PS Raj Steels NSE SME IPO review (May apply)

•    The company is manufacturing and supplying SS Pipes and Tubers.
•    It is also trading in SS Coils, strips, sheets, plates and bars.
•    The company posted steady growth in its top and bottom lines for the reported periods.
•    Based on recent financial performance, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for long term.

ABOUT COMPANY:
P S Raj Steels Ltd. (PRSL) is one of the growing and leading manufacturers & supplier of Stainless-Steel Pipes & Tubes in India. It offers an extensive array of over 250 standard sizes and providing customized solutions tailored to customer preferences. This makes it one of the manufacturers in India to manufacture such wide range of product sizes. In addition to its core manufacturing operations, as on March 31, 2024 approximately 29.81% of revenue comes from trading in Stainless-Steel Coils & Strips, Sheets & Plates, and Bars and as on September 30, 2024 approximately 25.42% of its revenue comes from trading in Stainless-Steel Coils & Strips, Sheets & Plates, and Bars.

Its products serve a wide range of sectors for fabrication and industrial applications. Key sectors include railways, furniture, households, gate railing, door frames, rice plants, sugar mills, food processing and heat exchanger etc. The Company is selling goods to manufacturers as well as traders/stockist. These manufacturers produce goods for various industries like railways, rice plants, sugar mills, food processing, machinery equipment, decorative items, furniture and fixtures. Some of the items produced by these manufacturers include trolleys for airports made of SS pipes, pipes used in plant & machinery for sugar, rice, and food processing industries. Moreover, the SS pipes are also supplied to manufacturers of heat exchangers and boilers. As of January 31, 2025, it had 114 employees on its payroll and additional 11 contract labours.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 2020000 equity shares to mobilize Rs. 28.28 cr. (at the upper cap). The company has announced a price band of Rs. 132 – Rs. 140 per share of Rs. 10 each. The issue opens for subscription on February 12, 2025, and will close on February 14, 2025. The minimum number of shares to be applied is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.80% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 26.50 cr. for working capital, and the rest for general corporate purposes. 

The company has reserved 20000 equity shares for its eligible employees and 101000 shares for the Market Maker.  From the rest, it has allocated not more than 50x% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The IPO is solely lead managed by Khambatta Securities Ltd., Bigshare Services Pvt. Ltd., is the registrar to the issue. Nikunj Stock Brokers Ltd., is the Market Maker for the company. Nikunj Stock Brokers is also the syndicate member.

Having issued initial equity shares at par value, the company issued additional equity shares in the price range of Rs. 100 – Rs. 131 between April 2005 and March 2018.  Rs.  It has also issued bonus shares in the ratio of 8 for 1 in April 2024. The average cost of acquisition of shares by the promoters is Rs. 10.91, Rs. 11.12, Rs. 11.23, Rs. 11.26, Rs. 11.30, Rs. 12.22, Rs. 12.29, and Rs. 12.72 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 5.52 cr. will stand enhanced to Rs. 7.54 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 105.54 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 179.89 cr. / Rs. 3.57 cr. (FY22), Rs. 225.44 cr. / Rs. 3.65 cr. (FY23), and Rs. 297.76 cr. / Rs. 6.36 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 3.87 cr. on a total revenue of Rs. 139.12 cr. The sudden boost in bottom lines from FY24 onwards raise eyebrows and concern over it sustainability.

For the last three fiscals, the company has reported an average EPS of Rs. 9.05 and an average RoNW of 18.29%. The issue is priced at a P/BV of 2.24 based on its NAV of Rs. 62.39 as of September 30, 2024, but missing its post-IPO NAV data in RHP/IPO price band ads.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 13.65. Based on FY24 earnings, the P/E stands at 16.59. Based on its recent earnings, prima facie, the issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 1.99 % (FY22), 1.62% (FY23), 2.14% (FY24), 2.78% (H1-FY25), and RoCE margins of 15.75%, 14.56%, 20.64%, 11.51%, for the referred periods, respectively.

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Remi Edelstahl, Venus Pipes, and Suraj Ltd., as their listed peers. They are trading at a P/E of 37.0, 28.8, and 34.0 (as of February 06, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 11th mandate from Khambatta Securities in the last three fiscals.  Out of the last 10 listings, all listed at premiums ranging from 2.02% to 306.88% on the date of listing.