A detailed analysis on Venus Pipes & Tubes Ltd.

Strong understanding by Venus Pipes & Tubes Limited of market dynamics has helped establish healthy relationships with suppliers and customers which should ultimately help in improving margins of the company.
The company’s FY23 was supported by higher capacity, successful ramp-up in operations and increased demand for its products. It has more than doubled its capacity with addition of hollow pipe manufacturing unit in FY23, which should support revenue growth in medium term.

Venus Pipes & Tubes Ltd.

Company overview:

Venus Pipes & Tubes Limited is a renowned manufacturer and exporter of stainless-steel pipes and tubes. The company’s experience with stainless steel products was initiated over 15 years ago. The company ensures that its customers get finest products with brand new production lines such as hot piercing, pilgers, expanders, tube-mills with plasma welders, draw benches, etc. Production facility of the company has been spread across 1,10,000 sqmt area with 46,000 sqmt covered, situated in Bhuj region of Kutch, India, that houses 2 significant sea ports, which allows the company for easy logistics.

Business model of Venus Pipes & Tubes Ltd.

The company’s business is of manufacturing stainless steel tube products in 2 categories - seamless tubes/pipes and welded tubes/pipes under which 5 categories of products are created. These 5 categories are:

1)     Stainless steel high precision & heat exchanger tubes

2)     Stainless steel hydraulic & instrumentation tubes

3)     Stainless steel seamless pipes

4)     Stainless steel welded pipes

5)     Stainless-steel box pipes.

The company caters to both domestic and international markets. Coming to international markets, it exports products to over 20 countries such as Brazil, UK, Israel and countries in EU, etc.

Track record of management

Mr. Arun Axaykumar Kothari: Since September 14, 2021, he is Managing Director, Chief Financial Officer and Director of Venus Pipes and Tubes Limited. He is responsible for entire accounting and financial operations of the company. He also sets up processes, systems and procedures in place so that financial and commercial transactions could be controlled and streamlined. He is a graduate in commerce from Rajasthan University and is a qualified CA since 1998.

Mr. Om Mishra: Mr. Om Prakash Mishra has been designated as Vice-president (operations) of the company and has been associated with Venus Pipes and Tubes Limited since December 13, 2021. He has a degree in bachelors in engineering from University of North Bengal with over 23 years of experience in manufacturing industry. Mr. Mishra has previously worked as Head (operations) in Apollo Tricoat Tubes Limited.

Mr. Kunal Bubna: Mr. Kunal Bubna is President of Finance & Accounts of Venus Pipes and Tubes Limited. He has been serving this position since from July 01, 2021. He is fellow member of Institute of Chartered Accountants of India and ICSI, with experience spanning across accounting and secretarial work.

Financial performance of Venus Pipes & Tubes Ltd.

Total revenue of Venus Pipes & Tubes Limited came in at INR176.3 crores in 4Q23 in comparison to INR110.2 crores in 4Q22, exhibiting a rise of 60% year-over-year. Revenue for the company’s seamless pipes was INR96.9 crores in 4Q23 in comparison to INR34.3 crores in 4Q22, exhibiting 182% growth on year-over-year basis. Sales to direct domestic customers grew 90% for 4Q23 & 102% for FY23 on year-over-year basis.

The company’s EBIDTA for 4Q23 was INR21.6 crores, exhibiting 57% growth on year-over-year basis, with PAT coming at INR13.4 crores, a growth of 66%.

The company has informed that it has begun its commercial production for new capacity of Seamless pipes & higher dia welded pipes on 24^th May 2023. Apart from this, the company has started its production for Mother Hollow pipes as its capacity expansion for backward integration. The company was able to double its sales of Seamless Pipes in FY23 as a result of product quality, strong customer connects, addition of new customers & brand created for the company over years.

Exports sales of the company was impacted during 4Q because of geo-political tensions and inflationary environment, mainly in European market. However, the company believes that this is temporary in nature and exports sales are expected to pick up since the company has started backward integration.

Growth was seen in selling directly to its customers which was because of superior product quality, multiple referrals and higher customer base across industries. Share of stockist sales fell by 2% year-over-year on FY23 basis. This channel has been a stable supply source, but because of lower margins, the company has reduced its share in total pie. The company has increased its domestic sales from 55.1% in 4Q22 to 65.5% in 4Q23. Its share of direct domestics sales for FY23 came in at 65% in comparison to 46% in FY22. While geopolitical tensions and supply chain disruptions impacted the company’s exports, such sales are expected to improve because of capacity additions and stable global environment.

