PS Raj Steels Ltd. IPO: Key Details

PS Raj Steels

• PS Raj Steels is coming out with an initial public offering (IPO) of 20,20,000 equity shares in a price band Rs 132-140 per equity share.
• The issue will open on February 12, 2025 and will close on February 14, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 13.20 times of its face value on the lower side and 14.00 times on the higher side.
• Book running lead manager to the issue is Khambatta Securities.
• Compliance Officer for the issue is Suman. 

Profile of the company

PS Raj Steels is one of the growing and leading manufacturers & supplier of Stainless-Steel Pipes & Tubes in India. It takes pride in offering an extensive array of over 250 standard sizes and providing customized solutions tailored to customer preferences. This makes it one of the manufacturers in India to manufacture such wide range of product sizes. In addition to its core manufacturing operations, as on March 31, 2024 around 29.81% of its revenue comes from trading in Stainless-Steel Coils & Strips, Sheets & Plates, and Bars and as on September 30, 2024 around 25.42% of its revenue comes from trading in Stainless-Steel Coils & Strips, Sheets & Plates, and Bars.

The company’s products serve a wide range of sectors for fabrication and industrial applications. Key sectors include railways, furniture, households, gate railing, door frames, rice plants, sugar mills, food processing and heat exchanger etc. The company is selling goods to manufacturers as well as traders/stockits. These manufacturers produce goods for various industries like railways, rice plants, sugar mills, food processing, machinery equipment, decorative items, furniture and fixtures. Some of the items produced by these manufacturers include trolleys for airports made of SS pipes, pipes used in plant & machinery for sugar, rice, and food processing industries.

Proceed is being used for:

• Meeting working capital requirements of the company

Industry Overview 

The three groups comprising the Indian steel industry are primary producers, secondary producers, and large producers. India is the second-largest producer of crude steel in the world, producing 121.29 MT of finished steel and 125.32 MT of crude steel in FY23. India is estimated to have produced 123–127 MT of steel in FY24, an increase of 4-7% y-o-y. The availability of inexpensive labour and raw material such as iron ore domestically has been a key growth driver of the Indian steel industry. Consequently, steel contributes a significant part of India's manufacturing output. The production of finished steel and crude steel was 114 MT and 118 MT, respectively, in FY24 until January 2024. India recorded finished steel consumption of 119.17 MT in FY23, compared to 105.75 MT in FY22. The country consumed 135.90 MT of finished steel in FY24. The per-capita consumption of steel stood at 86.7 kg in FY23.

Over the last ten to twelve years, India's steel industry has grown dramatically. Since 2008, domestic steel demand has climbed by over 80% while production has increased by 75%. Steel production capacity has increased in tandem with the growth in demand, which has mostly been organic. The production of finished steel was 120.01 MT and that of crude steel was 133.60 MT in FY22. Finished steel production was 121.29 MT while 125.32 MT of crude steel was produced in FY23. The production of finished and crude steel was 138.5 MT and 143.6 MT, respectively, in FY24. In FY22, 105.75 MT of finished steel was consumed in India. The amount of finished steel consumed in FY23 was 119.17 MT, while in FY24, finished steel consumption stood at 135.90 MT. In FY23, the per capita use of steel was 86.7 kg. Finished steel import and export totalled 6.02 MT and 6.7 MT, respectively, in FY23. The quantity of finished steel imported and exported in FY24 was 8.32 MT and 7.49 MT, respectively.

India is the world's second-largest producer of steel and is on the verge of surpassing China as the world's second-largest consumer of the metal, with the sector contributing roughly 2% of the country's GDP. The Indian steel industry has the capacity and potential to help the country regain a positive steel trade balance. The National Steel Policy of 2017 aims to achieve a production capacity of 300 million tonnes by 2030-31. Over the previous five years, the per capita use of steel climbed from 57.6 kg to 74.1 kg. By 2030–31, the government seeks to increase the amount of steel consumed per person in rural areas from the present 19.6 kg to 38 kg. Owing to the relatively low per capita steel consumption and the anticipated increase in consumption brought about by increased infrastructure construction as well as the country's booming automotive and railway sectors, there is much room for India’s steel sector to witness robust growth going forward.

Pros and strengths

Extensive & customized product range: The company offers a diverse array of over 250 standard sizes of high-quality stainless-steel products, including NB (Nominal Bore) and OD (Outer Diameter) pipes, which cater to various industrial applications. This breadth of products positions it as a comprehensive solution provider in the stainless-steel industry. The company also offers customization facilities to the customers, so that they can avail the products as per their specifications. The companies which require the products as per their specification approach it. The company designs the products as per the specifications and requirements of the clients. This provides a complete satisfaction to its clients and enables it to expand its business from existing customers, as well as address a larger base of potential new customers.

