VMS TMT IPO Review

•    The company is engaged in the manufacturing and marketing of TMT Bars. 
•    Primarily it operates in the Gujarat region, with TMT Bars as the main product.
•    Its declining top line and rising bottom line has surprised one and all.
•    Based on its recent financial data, the IPO appears aggressively priced.
•    Well-informed/cash surplus investors may park moderate funds for long term.

ABOUT COMPANY:
VMS TMT Ltd. (VTL) engaged in manufacturing of Thermo Mechanically Treated Bars (“TMT Bars”) at its manufacturing facility situated at Bhayla Village, Ahmedabad, Gujarat, India. TMT Bars are high-strength reinforcement steel used widely in construction industry due to their exceptional strength, ductility, and corrosion resistance. (Dun & Bradstreet Report) The company conducts its business predominantly in the State of Gujarat from where it derived 98.93%, 96.72%, 98.75% and 97.42% of revenues from operations in the three months period ended June 30, 2025 and Fiscal 2025, Fiscal 2024 and Fiscal 2023 respectively. VTL’s revenue from operations from sale of TMT Bars in the three months period ended June 30, 2025 and Fiscal 2025, Fiscal 2024 and Fiscal 2023 constituted approximately 95.99%, 91.63%, 94.06% and 96.85% of the revenue from operations. In the three months period ended June 31, 2024 and Fiscal 2025, retail sales constituted 86.93% and 78.66%, respectively and institutional sales constituted 12.60% and 20.33%, respectively of the total revenue from operations. 

Its revenue from operations also includes sale of scrap, binding wires and billets which constituted approximately 3.54%, 7.35%, 5.94%, 3.15% of the total revenue from operations in the three months period ended June 30, 2025 and Fiscal 2025, Fiscal 2024 and Fiscal 2023 respectively. It has a diverse customer base of retail and institutional customers primarily based in the State of Gujarat (except Saurashtra and Kutch district of Gujarat). The company has a retail license agreement dated November 7, 2022, with Kamdhenu Limited which allows it to market TMT Bars under the Kamdhenu Brand on mutually agreed terms within the State of Gujarat (except Saurashtra and Kutch district of Gujarat) on a non-exclusive basis. It sells TMT Bars to customers through distribution network, on a non-exclusive basis, which comprise of 3 distributors and 227 dealers as of July 31, 2025. Accordingly, it relies on distributors and dealers with whom it does not have any formal arrangements. Its ability to expand and grow brands reach significantly depends on the reach and effective management of distributor and dealer network. VTL continuously seeks to increase the penetration by appointing new distributors and dealers to ensure wide distribution network targeted at different consumers and areas. 

In September 2024, the Company has completed the backward integration of its CCM division which has enabled it to manufacture TMT Bars from scrap, reducing dependency on billets from suppliers. Prior to its backward integration, main raw material for its TMT Bars used to be billets, which it used to primarily source domestically from, inter alia, Gujarat, Chhattisgarh, Maharashtra, Madhya Pradesh, Orisha and Rajasthan. Presently, its basic raw materials are scrap, manganese, non-coking coal dolomite, limestone and bentonite, which it sources both domestically and from other countries such as Hongkong, UAE, Kuwait, Australia, Singapore among other countries and will continue to do so. In the three months period ended June 30, 2025 and Fiscal 2025, Fiscal 2024 and Fiscal 2023, 69.93%, 69.99%, 64.04% and 77.65%, respectively, of its material purchases were from suppliers in Gujarat. 

Further, purchase of raw material locally saves it in transportation costs and time of delivery and keeping raw material inventory level under check. Currently, apart from scrap, its major cost of production involves power expenses. VTL requires 22MW of power for uninterrupted operations, which it sources from Uttar Gujarat Vij Company Limited. To reduce its electricity expenses, the company has initiated the process of setting up of a 15 MW solar power plant in Gujarat for captive consumption.