Industry analysis

Stainless steel is a value-added product having higher corrosion resistant properties. Increased levels of Chromium and additions of other alloy elements enhance corrosion resistance. In comparison to traditional steel, stainless steel has increased resistance to corrosion, superior aesthetic finish and increased life span. As a result of such features, there has been increased popularity of stainless-steel throughout world. Higher recyclability, resistance to corrosion and lower maintenance properties made stainless steel a preferred metal for usage in several sectors.

Indian stainless-steel sector has been categorised as second largest producer (till 2020) and consumer in world and it has total manufacturing capacity of more than 5 million tons of stainless steel annually. Because of diversified application in numerous industries, steel pipes and tubes industry has been categorised as one of important segments of Indian steel sector. However, this accounts for just ~8% share in overall steel consumption basket, translating into consumption of ~6.7 million tonnes to 8 million tonnes over past 5 years. On other hand, some experts have suggested that actual usage of steel pipes & tubes in India is at ~12 million - 13 million tonnes.

In value terms, size of Indian steel pipes & tube industry has been pegged at ~INR550-600 billion. Moving forward, the company expects significant demand for pipes and tubes primarily from industries such as chemical, pharma, engineering, etc. Size of chemical industry has been presently estimated at US$178 billion, which should be able to compound at 9% per annum to US$300 billion by FY25. Between FY21-FY30, annual turnover in Indian pharmaceutical industry should compound at ~10% to touch INR7,840 billion.

Risk factors

Steel pipes industry is highly fragmented as a result of low entry barriers, and has organised and unorganised players. Such players continue to compete for market share. Therefore, this limits pricing capability of Venus Pipes & Tubes Limited as market decides product prices.

The company’s gross current assets came at 195 days because of receivables and inventory of 47 days and 126 days, respectively, as on March 31, 2023. It gets moderate credit from suppliers because of which there is high dependence on bank limits for finance working capital.

Future prospects of Venus Pipes & Tubes Limited

With commencement of commercial production to manufacture mother hollow pipes as part of the company’s backward integration, Venus Pipes & Tubes Limited expects exports to pace up for FY24. Indian government, w.e.f. 15^th December, introduced 1% export incentive to support exports further. Until last year, the company was selling majority in Gujarat. However, now its focus has shifted to other states too. The company has been successful in penetrating deeper on pan India basis because of its superior product quality & Brand for Venus throughout markets & industries.

Because of commercial production of new capacity expansion, the company envisages volume uptick throughout its product categories due to sustained demand momentum. During FY23, the company was able to diversify and increase its geographical presence in Maharashtra and Telangana. It continues to maintain strong foothold in state of Gujarat while it has diversified its presence throughout other states including Madhya Pradesh & Andhra Pradesh.

The company has entered FY24 with positive outlook. It continues to grow due to its new capacities commencing and backward integration coming into place. Moving forward, the company plans to work on its goal of reaching out to as many sectors as possible and maintaining diversity throughout its product categories, clients and geographies.

Shareholding pattern

Majority of holding is being held by promoters of Venus Pipes & Tubes Limited i.e., ~48.20%, by June 2023 end. This holding has remained same in comparison to March 2023. Increased promoter holding is actually a good sign as it means that interests of promoters are in line with that of shareholders.  

Megharam S Choudhary held ~17.23% share at June 2023 end, while Mr. Dhruv Mahendrakumar Patel held ~12.72%. Moreover, ~6.49% is being held by FIIs and 8.73% by DIIs.  

Valuation and investment rationale

Stock of Venus Pipes & Tubes Limited currently trades at ~54.7x FY23 EPS, which is at a discount to sectoral average of ~60.54x. Therefore, investors can consider going long on this stock. Growth in stock price expected to be supported by diversified end use, longstanding relationships with clients, rising scale of operations, healthy operating margin, healthy financial risk profile, etc.

Sector specific schemes by Government should help in generating demand for steel pipes & tubes in India. Major policies in Steel & Steel Pipes & Tubes Sector which are expected to support growth include strengthening of raw material supply chain, stainless steel pipes being notified under Steel Quality Control Order, anti-dumping duty, duty reduction structure, etc. With respect to production linked incentives (PLI) scheme, Indian government announced INR1.97 trillion which is expected to be spent over upcoming 5 years for PLI schemes across 13 sectors. Increase in profitability should stem from increase in capacity, higher market share, backward integration, better margins, and cost optimization.

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