Vraj Iron and
Steel Limited (formerly known as Phil Ispat Pvt Ltd) is a subsidiary company of
Gopal Sponge and Power Private Limited (GSPPL), Raipur, with interest in steel
and power. In FY2012, GSPPL bought a majority stake (i.e., 74%) in Phil Ispat
Private Limited, incorporated in 2004. Subsequently, the name of the company
changed to Vraj Iron and Steel Limited (VISL) in November 2023.
VISL
manufactures sponge iron, MS billets, and TMT bars under the brand Vraj. It
currently operates through two manufacturing plants located at Raipur and
Bilaspur in Chhattisgarh. These are spread across 52.93 acres.
The product
offerings of sponge iron, TMT bars, and MS billets and by-products dolochar,
pellet and pig iron cater to a mix of customers consisting of industrial
customers and end-users. Products are sold directly as well as through brokers and
dealers. The environment management system certification, under the new
standard of ISO 14001: 2015, has been obtained for the Raipur plant. TMT bars
formed 30.31%,sponge iron 52.58%, and MS billets 13.99% of total revenue in
9MFY2024. The capacity utilization of sponge iron was 70.57%, capacity
utilization of MS billets 55.22%, and TMT bars 36.13%. The capacity utilization
of captive power plant was 36.88%.
Induction
furnaces are used for production of steel. Induction furnaces convert steel
scrap and sponge iron into liquid steel by induction heating. This further gets
processed into billets, blooms, and ingots. Sponge iron is a critical raw
material for the steel industry. Sponge iron is the key raw material required
to manufacture high quality steel. It is quite versatile and can be used in
both induction as well as electric arc furnaces. TMT steel bars of exceptional
quality are manufactured through the hot rolling process.Heated iron billets
are continuously passed through rollers of decreasing diameters. The TMT saria
is passed through a water-cooling system for thermo mechanical treatment before
they exit the last rolling mill. Mainly the products are used in construction.
MS billets are semi-finished casting products produced insteel mill and needs
to be further processed to transform them into a finished good. Theround or
square cross-sectioned metal length is created directly by continuous casting
or by indirectly hot rolling an ingot.
The current
installed capacity of sponge iron of the Raipur plant is 60,000 tpa and the
Bilaspur plant 60,000 tpa,taking the total sponge iron installed capacity at 1,20,000
tpa,where the backward integration begins.The current production capacity is
57,600 tpa of MS billets. Theseare used by the rolling mills at Raipur to
manufacture TMT bars, with a production capacity of 54,000 tpa.The
manufacturing plant at Raipur includes a captive power plant, with an aggregate
installed capacity of 5 MW, as of 31 December 2023. The aggregate installed
capacity of the manufacturing plants was 2,31,600 tpa.
The
principal raw materials used in the manufacturing process are iron ore, coal,
iron ore pellet, and dolomite. The company fulfil its raw materials requirement
from domestic market. Except for procurement of coal and iron ore, it has not
entered into any long-term agreements with any of its raw material or inputs
suppliers. Such raw materials and inputs are purchased on a spot order basis.
The promoters
are Vijay Anand Jhanwar, Kusum Lata Maheshwari, Gopal Sponge and Power Private
Limited, V A Transport Private Limited, Kirti Ispat Private Limited, Bhinaswar
Commercial Private Limited, and Utkal Ispat Private Limited.
The Offer and the Objects
The offer comprises a fresh issue of up to
8260870 equity shares at the upper price band of Rs 207 and 8769231 equity
shares at the lower price band of Rs 195, aggregating to Rs 171 crore.
The net proceeds from the fresh issue will be
used to repay or prepay borrowings from HDFC Bank for the Rs 70-crore capital
expenditure towards the expansion project of the Bilaspur plant and Rs
59.5-crore capital expenditure towards the expansion project of the Bilaspur
plant. The balance is towards general corporate purposes.
Capacities of the existing manufacturing
plants and captive power plant at Bilaspur plant are being increased from
231,600 tpa to 500,100 tpa and the captive power plants aggregate installed
capacity from 5 MW to 20 MW. These
proposed expansions of sponge iron and the captive power plant are expected to
become operational in Q4 of FY 2025. The MS billet capacity is expected to
become operational in Q1 of FY 2026. Sponge iron capacity is expected to
increase by 115500 tpa to 235500 tpa and MS billets by 153000 tpa to 210600
tpa. Total expected capex plan of the Bilaspur plant is Rs 164.5 crore.
Strengths
The demand
for steel is rising due to rapid urbanization and infrastructure development,
growing population, government investments in infrastructure, thriving
automobile sector, environment sustainability awareness and increasing demand
for reconstruction and replacement activities.
