About the Company
Hariom Pipe Industries (Hariom) is a manufacturer of iron and steel products such as mild steel (MS) pipes, scaffolding, HR strips, MS billets, and sponge iron. The company manufactures 150 specifications of MS pipes with a distribution network of 1,400 retailers, and has more than 200 employees. Hariom's manufacturing capacity stood at 3,00,000MTPA. The company markets MS pipes under the brand name "Hariom Pipes" and mostly operates in the Western and Southern parts of the country. Moreover, as a part of its B2B sales, it sells MS pipes and scaffoldings to specific developers and contractors, thus leveraging its strong network of 200 dealers and distributors. The company's plant in Mahabubnagar district in Telangana (unit I) manufactures finished steel products using iron scrap and sponge iron. The second plant at Anantapur district, Andhra Pradesh (unit II) only manufactures sponge iron. Hariom is coming out with an IPO, comprising entirely a fresh issue of Rs1.3bn at a price band of Rs144-Rs153. The company aims to utilize the proceeds from the issue to fund capital expenditure and working capital requirements, and for general corporate purposes.
Hariom uses iron ore to produce sponge iron, which is then processed across various stages to manufacture the final products, MS pipes and scaffolding, thus making the manufacturing process cost-effective. The integrated nature of operations is one of its major strength and differentiator. The company has the scale to change the product mix as per market demand and supply dynamics, which gives the flexibility to serve a wider spectrum of customers across various sectors. In addition to the seamless and flexible operations, integration of production process provides it a cost advantage over competitors.
Financials in Brief
During FY19-FY21, the company's revenue clocked a CAGR of 38% to Rs2.5bn in FY21, while EBITDA margin expanded from 12.7% in FY19 to 13.5% in FY21. For FY21, its reported PAT was Rs151mn, while it stood at Rs129mn in 1HFY22. The average RoE over FY19-FY21 stood at 20%. Though the total debt increased from Rs558mn in FY19 to Rs802mn in FY21, the net debt-to-equity fell from 1.4x in FY19 to 1.1x in FY21.
On FY22 annualized financials, the IPO is valued at 9.3x EV/EBITDA, 1.2x EV/sales and 15x P/E. The company aims to expand the MS pipes manufacturing capacity by setting up 2 additional pipe mills adjacent to the existing unit-I, which will increase the capacity from the present 84,000MTPA to 1,32,000MTPA. With an experienced and qualified management and competitive pricing of products, Hariom has the potential to maintain its double-digit growth path. Moreover, the integrated nature of operations and an environment-friendly manufacturing process add to the company's capabilities. With Hariom's focus on sustainability, backed by a professional and experienced board, it aims to grow over the years. In view of the capacity expansion, extensive distribution network, decent financials, likely margin improvement from the current level and valuation comfort compared to peers, we recommend SUBSCRIBE to the issue.