Venus Pipes- Pipes & Tubes

ABOUT COMPANY
Venus Pipes and Tubes Ltd is one of the growing stainless steel pipes and tubes manufacturer and exporter which was incorporated in 2015 by 4 friends of different background from Kutch area. They produce in two broad categories: (i) seamless tubes/pipes and (ii) welded tubes/pipes, under which they are currently manufacturing five product lines, namely, (i) stainless steel high precision & heat exchanger tubes (ii) stainless steel hydraulic & instrumentation tubes (iii) stainless steel seamless pipes (iv) stainless steel welded pipes and (v) stainless steel box pipes. The Company have one manufacturing plant which is strategically located at Bhuj-Bhachau highway, Dhaneti (Kutch, Gujarat) in close proximity, around 55 kilometres and 75 from the ports of Kandla and Mundra, respectively, that helps the company in reducing their logistic costs on procurement of raw materials and imports and export of their products.

HISTORY
2015- Incorporation of our Company
2015 -Established manufacturing plant at Dhaneti, Bhuj-Bhachau highway, close to Mundar and Kandla Ports.
2015- Commenced the production of stainless steel welded pipes, stainless steel high precision & heat exchanger tubes, stainless steel hydraulic & instrumentation tubes and stainless steel box pipes at our manufacturing plant located at Dhaneti, Kutch, Gujarat with capacity of 200 MT per month.
2017 -Addition of stainless steel seamless pipes to production line.
2017 -Started exporting stainless steel welded and stainless steel seamless pipes to countries in the European Union, Brazil, UK, Israel etc.
2021 -Conversion from a private limited company to public limited company.

INDUSTRY
Stainless Steel is a value-added product with high corrosion resistant properties. Higher levels of Chromium and additions of other alloy elements (Nickel, Chromium, etc.) enhance the corrosion resistance. Compared to traditional steel, stainless-steel has higher resistance to corrosion, superior aesthetic finish, low maintenance and higher life span these properties has made stainless steel a preferred metal for application in diverse sectors.
Global stainless-steel melt shop production grew by 10.6% to 56.3 Mn Tonnes in 2021 compared to ~50.9 Mn Tonnes in 2020 (Source: International Stainless-Steel Forum). In 2021, China with over 54% share in global SS production observed moderate 1.6% growth in 2021. India’s SS output was estimated to be 3.5 Mn Tonnes and is 3rd largest stainless-steel producer in the world.
The Indian stainless-steel sector, has a total manufacturing capacity of more than 5 Mn tons of stainless steel annually. Since 2011, stainless-steel production has increased at a CAGR of 7.8% per annum from ~2.16 Mn Tonnes in 2011 to 3.93 Mn Tonnes in 2019.
In India, 12% of the stainless steel is used in construction and infrastructure, 13% in automobiles, railways and transport (ART), 30 % in capital goods and 44% in durables and household utensils and 1% in others.
Despite being one of the largest producers as well as consumers of stainless steel, the per capita stainless steel consumption in India remains low. India’s per capital stainless steel consumption has increased from 1.2 kg in2010 to 2.5 kg in 2019, however, its consumption is comparatively much lower compared to the world average of 6 kg per capita, This low consumption pattern is an indication of the inherent opportunities existing in the sector.
Globally, the SS pipes and Tube industry was estimated to be valued at nearly USD 32.4 billion in 2019 contributing 23% share in global pipes& tubes industry. In coming years too, the SS pipe & tube is expected to observe a stable growth of 4% through 2025 with the total market size estimated to cross USD 40 billion.

KEY HIGHLIGHTS

• 165 cr IPO was fresh issue no promoter sale. IPO money is to be use in capex and backward integration.
• Margins have improved because they are directly suppling to B2B customers instead of stockiest.
• Have acquired lots of approval for direct supply to B2B customers in chemical, pharma & engineering field.
• Working capital intensive industry.
• Placed in Kutch Gujarat, near to Mundra port. All promoters are from Kutch area.
• For seamless pipes raw material (hollow pipes) is procured from overseas. For that company will be putting piercing plant for backward integration and will be using steel billets for raw material.
• TOP 10 customer constitute between 32%-44% of sale with on long term agreements.

PRODUCT & SEGMENTS
2 broad categories: (i) Seamless tubes/pipes (ii) welded tubes/pipes.
5 product lines, namely,
(i) Stainless steel high precision & heat exchanger tubes;
(ii) Stainless steel hydraulic & instrumentation tubes
(iii) Stainless steel seamless pipes
(iv) Stainless steel welded pipes
(v) Stainless steel box pipes


END USER
(i) Chemicals
(ii) Engineering
(iii) Fertilizers
(iv) Pharmaceuticals
(v) Power
(vi) Food processing
(vii) Paper
(viii) Oil and gas
(ix) Aerospace
Major contribution to top line in last 3 year were Chemical and Engineering contributing 85-92%.