Cost-effective supply chain: The company’s proximity and partnership with Jindal Stainless Limited (JSL) provide it with a significant cost advantage and a reliable supply of raw materials. Since JSL, its main supplier, located around 25 km from its plant, transportation costs are minimized, which allows it to maintain competitive pricing, reduce production costs, and ultimately increase profitability.

Strong distribution and customer focus: The company’s established distribution network, spread over 18 states of India and direct engagement with OEMs ensure timely deliveries and tailored solutions. This focus on customer satisfaction builds long-term relationships and enhances market presence. It distributes its products through a strong network of dealers and direct sales to Original Equipment Manufacturers (OEMs) where around 60% of its revenue generates through its dealers and around 40% from direct sales to its customers. It has a strong dealer-based network having dealers from different parts of India explicate.

Risks and concerns

Maximum revenue comes from limited customers: The company has garnered 57.01%, 55.04% and 46.18% of its total revenue from top 10 customers in FY24, FY23 and FY22 respectively. It is difficult to forecast the success or sustainability of any strategies undertaken by any of its key customers in response to the current economic or industry environment. Unfavourable industry conditions can also result in an increase in commercial disputes and other risks of supply disruption. A sustained decline in the demand for products produced by its OEM customers could prompt them to cut their production volumes, directly affecting the demand from OEM customers for its products. In addition to decline in demand for existing products, insufficient demand for new products launched by its OEM customers may also prevent growth in demand for its products from such OEM customers.

Geographical constrain: The company’s business is largely concentrated in four states and is affected by various factors associated with these states. The company has garnered 36.84%, 24.78%, 21.73% and 6.71% from Uttar Pradesh, Haryana, Delhi and Madhya Pradesh in six month ending on September 30, 2024. This concentration of its business in these states are subjects it to various risks. Any such adverse development affecting continuing operations at its manufacturing facility could result in significant loss due to an inability to meet customer contracts and production schedules, which could materially affect its business reputation within the industry. The occurrence of or its inability to effectively respond to, any such events or effectively manage the competition in the region, could have an adverse effect on its business, results of operations, financial condition, cash flows and future business prospects.

Significant working capital requirements: The company proposes to utilize Rs 2,650 lakh of the net proceeds for its estimated working capital requirements. It will utilize Rs 2,650 lakh in Fiscal 2025. The balance portion of the company working capital requirement, if any, shall be met from the working capital facilities availed/ to be availed and internal accruals. It requires a significant amount towards working capital requirements which is based on certain assumptions, and accordingly, any change of such assumptions would result in changes to its working capital requirements. A significant amount of working capital is required to finance the purchase of raw materials and trade receivables. As a result, it may continue to avail debt in the future to satisfy its working capital requirements. The company’s working capital requirements may increase if it undertakes larger or additional order from its customers or if payment terms do not include advance payments or such contracts have payment schedules that shift payments toward the end of a project or otherwise increase its working capital burden. 

Outlook

PS Raj Steels manufactures and supplies stainless steel pipes and tubes in India. The company's products cater to various sectors, including railways, furniture, households, gate railing, door frames, rice plants, sugar mills, food processing, and heat exchangers. The company has integrated manufacturing facility. It has long association with the Stainless-Steel Industry. On the concern side, the company is dependent on few numbers of customers. Any loss of top 10 customers will significantly affect its revenues and profitability. Moreover, the company’s business is largely concentrated in four states and is affected by various factors associated with these states.

The company is coming out with a maiden IPO of 20,20,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 132-140 per equity share. The aggregate size of the offer is around Rs 26.66 crore to Rs 28.28 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 32.08% to Rs 29,774.93 lakh for Fiscal 2024 as compared to Rs 22,542.65 lakh for Fiscal 2023. This increase in revenue from operations was primarily due to increase in trading revenue. Moreover, the company’s profit for the year increased by 74.24% to Rs 636.29 lakhs for Fiscal 2024 compared to Rs 365.19 lakh for Fiscal 2023.

The company has successfully delivered finished goods under the brand name “PSSR” around 18 states across the India. It plans to continue its strategy of diversifying and expanding its presence in these regions for the growth of its business. It is selective in expanding to new locations and look at new geographies where it can deliver quality products without experiencing significant delays and interruptions. Through further diversification of its operations geographically, it hopes to hedge against risks of operations in only specific areas and protection from fluctuations resulting from business concentration in limited geographical areas.