Scoda Tubes IPO review (May apply)

•    The company is engaged in the manufacturing and marketing of stainless-steel tubes and pipes.
•    Considering rising demand for its product, with ongoing expansion plans, it is well poised for future prospects.
•    It posted growth in its top and bottom lines for the reported periods, that indicates likely trends going forward.
•    Based on its financial data, the issue appears fully priced. 
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Scoda Tubes Ltd. (STL) is a stainless-steel tubes and pipes manufacturer based in India having over 14 years of experience. Its products are broadly categorized into: (i) seamless tubes/pipes; and (ii) welded tubes and pipes, under five (5) product lines, namely, (i) stainless steel seamless pipes; (ii) stainless steel seamless tubes; (iii) stainless steel seamless “U” tubes; (iv) stainless steel instrumentation tubes; and (v) stainless steel welded tubes and “U” tubes (“Products” or “Stainless Steel Products”). Seamless pipes are pipes without a seam (end joints) and are manufactured using Round Bars whereas welded pipes are manufactured by welding the flat steel strips into a round / circular shape.

STL markets its Products under the brand, “Scoda Tubes Limited”. Its Products are used by a diverse range of customers like engineering companies, EPC and industrial companies engaged in Oil and Gas, Chemicals, Fertilizers, Power, Pharmaceuticals, Automotive, Railways and Transportation sectors. In addition, it operates a hot piercing mill for the production of mother hollow, which is the principal raw material for stainless-steel seamless products. Currently, its hot piercing mill has a production capacity of 20,000 MT per annum. Its ability to produce principal raw material enables it to achieve backward integration of seamless products’ processes, allowing it to control production costs and reduce reliance on suppliers. 

Currently, any quantities of mother hollow in excess of captive consumption are sold in the open market. In addition to its manufacturing business of seamless tubes/pipes and welded tubes and pipes, the company also generates revenue from sale of services which consists of revenue earned from job work services like annealing, straightening, pickling and marking provided to other customers. As of March 31, 2025, it had 500 employees including 156 permanent and the rest on a contract basis.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 15714286 fresh equity shares issue worth Rs. 220.00 cr. (at the upper cap). The company has announced a price band of Rs. 130 – Rs. 140 per equity shares of Rs. 10 each. The issue opens for subscription on May 28, 2025, and will close on May 30, 2025. The minimum application to be made is for 100 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 26.23% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 76.99 cr. for capex on expanding production capacities, Rs. 110.00 cr. for working capital, and the rest for general corporate purposes. The company did pre-IPO placement of 4400000 equity shares at a price of Rs. 125 per share and mobilized Rs. 55.00 cr. Thus, its original IPO proposed for Rs.275 cr. stands reduced to Rs. 220 cr. now.

The company has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The sole Book Running Lead Manager (BRLM) to this issue is Monarch Networth Capital Ltd., while MUFG Intime India Pvt. Ltd. is the registrar to the issue. Monarch Networth Capital Ltd. is also the syndicate member.

Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs.100– Rs. 276.00 per share between November 2009, and October 2024. It has also issued bonus shares in the ratio of 30 for 1 in July 2024. The average cost of acquisition of shares by the promoters is Rs. 8.90, and Rs. 9.22 per share. 

Post-IPO, its current paid-up equity capital of Rs. 44.20 cr. will stand enhanced to Rs. 59.91 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 838.73 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 195.05 cr. / Rs. 1.64 cr. (FY22), Rs. 307.79 cr. / Rs. 10.34 cr. (FY23), and Rs. 402.49 cr. / Rs. 18.30 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 24.91 cr. on a total income of Rs. 363.48 cr.

For the last three fiscals, the company has posted an average EPS of Rs. 3.28 and an average RoNW of 22.77%. The issue is priced at a P/BV of 4.31 based on its NAV of Rs. 32.48 as of December 31, 2024, and at a P/BV of 2.31 based on its post-IPO NAV of Rs. 60.68 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 25.27.  Based on FY24 earnings, the P/E stands at 45.90. Thus, the issue appears aggressively priced. 

The company reported PAT margins of 0.84% (FY22), 3.39 % (FY23), 4.58% (FY24), 6.90% (9M-FY25), and RoCE margins of 5.84%, 12.62%, 15.92%, 13.67% for the referred periods, respectively. 

According to the management, the company has modern manufacturing process that helps them to get output at an economical cost. It has an order book worth Rs. 130 cr. on hand. Rising demand across the industries augurs well.  This being capital intensive segment, surplus working capital availability post IPO and the completion of proposed expansion will further improve its top and bottom lines going forward.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in September2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Ratnamani Metals, Venus Pipes, Welspun Specialty Solutions, and Suraj Ltd., as their listed peers. They are trading at a P/E of 37.2, 31.5, NA, and 33.3 (as of May 23, 2025). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER’S TRACK RECORD:
This is the 3rd mandate from Monarch Networth in the last four fiscals including the ongoing one. From the last 2 listings, all listed with premium ranging from 12.26% to 86.62% on the date of listing.