Sambhv Steel IPO review (Apply)

•    The company is one of the key manufacturers of ERW steel pipes and related products with vase variety.
•    The company specializes in some variety of steel pipes and tubes.
•    It posted steady growth in its top and bottom lines for the last three fiscals.
•    Its major expansion plans have gone on stream and will bring additions to its revenue and profits in coming years.
•    Based on its recent financial data, the issue appears fully priced. 
•    Investors may park funds for medium to long term. 

ABOUT COMPANY:
Sambhv Steel Tubes Ltd. (SSTL) is one of the key manufacturers of electric resistance welded (“ERW”) steel pipes and structural tubes (hollow section) in India in terms of installed capacity as of March 31, 2024. Its backward integration processes allow SSTL to manufacture a range of finished products including ERW black pipes and tubes (hollow section), pre-galvanized (GP) pipes, Cold Rolled Full Hard (“CRFH”) Pipes and galvanized iron (“GI”) pipes and steel door frames, using intermediate products such as sponge iron, blooms/slabs and hot rolled (“HR”) coil, cold rolled (“CR”) coil (mild steel) and GP coils which are manufactured in-house. According to the CRISIL Report, it is one of the two players in India manufacturing ERW steel pipes and tubes (along with hollow section pipes and tubes) using narrow-width HR coil, as of December 31, 2024. 

SSTL’s products are rust resistant and tailored to meet specific market requirements, ensuring wide application across multiple sectors including housing and infrastructure, water transportation, agriculture, automobile, telecommunications, oil and gas, engineering, solar energy, fire-fighting systems, and for support structures of conveyors. It has a wide distribution network in India which extends across 15 states and one union territory as of December 31, 2024. According to the CRISIL Report, the company is amongst a very limited number of players in India, manufacturing stainless steel coils with backward integration and currently have the capability of manufacturing stainless steel (“SS”) blooms/slabs which are captively consumed to produce HR coil, hot rolled annealed pickled (“SS HRAP”) coil and CR coil.

It produces narrow-width HR coil which allows the company to manufacture ERW black pipes and tubes of thickness as per customer requirements and reduces its dependency on external HR coil suppliers, thus giving it a competitive edge.  As of March 31, 2024 and March 31, 2025, it had a total installed capacity of 1,122,400 metric tons per annum (“MTPA”) and 1,698,000 MTPA, respectively of high-quality steel (intermediate and finished) products. In order to boost productivity and sustainability, it has installed a captive power plant which, as of March 31, 2025, operates with an installed capacity of 25 MW (comprising a 16 MW waste heat recovery boiler (“WHRB”) and nine MW atmospheric fluidized bed combustion (“AFBC”) system) that provides a localized source of power to its Sarora (Tilda) Facility. The company has also, in Fiscal 2025, expanded the installed capacity of captive power plant from 15 MW as of March 31, 2024 to 25 MW as of March 31, 2025.

As of December 31, 2024, it had 37 distinct distributors with two distributors distributing through six branches in 15 states and one union territory taking the total distributor network to 43. These distributors in turn distribute finished products through over 700 dealers in India as of December 31, 2024. As of March 31, 2025, it had 1774 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of fresh equity shares issue worth Rs. 440.00 cr. (approx. 53658537 equity shares at the upper cap), and an Offer for Sale (OFS) worth Rs. 100.00 cr. (approx. 12195122 shares at the upper cap). The overall size of the IPO is 65853659 shares worth Rs. 540.00 cr. at the upper cap. The company has announced a price band of Rs. 77 – Rs. 82 per equity shares of Rs. 10 each. The issue opens for subscription on June 25, 2025, and will close on June 27, 2025. The minimum application to be made is for 182 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 22.35% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 390.00 cr. for pre-payment/repayment of certain borrowings, and the rest for general corporate purposes. 

The company has reserved equity shares worth Rs. 2.50 cr. (approx. 304878 shares at the upper cap), and is offering a discount of Rs. 4 per share to its eligible employees. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for retail investors.

The Book Running Lead Managers (BRLMs) to this issue are Nuvama Wealth Management Ltd., Motilal Oswal Investment Advisors Ltd., while KFin Technologies Ltd., is the registrar to the issue. Nuvama Wealth Management Ltd. is a syndicate member.

Having issued/converted initial equity shares at par, the company issued further equity shares in the price range of Rs. 60 – Rs. 375 per share (based on Rs. 10 FV), between June 2018, and November 2023. It has also issued bonus shares in the ratio of 9 for 1 in March 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.83, Rs. 0.85, Rs. 0.94, Rs. 1.46, Rs. 1.82, and Rs. 2.16 per share. 

Post-IPO, its current paid-up equity capital of Rs. 241.00 cr. will stand enhanced to Rs. 294.66 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2416.22 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 820.75 cr. / Rs. 72.11 cr. (FY22), Rs. 939.00 cr. / Rs. 60.38 cr. (FY23), and Rs. 1289.38 cr. / Rs. 82.44 cr. (FY24) – (on a standalone basis for three fiscals). For 9M of FY25 ended on December 31, 2024, it earned (on a consolidated basis) a net profit of Rs. 40.69 cr. on a total income of Rs. 1018.81 cr. Thus, for 3Qs of FY25, while its top line marks growth, its bottom line shows declining trends. 

According to the management, its bottom line for FY23 is attributed to higher provisioning for new capacities that went on stream and 9M-FY25 lower profits is due to higher depreciation, higher employees’ cost, finance cost, and amortization adjustments.  Since company will clear its debt to the tune of Rs. 390 cr. post IPO, it will lower its finance cost and translate into higher net profits. Addition from new capacities will help in boosted top and bottom lines.

For the last three fiscals, the company has posted an average EPS of Rs. 3.50 and an average RoNW of 34.51 %. The issue is priced at a P/BV of 4.13 based on its NAV of Rs. 19.85 as of December 31, 2024, and at a P/BV of 2.63 based on its post-IPO NAV of Rs. 31.17 per share (at the upper cap). 

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 44.57. Based on FY24 earnings, the P/E stands at 29.29. Thus, the issue appears fully priced. 

The company has reported PAT margins of 8.80% (FY22), 6.44% (FY23), 6.41% (FY24), 4.00% (9M-FY25), and RoCE margins of 28.90%, 20.20%, 17.66%, 7.67 respectively, for the referred periods.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in September 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown APL Apollo, Hariom Pipes, Hi-Tech Pipes, JTL Ind., Rama Steel Tubes, and Surya Roshni, as their listed peers. They are trading at a P/E of 64.8, 19.3, 27.6, 29.1, 83.8, and 21.7 (as of June 20, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The two BRLMs associated with the offer have handled 31 public issues in the last three fiscals including the ongoing one, out of which 9 issues closed below the offer price on listing date.