Vraj Iron and Steel IPO: Should you subscribe to it? Know all about it here

The IPO of Vraj Iron and Steel, which specialises in manufacturing sponge iron and TMT bars, opens for subscription today. The issue will continue till 28th June, 2024, with successful share allotment intimation by 1st July and the company listing on both BSE and NSE by 3rd July. With the price band set between Rs 195-207, the company is aiming to raise Rs 171 crore, entirely via fresh issue of 0.83 crore equity shares.

Out of this, around Rs 164.5 crore will be utilised for expansion of their plant in Bilaspur, while the remaining amount will be allocated for general corporate purposes. But should you subscribe to the IPO? Find out from the experts!
What works in favour of Vraj Iron and Steel?
The company’s total income has grown at a CAGR of 33.4% between FY21 and FY23, and its profit after tax (PAT) has risen at a CAGR of 121.7% during the same time. It also offers a diversified product mix, which includes dolochar, pellet, and pig iron. Also, India is the second largest steel producer in the world, with an installed capacity of 161.3 MT in FY23.

Experts estimate that steel’s demand in the country is set to rise, with the government's increased emphasis on infrastructure development. By FY26, India’s steel consumption is set to reach between 151-155 MT, and Vraj is well placed to make the most of this boom, given that it is also expanding its current capacities.
But should you subscribe to the IPO?
However, the issue is not without its fair share of risks, as outlined in its red herring prospectus (RHP). Take a look at some of the internal and external factors that may affect the company’s overall return and production capability :

1. Both of the company’s existing manufacturing plants in Raipur and Bilaspur are geographically concentrated in a single state i.e. Chattisgarh.
   
2. 100% of their revenue stems from sales of steel products. A cyclical dip in steel prices will adversely affect their business.
   
3. The company does not have any long term agreements with its customers and relies heavily on its top 10 customers for most of its revenue. A loss or decline in revenue from any of these customers will result in the business being adversely impacted.
   
4. The company’s promoters, namely Gopal Sponge and Power Private Limited, Kirti Ispat Private Limited and Utkal Ispat Private Limited are also engaged in similar business, which could mean conflict of interest and loss of revenue for the firm.

What are the experts saying?
According to Mastertrust broking and investments, “the company is in the process of increasing their capacity from 2,31,000 TPA to 5,00,100 TPA for manufacturing and from 5 MW to 20 MW for their captive power plant. The expansions for sponge iron and captive power plant are also expected to be ready by FY25, whereas the expansion for MS billets will be ready by early FY26. We advise subscribing to this IPO for the long term”.

Stock analyst Dilip Dawda believes that based on the company’s FY24 annualised earnings, the issue appears to be reasonably priced. Its captive power plant will potentially help them reduce their power costs. According to him, investors can park their funds here from a medium to long term time horizon.