The World Steel
Association forecasts steel demand to increase by 1.8% to 1,814.5 tonnes in CY2023
and 1.9% to 1,849.1 tonnes in CY2024 as compared to a decline of 3.3% in CY2022.
The per
capita finished steel consumption in India was 81.1 kg in CY2022, significantly
lower than the world average of 222 kg per capita. The National Steel Policy
2017 envisages that per capita finished steel consumption will increase to
158-160 kg by FY2031. Thus, the steel industry has significant domestic
potential and is expected to play a key role in the future economic growth of
the country.
Doemstic
steel consumption is expected to see a healthy growth of 9-11% in FY2024. Steel
consumption is expected to reach between 151-155 tonnes by FY 2026, indicating
a CAGR of 7-8% between FY2024 and FY2026.
The
manufacturing operations are semi-integrated in nature, with sponge iron
plants, ingots and billets and rolled products derived from sponge iron and
billets. There is a gradual shift in the product sales mix to downstream
products via the increasein production and sales of billets and TMT bars.
Sponge iron is captively consumed for manufacturing billets. The rest is sold.
The iron-and-steel
industry is a power-intensive industry.Stable supply of power is required
favourably at a minimum possible cost. Power cost minimisation is possible
through the utilisation of captive power sources, leading to a relatively
stable and low-cost supply source for power requirements. VISL and Gopal Sponge
and Power Private Limited (GSPPL) have captive power of 10 MW, catering to most
of the power requirements of the two entities. This helps to reduce the
dependency on external power sources and reduces power costs.
Freight
cost constitutes a significant portion in the manufacturing of steel products,
as a large amount of bulky raw materials are required to be sourced to the
manufacturing site. The manufacturing facilities are near the sources of the
main rawmaterials (i.e., iron-ore and coal) required for manufacturing of
products. The plants are well connected through road (state highway and
national highway) and rail transport (Raipur railway station), facilitating
easy transportation ofraw materials and finished goods.
Agreements
for purchase of iron ore lump have been entered with NMDC. Fuel-supply
agreements have been signed for purchase of coal with South-Eastern Coalfields
Limited, enabling a smooth flow into production plants. The main advantages of
buying raw materials from the existing suppliers are their enormous capacity, allowing
them to meet the requirements of raw materials under any circumstance, the
reduced lead times, and seamless material flow, on-time deliveries, and direct
line of communication.
The
Bilaspur plant has been chosen for the capacity expansion mainly due to lack of
manufacturing facility for MS billets and lack of power plant to reduce the
cost and availability on the existing land in the Bilaspur plant. Thereby no
additional cost is to be incurred for the land andsite development for this expansion.
By undertaking the expansion at the Bilaspur plant, the cost of the project will
reduce,and the margin improve.
The
integrated nature of the manufacturing plants has resulted in control over all
aspects of its operations (with the exception of sourcing of primary raw
materials) as well as the operating margins, thereby enabling focus on quality
and creatingif multiple points of sale across the steel value chain.
Weaknesses
Steel is a
cyclical industry correlated to economic cycles as key users, viz.,
construction, infrastructure, automobiles, and capital goods, are heavily
dependent on the state of the economy. Apart from local factors, the
globaldemand-supply situation, especially in China, is a major factor impacting
steel prices and volumes. Producers of steel products are essentially
price-takers in the market, directly exposing their cash flows and
profitability to volatility insteel prices.
The major
raw materials (i.e., iron ore and coal) form the largest component of the total
cost of sales of steel products. The basic raw materials such as iron ore,
coal, pig iron, dolomite, manganese ore, used for production of sponge iron
billets and silicomanganese are directly sourced from the domestic market (less
than 10% of the total coal purchase is imported). Their prices are volatile.
Cash flows
from operations was negative in 9M of FY 2024.
There is
intense competition in the Indian steel market from various domestic and
multinational companies in India. Some key peers including Tata Steel, JSW
Steel, Steel Authority of India (Sail), Jindal Steel and Power (JSPL), Godawari
Power and ISPAT (GPIL), ESL Steel (ESL), Sarda Energy & Minerals (SEML), and
Shyam Metalics and Energy (SMEL).
Promoters
Gopal Sponge and Power Private Limited, Kirti Ispat Private Limited, and Utkal
Ispat Private Limited and group company Vraj Metaliks Private Limited are
engaged in activities similar to its business. This may be a potential source
of conflict of interest may have an adverse effect on its business, financial
condition and results of operations.
Strict
quality requirements mean any product defect issues may lead to the
cancellation of existing and future orders, recalls and exposure to potential
product liability claims.
Penalty is
required to be paid to suppliers of coal in the event liftingis below specified
percentage of the annual contracted capacity.