It markets and sells TMT Bars in the State of Gujarat (except Saurashtra and Kutch district of Gujarat) under the Kamdhenu Brand. The company also sells scrap and binding wires in the State of Gujarat and other states. Its focus on sales of TMT Bars has been Tier II and Tier III cities. As of June 30, 2025, it used fleet of over 50 trucks provided by a third-party transportation and logistics provider for delivery of products to customers. 

The Company and Aditya Ultra Steel Limited, one of its Group Companies which is also engaged in the manufacturing of TMT Bars under the Kamdhenu group brand in the State of Gujarat, have entered into a Memorandum of Understanding dated May 16, 2024 (“MoU”). Pursuant to the said MoU, it has been agreed by Aditya Ultra Steel Limited to focus its business operations only in the Saurashtra and Kutch district of Gujarat and not to sell, deal, distribute, or supply TMT Bars and allied products outside these areas. Similarly, VTL has agreed to concentrate its business operations in districts other than Saurashtra and Kutch, Gujarat for selling, dealing, distributing, and supplying TMT Bars and allied products beyond Saurashtra and Kutch, Gujarat. As of July 31, 2025, it had 230 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 15000000 equity shares issue (worth Rs. 148.50 cr. at the upper cap). The company has announced a price band of Rs. 94– Rs. 99 per equity shares of Rs. 10 each. The issue opens for subscription on September 17 2025, and will close on September 19, 2025. The minimum application to be made is for 150 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 30.22% of the post-IPO paid-up equity capital. From the net surplus of the IPO funds, it will utilize Rs. 115.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes.

The company has allocated not more than 30% for QIBs, not less than 20% for HNIs, and not less than 50% for Retail investors.

The sole Book Running Lead Manager (BRLM) to this issue is Arihant Capital Markets Ltd., while KFin Technologies Ltd., is the registrar to the issue. Arihant Capital Market is also a syndicate member.

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 29 – Rs. 230 per share between March 2023, and July 2024. It has also issued bonus shares in the ratio of 3 for 2 in June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 4.28, Rs. 4.39, Rs. 5.96, and Rs. 11.60 per share. 

Post-IPO, its current paid-up equity capital of Rs. 34.63 cr. will stand enhanced to Rs. 49.63 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 491.35 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit, of Rs. 882.06 cr. / Rs. 4.20 cr. (FY23), Rs. 873.17 cr. / Rs. 13.47 cr. (FY24), and Rs. 771.41 cr. / Rs. 15.42 cr. (FY25). For Q1-FY26 ended on June 30, 2025, it earned a net profit of Rs. 8.58 cr. on a total income of Rs. 213.39 cr. Its high debt equity ratio of 3.78 as of June 30, 2025, raise alarm. While its top line declined from FY23 to FY25, its bottom line surged that raise eyebrows. It is operating in a highly competitive and fragmented segment.

For the last three fiscals, the company has posted an average EPS of Rs. 3.71 and an average RoNW of 21.99%. The issue is priced at a P/BV of 4.19 based on its NAV of Rs. 23.61 as of July 31, 2025, and at a P/BV of 2.13 based on its post-IPO NAV of Rs. 46.40 per share (at the upper cap).

If we attribute FY26 annualized super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 14.33. Based on FY25 earnings, the P/E stands at 31.83. Thus, the issue is aggressively priced. 

While the company has reported PAT margins of 0.48% (FY23), 1.54% (FY24), 1.91% (FY25), 4.02% (Q1-FY26), and RoCE margins of 10.94%, 16.70%, 12.79%, 4.52%, respectively for the reported 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 August 2024, on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Kamdhenu Ltd., Vraj Iron, BMW Ind., and Electrotherm (India), as its listed peers. They are currently trading at a P/E of 12.2, 14.0, 18.8, and 5.46 (as of September 12, 2025). However, they are not truly comparable on an apple-to-apple basis. These compares appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 5th mandate from Arihant Capital in the last three fiscals (including the ongoing one). Out of the last 4 listings, 1 listed at par and the rest with premium ranging from 7.14% to 44% on the listing date.