Varun Industries IPO - Apply
Varun Industries, an exporter of steel utensils, is coming out with an with an IPO of 6.57 million equity shares of face value Rs 10 each. The company plans to raise Rs 39.4 crore at the fixed offer price of Rs 60 per share. The issue proceeds will be used to develop sales and distribution network along with brand building in the domestic market where it has no presence as of now. The small and medium steel sector in India is very fragmented and it will probably take some time for Varun Industries to get established in the Indian market.
Business:
Varun Industries is one of the largest exporters of stainless steel utensils like kitchenware, serve ware, tableware and cutlery. It exports its products to 52 countries including the Middle East, North America, Europe and Australia. Going forward, the company plans to enter the domestic market by tapping the sales and distribution channels offered by big retail chains. According to the company, the stainless steel utensil market in India has a size of around Rs 10,000 crore and offers big growth opportunity for the company.
Varun Industries has set up a stainless steel sheet re-rolling mill at Jodhpur at the cost of Rs 29 crore to cater to the rising demand. This mill will provide around 60% of the raw materials for its Vasai production plant at Thane in Mahrashtra, which started production last month. The company also plans to diversify into unrelated businesses like oil & gas and mining ore.
Financials
It posted a net sale of around Rs 740 crore, which makes it one of the biggest players in its segment. It has shown a sustained positive growth rate in its net sales in the past four years with a four-year CAGR of 31%. This compares favourably with its peers, which are growing at around 25-30% annually. Its net profit has grown at a CAGR of 34.1%. The EBIDTA margin is around 6%, which is slightly lower than its competitors which have an EBIDTA margin of 8-9%. The RoCE, at 13%, is also lower vis-à-vis peers.
Valuations :
Considering a profit growth of 30%, the post-issue forward price-to-earnings multiple works out to be 5.1, which is cheap considering an industry average of 12-13 times. Even if one goes by the trailing P/E multiple, it works out to be 6.67, considering a post-issue EPS of 8.9. This is also on the lower side compared to peers. It has price-to-book value (P/BV) of 0.8, significantly lower than its peers which have a P/BV of around 3-4, thus making the issue attractive.
However on the flip side, the steel utensils business is highly fragmented and is dominated by several small players. It needs to be seen how Varun Industries will establish itself in such a fragmented market. The company also plans to enter into other unrelated sectors like mining and oil & gas in the near future. This raises doubts about management focus on the company’s core business. Despite the above risks, investors could consider subscribing to this issue given the upside potential.
source:- economictimes
ANURAG DUJARI
Mobile - 09831909904
Messenger ID - anurag130
E-MAIL - anurag130@yahoo.com
Business:
Varun Industries is one of the largest exporters of stainless steel utensils like kitchenware, serve ware, tableware and cutlery. It exports its products to 52 countries including the Middle East, North America, Europe and Australia. Going forward, the company plans to enter the domestic market by tapping the sales and distribution channels offered by big retail chains. According to the company, the stainless steel utensil market in India has a size of around Rs 10,000 crore and offers big growth opportunity for the company.
Varun Industries has set up a stainless steel sheet re-rolling mill at Jodhpur at the cost of Rs 29 crore to cater to the rising demand. This mill will provide around 60% of the raw materials for its Vasai production plant at Thane in Mahrashtra, which started production last month. The company also plans to diversify into unrelated businesses like oil & gas and mining ore.
Financials
It posted a net sale of around Rs 740 crore, which makes it one of the biggest players in its segment. It has shown a sustained positive growth rate in its net sales in the past four years with a four-year CAGR of 31%. This compares favourably with its peers, which are growing at around 25-30% annually. Its net profit has grown at a CAGR of 34.1%. The EBIDTA margin is around 6%, which is slightly lower than its competitors which have an EBIDTA margin of 8-9%. The RoCE, at 13%, is also lower vis-à-vis peers.
Valuations :
Considering a profit growth of 30%, the post-issue forward price-to-earnings multiple works out to be 5.1, which is cheap considering an industry average of 12-13 times. Even if one goes by the trailing P/E multiple, it works out to be 6.67, considering a post-issue EPS of 8.9. This is also on the lower side compared to peers. It has price-to-book value (P/BV) of 0.8, significantly lower than its peers which have a P/BV of around 3-4, thus making the issue attractive.
However on the flip side, the steel utensils business is highly fragmented and is dominated by several small players. It needs to be seen how Varun Industries will establish itself in such a fragmented market. The company also plans to enter into other unrelated sectors like mining and oil & gas in the near future. This raises doubts about management focus on the company’s core business. Despite the above risks, investors could consider subscribing to this issue given the upside potential.
source:- economictimes
ANURAG DUJARI
Mobile - 09831909904
Messenger ID - anurag130
E-MAIL - anurag130@yahoo.com