Certain
statutory and regulatory licenses, registrations and approvals are required to
operate the business. Failure to renew, maintain or obtain the required
licenses or approvals, or cancellation, suspension, or revocation of any of the
licenses, approvals and registrations could result in the interruption of
operations and can have a material adverse effect on the business.
Tariffs,
import restrictions on trade, and export bans by governments worldwide, can
hamper the growth of the steel industry, causing disruptions in trade globally
Valuation
For FY2023,
consolidated sales were up by 25% to Rs 515.67 crore. The OPM rose 330 bps to
14.9%, leading to 60% increase in OP to Rs 76.68 crore. OI rose to Rs 1.75
crore as compared to Rs 34 lakh. Interest cost decreased 24% to Rs 2.99 crore.
Depreciation fell 10% to Rs 6.44 crore. PBT increased 86% to Rs 69 crore. Tax
expenses were 82% higher at Rs 17.89 crore. Net profit increased 88% to Rs
44.58 crore.
The FY2023
EPS on post-issue equity works out to Rs 16.4. At the upper price band of Rs
207, P/E works out to be 12.6
As of 21
June 2024, listed peers such as Sarda Energy and Minerals Limited traded at TTM
P/E of 15.2, Godawari Power and Ispat Limited at TTM P/E of 16.5, Shyam
Metalics and Energy Limited at TTM P/E of 17.8, Jindal Steel and Power at TTM
P/E of 18.5, and SAIL at TTM P/E of 17.4.
For FY2023,
Vraj Iron and Steel’s Ebitda margin and ROE stood at 15.8% and 38.3% as compared
to 26.4% and 18.8% for Sarda Energy and Minerals Limited, respectively, 21.5%
and 22% for Godawari Power and Ispat Limited, 11.8% and 13.1% for Shyam
Metalics and Energy Limited, 18.9% and 8% for Jindal Steel and Power, and 9.2%
and 3.6% for SAIL.
Vraj Iron
and Steel:Issue Highlights
|
Fresh
issue (in Rs Crore)
|
171
|
For Fresh
Issue Offer size (in number of shares )
|
|
- in Upper price band
|
8260870
|
- in Lower price band
|
8769231
|
Price Band
(Rs)
|
195-207
|
Pre issued
capital (Rs crore)
|
24.72
|
Post issue capital (Rs crore)
|
32.98
|
Pre issue
promoter shareholding (%)
|
100.00
|
Post issue Promoter shareholding
|
74.95
|
Bid Size
(in No. of shares)
|
110
|
Issue open
date
|
26-06-2024
|
Issue
closed date
|
28-06-2024
|
Listing
|
BSE,NSE
|
Rating
|
45/100
|
Vraj Iron
and Steel: Consolidated Financials
|
Particulars
|
2103 (12)
|
2203 (12)
|
2303 (12)
|
2312 (09)
|
Total
Income
|
290.71
|
414.04
|
515.67
|
301.32
|
OPM
|
9.4
|
11.6
|
14.9
|
19.4
|
Operating
Profits
|
27.43
|
47.98
|
76.68
|
58.55
|
Other
Income
|
0.23
|
0.34
|
1.75
|
3.49
|
PBIDT
|
27.66
|
48.32
|
78.43
|
62.04
|
Interest
|
5.98
|
3.95
|
2.99
|
1.94
|
PBDT
|
21.67
|
44.37
|
75.44
|
60.09
|
Depreciation
|
7.27
|
7.18
|
6.44
|
4.38
|
PBT
|
14.41
|
37.19
|
69.00
|
55.72
|
Share of
Profit/loss of JV
|
1.45
|
1.34
|
2.89
|
3.07
|
PBT Before
EO
|
15.85
|
38.53
|
71.88
|
58.78
|
EO
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT after
EO
|
15.85
|
38.53
|
71.88
|
58.78
|
Provision
for Tax
|
4.87
|
9.83
|
17.89
|
14.20
|
Profit
after Tax
|
10.99
|
28.70
|
54.00
|
44.58
|
PPA
|
0.00
|
0.00
|
0.00
|
0.00
|
Net profit
after PPA
|
10.99
|
28.70
|
54.00
|
44.58
|
MI
|
0.00
|
0.00
|
0.00
|
0.00
|
Net profit
after MI
|
10.99
|
28.70
|
54.00
|
44.58
|
EPS (Rs)*
|
3.3
|
8.7
|
16.4
|
#
|
*EPS
annualized on post issue equity capital of Rs 32.98 crore of face value of Rs
10 .each
|
# Not
annualised due to seasonality of business
|
Figures in
Rs crore
|
Source:
Capitaline Corporate Database
|
|