RAW MATERIAL
The Company’s basic raw material includes SS coils and hollow pipes and they procure their raw materials based on market availability, pricing and quality through three main channels: (i) domestic suppliers such as steel manufacturers, stockists and traders (ii) international suppliers from China, Indonesia, Malaysia and Singapore and (iii) high sea purchases. The cost of materials consumed (including purchase of stock in trade and changes in inventory) by the company in their operations accounted for 82.09%, 84.53%, 88.29% and 85.58% of their revenue from operations for the nine-month period ended December 31, 2021 and Fiscals 2021, 2020 and 2019, respectively.

PLANT & CAPACITY
• Only one manufacturing plant at Dhaneti (Kutch) which is strategically located in proximity of Kandla & Mudra ports for enabling imports and exports.
• Facility on a land admeasuring 68,090 Sq. Mt.
• Surplus land of 45,690 Sq. Mt. available for proposed capacity expansion/integration.
• Total installed capacity of 10,800 MT per annum with approximate utilization of 90

COMPETITORS

CAPEX PLANS


Venus is also proposing to install an acid regeneration plant (ARP) wherein the consumption of acid in its manufacturing process will be reduced substantially which will help improve its operating profit margin (OPM).

MOAT
There is no moat in the company.

KEY MATRICS TO TRACK
Ebitda per ton. Q1 FY22 (9.35cr/2430 ton @ 90% utilization = 38477)- Q1Fy23 (14.47/ 2430 @ 90% utilization = 59547) growth in topline in Q123 is because of higher realization.

PROMOTERS

Jayantiram Motiram Choudhary, aged 38 years is the chairman, non-executive Director and one of the Promoters of our Company. He has been associated with our Company since its incorporation as a Director. He does not have any formal education degree. He has over ten (10) years of experience in the steel industry and over four (4) experience as a director of Accuracy Shipping Limited.

Arun Axaykumar Kothari, aged 44 years is the Promoter, managing Director and CFO of our Company. He has been associated with our Company since September 14, 2021 as a Director. He holds a bachelor’s degree in commerce from Rajasthan University and has been a qualified chartered accountant since 1998. He looks after and manages the entire accounting and financial operations of our Company and is responsible for setting processes, systems and procedures in place to control and streamline the financial and commercial transactions of the Company.

Megharam Sagramji Choudhary, aged 39 years is the Promoter and whole time Director of our Company. Being our Promoter, he has been associated with our Company since its incorporation. He has no formal education degree. He has over 15 years of experience in the stainless steel welded pipes and tubes industry. He is responsible for sales and marketing, customer relationship management and procurement and also looks after the HR activities of our Company.

Dhruv Mahendrakumar Patel, aged 36 years is the whole time Director and a Promoter of our Company. Being our Promoter, he has been associated with our Company since 2015. He holds a bachelor’s degree in engineering from University of Pune and a master’s degree in technology from CEPT University. He looks after production activities, streamlining of processes and procedures to facilitate smooth production process and enhanced productivity in the manufacturing process. He has over six (6) years of experience in the steel industry. He manages the entire production and also looks after the export of our Company.

GROWTH TRIGGERS
• Capacity expansion from 10800 MTPA to 25200 MTPA.
• Chinese government cancellation of export rebate in steel products. (54% India export was from China)
• Backward integration and cost optimization to improve margins . (Hollow pipes from SS round bar)
• Tap new geographies to increase export .

RISK
RELATED PARTY TRANSACTIONS
For the nine-month period ended December 31, 2021, Fiscal 2021, 2020 and 2019, the related party transactions accounted for approximately 6.01%, 11.61%, 23.84%, and 13.49% respectively .
CONTINGENT LIABILITY
Duty on import against Advance licenses for Export obligation 28.94 Cr.

WEAKNESS & THREATS

• Competition from other large and established competitors and unorganised players
• Products becoming obsolete due to a breakthrough in the development of technology or alternate products.
• Limited operating history in the highly competitive stainless steel pipes and tubes market.
• Volatility of pricing in the steel industry which will effect topline.
• Foreign currency exchange risks 24.8cr export and 37.2 cr purchase of raw material in FY22.
• May not yet be the supplier of first choice and not command goodwill and trust as they are new to the industry.
• Only one Manufacturing Facility and any adverse developments affecting this facility and the region could have an adverse effect on our business.
• Directors, Jayantiram Motiram Choudhary and Megharam Sagramji Choudhary do not have any formal educational qualification.
• Domestic revenue base is largely concentrated in Gujarat, Maharashtra and Telangana. In FY20-21 and FY21-22, Venus earned 93.81% and 90.59%, respectively, of its revenue from these three states collectively.
• Registered and corporate office, guest house, warehouse, godown and a portion of our factory are located on leased premises.
• 4366350 shares have been allotted in the ratio of 1:2 through Bonus basis on 21 sep 21 & 2122960 shares have been allotted at a premium of Rs.270 per share on preferential basis on 21 Oct 2021 before IPO.

