Summary. One of the growing stainless-steel pipe and tube manufacturers and exporters in India, the company is involved in the production of stainless steel welded and seamless pipes & tubes. These are used in various industries incl. oil and gas, fertilizers, pharma, F&B, engineering & chemicals.The company has a strong focus on research and development, with its in-house R&D centre continuously working on developing products and improving existingones.This has helped it retain its position as one of the leading players in the stainless-steel pipe and tube segment
Incessant capacity expansion and backward integration would lead to strong revenue growth, margin expansion. Revenue recorded a robust 46.9% CAGR over FY19-FY23, largely led by more capacity (a 14.8%+ CAGR, from 6,900 tonnes to12,000), ramping-up of operations and greater demand for its products. Further in H1 FY24, it raised capacity 2.8x compared to H1 FY23, leading to revenue growth rising ~55% for the same period. In FY25, capacity would further increase 14.3% y/y to38,400 tonnes from 33,600 in FY24. With this capacity expansion, we expect revenue to register a 31.5% CAGR over FY23-FY26, largely led by volume growth, which we expect to clock a 36.2% CAGR. We expect a 680bps EBITDA margin expansion from 12.6% to 19.4% over FY23-FY26 due to backward integration, scaling up of direct sales and a ramp-up in exports – all bolstering financials
Favourable government policies. The centre has imposed an anti-dumping duty (ADD) on stainless steel seamless tubes and pipes imported from China up to2028to prevent harm to the domestic industry.The recommended anti-dumping duty ranges from $114- 3,801 per tonne of stainlesssteel pipes and tubes of different grades.The company is set to benefit from this favorable government policy and the expansion of a number of products. In addition, import substitution will help in capturing market share from unorganized players
Valuation. We expect revenue/EBITDA to register 31.5%/51.9% CAGRs over FY23-FY26 and initiate coverage on the company with a Buy rating and a target price of Rs.1,700, 25% potential (23x FY26e P/E). The PE multiple attributed to value the company is on par with peer Ratnamani Metals’ five-year average P/E, which we believe is fair due to excellent return ratios and structural rise in margins
Key risks. Export-related weakness due to ongoing war, tough peer competition, policy change shocks
Click here to download the research report on Venus Pipes & Tubes by Anand Rathi
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