Total revenue | 304.80 | 517.42 | 414.38 |
| Net profit | 44.58 | 53.99 | 28.70 |
| Total borrowings | 49.29 | ||
| Return on Capital Employed | 25.34% | 44.98% | 32.14% |
| Return on equity | 23.78% | 38.32% | 32.94% |
Source: Vraj Iron and Steel Ltd RHP
Vraj Iron and Steel Ltd has showcased strong financial growth historically. The net profit has grown with a CAGR of 121.7% from 2021 to 2023. Moreover, the net profit margin till December 2023 is promising at 21.61%. The overall profit and loss statement is sound enough to experience the growth ahead.
The return on capital employed becomes a crucial indicator of operational efficiency in the manufacturing industries like iron and steel. The company has been working efficiently in past years to increase the capacity of its manufacturing plant. The latest ROCE in December 2023 stands at 25.34%, but the expansion project at the Bilaspur plant is expected to increase operational efficiency.
Capital expenditure heavy industries usually experience negative cash flow due to the credit cycles in the market and constant investments in plants and machinery. However, the negative operating cash flow should be improved as soon as possible to meet the pace of industry growth.
Also read: NFO or IPO – What do you think is the better option?
SWOT analysis
| Strengths | Weakness | Opportunity | Threats |
| Strategic locations of manufacturing plants in places with raw material abundance | Major revenue from top 10 customers only. | Finished steel consumption growth is projected to be 14.8%. | The negative net cash flow in the highly competitive industry. |
| Strong growth in Net Profit Margin and 38.32% ROE | Single region concentration in Chhattisgarh. Narrow span of operations. | The funds from the IPO are raised for capacity expansion in the Bilaspur plant. | There is a dependence on third parties for suppliers, logistics, and transportation. |
Bottomline
India’s ambition to expand domestic steel production to 500 MT per annum indicates the potential growth opportunity for Vraj Iron and Steel Ltd. The industry has very competitive market players and some local raw material suppliers. Operational efficiency is the key to success in this sector. Moreover, the country is working hard to gain manufacturing efficiency with the help of industries like iron and steel.
The IPO of Vraj Iron and Steel Ltd offers an excellent opportunity for investors to experience growth in this manufacturing-focused rally in India. The companies’ issue is raising funds to expand the capacity which is a future benefit to the investors.
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