STRENTHG, OPPOURTUNITY & THESIS.
• International certifications and product approvals,
• Specialised production of Stainless-Steel Pipes and Tubes,
• Multi-fold demand of Products- new product demand and replacement demand.
• Customer Diversification
• Capacity expansion from 10800 MTPA to 25200 MTPA.
• Backward integration.
• Tap new geographies to increase export .
• Increasing direct sales and management have guided for stockist to be around 20% in Fy25 from current level of 32%.

strong text

Disclosures:- This is my personal view and i am not Sebi registered analyst & i am not invested, tracking the business. Please do your own work before investing.

15 Likes

@Debottlenecking Thanks for the initiative
.

90% of the Utilizatoin is in the present quarter Q1FY23 I guess, can you please check again ?

10052022-Venus-Pipes-and-Tubes-IPO-arih.pdf (978.1 KB)

Source Edelweiss

4 Likes

I had one question, From Q1FY22 to Q1FY23, revenues grew by 37% while volumes remained flat. Has it been realizations mostly due to SS Prices moving up and what happens when the Prices fall?

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Yes, growth in topline was because of realization.

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Very much interesting as per me is weak hands are moving out and complete float is moving towards strong hand. Initially share was listed in trade to trade segment and that time market sentiment was very much down . Share got listed at premium and investor may have cashed in . Now if you check share holding pattern it’s more interesting.
Promotor holds 48 % public 52 % . Out of 52 % small investor holds 9% and rest by big investor and that too majority stake in lock in

https://www.bseindia.com/corporates/shpPublicShareholder.aspx?scripcd=543528&qtrid=114.00&QtrName=June%202022

Disc invested so views. May be biased

6 Likes

Any body tracking it, please update, Ashish Kacholia took a stake at 750! 4lakh shares!

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The new plant of 3x size is yet to get commissioned but inventory is up 3x before that and cash flows have also been negative. Any commentary given by management on this ?

1 Like

recent Interaction with management

What part of sales is consumption / replenishment demand?
Ans- difficult to answer since customers don’t intimate if end product is used in capex or replacement, ball park 30% should be replacement (off hand number, no backing)

What is the relationship amongst the promoters ? (Choudhary, Patel and Kothari)
Ans- Promoters are friends, part of steel industry and knew each other before starting the company

% of purchases and sales through Related parties?
Ans- Small part is through related parties and being reduced further

How is Venus able to grow / scale up so quickly in last 7-8 years?
Ans-
Anyone can put up a plant in the country
No entry barrier as such in the industry, however, it takes 3-4 years to get approval of brand with OEMs and EPC consultants. Also, need certifications in export markets
Promoter experience in this industry

Is the business confined to any distance constraints due to logistics cost etc.,?
Ans- Venus is located close to Kandla port, hence import of raw materials and export (targeting 20% of revenues) is cheaper
Ratnamani, Jindal and Venus - all 3 are in western part and hence no disadvantage

Working capital has been increasing over the years, at what level it will stabilise? Working capital days increased to 150 days in FY22 from 63 days in FY21
Ans- 120-130 days is the current working capital since 60 days credit needs to be given for direct sales, 90-100 days of inventory of raw materials and Finished goods is maintained and 40-50 trade payable days

In SS - 60 days credit is a norm and hence Venus also needs to offer. Clients are usually big companies and hence no issues of write offs as such.

Current utilization %, expected time to ramp up new facilities? Any orders for new facility?
Ans- 90% capacity utilization, Q4 numbers should be similar to Q3.
All 3 expansion should go live in Q1
4000 MT is imported every month as per company, new expansion plan is for 500MT
Welded should see revenues flowing in from 2nd half of the Financial year

Anti-dumping duty will stay for 5 years - mainly on lower grades since

Venus can manufacture all grades

Market size of the products in the states and products in which Venus operates?
Ans - Not relevant as such since logistics is not an issue

Current facility is in Kutch, how much more land is available for expansion?
Ans- Little land will be left after current expansion but land is available in the vicinity for future expansion if required

Main consumption of steel pipes is by Oil and Gas industry, with low crude prices, do we see any slowdown?
Ans- No slowdown in general as per management

Does the factory have any hazardous / solid / liquid discharge?
Zero discharge plant. Acid Regeneration plant will further reduce acid wastage since 80% of the Acid will be recycled - improve ESG compliance
Air pollution etc., isn’t there in the industry

Product rejection rate? How has the trend been over the years?
Ans- negligible
Plant is mostly automated, also inspection is done before dispatch for direct orders

Environment clearances have been received for the new unit?
Ans - Yes, CT has been received. Will get CC once plant is being started

Any incentives received from the government?
Ans- 3-4 crores in terms of SGST can be received per annum for few years if tubes are sold in Gujrat from Gujrat Government
Clients receive PLI in Pharma, Chemical etc.
Some exemption on electricity costs too

What % of products will be off the shelf vs customised?
Reducing the % traders. Currently no customized products
Disc : invested

4 Likes

Please analyze the data on what has happens to returns in stocks where Mr. Kacholia invests and then retail investors invests after a few days. Mr. Kacholia buys illiquid stocks at discounted rates based on his relationship with promoters. Then the news of his buying spreads which props up the stock. By the time you buy it might be too expensive. Same thing is playing out in Venus Pipes. According to Monarch Capital’s optimistic estimates EPS will jump from Rs17.8 in FY23E to Rs28.6 in FY24E and then 52.2 in FY25E. On FY24E the stock is already at 29.5x FY24E at the current price of Rs845. Do you have margin of safety?

I think the market has changed over the couple of years. It is not easy to make money if you ignore entry price valuations unlike say 3 to 4 years back. We are in a higher interest rate environment which means P/E or P/BV multiples accorded will be lower

But well please take my point of view with a pinch of salt because Venus Pipes might be a mind bogglingly good company with great prospects which might do well!

16 Likes

good quarter, capex is also live so coming quarters could be better

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very strong commentary in the concall post Q4FY23. volume guidance of 26000 given for the year FY24. That will double its volume from 13000 in FY23.
Also major margin improvement expected in seamless division- EBITDA per kg is 63 right now in seamless. Expected to go up by 40% due to backward integration, ADD duty, industry tailwind.
We can expect the EBITDA per ton of atleast 80,000 in the seamless pipe segment
industry size in India is roughy - 3,00,000 ton , out of which 30% is imported
30-35% of this market is seamless pipes, the rest is welded pipes
i believe out of this 3,00,000 ton around 1,00,000 ton capacity will be with the organised players- like Jindal , Venus and Ratnami. Hence there is a huge scope of eating the unorganised industry market share.
Disc- Invested

8 Likes

Promoters increased their share by more than 1% …

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Venus Pipes seems to be very well-poised to grow from here with multiple levers of variant perception playing out:

  • ~60% volume growth for FY24
  • 300 bps of Margin Expansion due to backward integration and other cost savings
  • Promoter buying
  • Favorable Product mix change with share of premium segment (Seamless) becoming higher
  • Anti- Dumping duty for imports from China further aiding the
  • Shift from unorganised to organized- currently there are just 3 major organised players in this segment of the market with 30% share. The remaining 70% belongs to the unorganised.

In terms of anti-thesis:

  • The valuations are no more cheap with PE of 35x for FY24 earnings, some of the growth has already baked in to the share price
  • Difficult to figure out the longevity of earnings beyond FY25

Any thoughts?

Disc: Biased and Invested

8 Likes

Excellent Q2 FY24 numbers. The promoters are walking the talk. If capacity additions come up on time, the next two years could more than double the top line

3 Likes

Correct, the valuation is no longer cheap. Based on the Con-call Revenue guidance is 35% for FY24 & FY25. Further, 15-20% for FY26 till FY28. A simple calculation on Multiples for what could be the Mcap in FY24 & FY25. I am considering the current MCap of 2850 Cr.

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They also indicated targeting 40-50% improvement in EBITDA margin for seamless pipe and a 15-20% improvement for welded pipe

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Venus Pipes, today had a board meeting and issued warrants to promoters and one non-promoter entity with the intention of raising funds to get the company into pipe adjacency - pipe fittings and welded steel-titanium pipes. To that end warrants worth 71.4 Cr. convertible to equity at the base price of Rs. 1700.

Phase 1 - Initiation of fittings capabilities and SS-Titanium welded pipes - To be completed by March 2025

Phase 2 - Capacity expansion of aforementioned capabilities - To be completed by December 2025

Pipe fittings are a natural extension of steel pipes business and SS-Titanium pipes are a specialized breed of pipes suited for critical uses like food processing and high pressure - high temperature use cases like nuclear and super thermal power generation.

Details of warrants issued - https://www.bseindia.com/xml-data/corpfiling/AttachLive/9503491e-1d4e-4d86-91e6-43c55395b7f2.pdf

Media Release - https://www.bseindia.com/xml-data/corpfiling/AttachLive/6403e3cd-72f1-4504-b334-8b2e2695363e.pdf

Revised Investor Presentation - https://www.bseindia.com/xml-data/corpfiling/AttachLive/da54d7df-3c60-47e0-87ac-4e1a5ef43fd2.pdf

1 Like