Hariom Pipe Industries
Hariom Pipe Industries is coming out with a 100% book building; initial public offering (IPO) of 8,500,000 shares of Rs 10 each in a price band Rs 144-153 per equity share.
Not more than 30% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 35% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on March 30, 2022 and will close on April 5, 2022
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 10 and is priced 14.40 times of its face value on the lower side and 15.30 times on the higher side.
Book running lead managers to the issue is ITI Capital.
Compliance Officer for the issue is Chirag Partani.
Profile of the company
Hariom Pipe Industries is an integrated manufacturer of Mild Steel (MS) Pipes, Scaffolding, HR Strips, MS Billets, and Sponge Iron. It uses iron ore to produce Sponge Iron which is then processed across various stages to manufacture its final products viz. MS Pipes and Scaffolding making its manufacturing process cost-effective.’ The company caters to the southern and western Indian markets for its products. The company’s MS Pipes are marketed and sold in these geographies under the brand name “Hariom Pipes”. Substantial portion of the Sponge Iron, MS Billets and HR Strips produced by the company is used for captive consumption in the manufacturing MS Pipes and Scaffolding.
The company manufactures MS Pipes and Scaffoldings of more than one hundred fifty (150) different specifications and cater, directly and indirectly, to customer requirements in various sectors such as housing, infrastructure, agriculture, automotive, power, cement, mining, solar power and engineering. Its integrated plant at Mahabubnagar District in Telangana (Unit I) manufactures finished steel products from iron scrap and Sponge Iron and its other plant at Anantapur District, Andhra Pradesh (Unit II) exclusively manufactures Sponge Iron. Unit II is located near Bellary, which is one of the hubs in South India for iron ore production. The iron ore required to produce Sponge Iron at Unit II is mostly procured through the online bidding process. Most of the Sponge Iron produced at the Unit II is transported to the Unit I and used as a raw material for manufacturing MS Billets, HR Strips, MS Pipes and Scaffolding. The manufacturing of Sponge Iron at its Unit II has reduced its dependence on external sources for raw materials since its acquisition in September, 2020.
The integration of Unit I and II has optimized its operations and profitability through backward integration which helps with efficient logistics, inventory management, procurement, energy savings and quality control. The company’s quality control team led by qualified chemists and engineers ensure that its raw materials as well as end products are tested on all quality parameters to ensure that it is compliant with the required market standards. It mainly sells MS Pipes through more than two hundred (200) distributors and dealers. It also sells MS Pipes and Scaffoldings to certain developers and contractors directly as B2B sales. Its key differentiator is its range of product specifications in terms of thickness, length, quality, availability and customised products.
Proceed is being used for:
Funding capital expenditure requirements.
Funding the working capital requirements of the company.
General corporate purposes.
Industry Overview
During the period 2021-2026, the demand for steel would be majorly driven by growth in the construction and automotive sectors. Steel in the form of alloy sheets are used in automotive applications, and beams and pillars are extensively used in construction works. Thus the combination of both would majorly contribute to the global demand for the alloy in the forecast period. Pipes and tubes are manufactured using crude steel; stainless steel are extensively used in manufacturing household appliances and utensils, whereas nuclear infrastructure is built using alloy steel. Increasing demand from the automotive and the structural engineering sectors, which are the chief consumers of the product in the market is likely to stimulate demand in the future. Moreover, the essential applications of steel in oil & gas sector is anticipated to boost the growth of the market in the upcoming years. The greater tensile strength makes the product more durable and increases longevity. Hence, it finds application in oil storage tanks, street lighting poles, and earth moving equipment.
India is the second largest steel producer globally. The steel consumption in India is widely attributed to the infrastructural and construction industry. Rapid industrialization and urbanization, combined with increased private and government investment in infrastructure will fuel product demand. Properties such as durability, low maintenance, long life, high strength, and reusability propel the demand in the construction of low-rise and highrise buildings, sports stadiums, slabs bridge deck, harbors, siding and roofing, offices, security fencing and coastal and flood defenses. Steel has advantageous properties over other materials such as higher cryogenic toughness, higher heat resistance, higher corrosion resistance, higher ductility, more attractive appearance, higher strength and hardness, and lower maintenance. These properties of the material should develop new opportunities for its use in the structural components of vehicles.
India holds a very vital place in the global steel market. The companies are striving to achieve the untapped market in several avenues to cater to higher market share and investing heavily on improving their product portfolio through research and development initiatives. The government is also helping the corporations through publicprivate partnerships which would be beneficial on a holistic level for the Indian economy. Orissa, Chhattisgarh, Karnataka, Telangana, and Jharkhand are the predominant production hubs for India. Rapid urbanization has changed the lifestyle of the people and, in turn, has increased the prevalence of secure infrastructure over a broad aspect, thus, augmenting the demand for the market product. Moreover, the government in nations are also supporting the sales of stainless steel, thereby driving the growth of the market. Resuming operations after taking control of the Covid-19 pandemic. Increasing demand for the product in infrastructure development and automotive production owing to properties, such as resistance to corrosion, strength, and low maintenance, is driving the demand for the Steel market.
Pros and strengths
Integrated nature of operations: The company uses iron ore to produce Sponge Iron which is then processed across various stages to manufacture its final products viz. MS Pipes and Scaffolding making its manufacturing process cost-effective. The integrated nature of operations is one of the major strengths and differentiators of the Company. All intermediate products required for the manufacturing of its final products are produced in-house viz. Sponge Iron, MS Billets and HR Strips. It's finished product from each of its process acts as an input for the next process and provides flexibility in alteration of its product mix as per market demand and supply, market price and the available gross margins.
Strategic location of manufacturing Units: Unit I is located around 70 kms from Hyderabad in the Mahabubnagar District, State of Telangana and close to Jadcherla industrial area. This proximity enables ease of logistics, power, water supply and raw materials for its operations in Unit I. Skilled personnel for Unit I also come from Hyderabad. Unit II is located at Anantapur District, Andhra Pradesh which is around eighteen (18) kms from Bellary, which is one of the hubs in South India for iron ore production. The connectivity between Unit I and southern markets provides the benefits of logistics considering accessibility and proximity.
Competitive pricing of products: The company is able to face competition from other industry players effectively as its products are a result of backward integration which leads it to the Sponge Iron stage of manufacturing. Backward integration has its own cost and savings advantages which its competitors may be lacking giving it a competitive advantage as to price. In addition to the pricing advantage, it has also built in its manufacturing process some flexibility as to thickness, length and quality of its products which enables customisation leading to better margins for its products.
Cost advantage in manufacturing products: The company has established a manufacturing process which keeps costs low, leading to a competitive price advantage as compared to others in the industry. It has synchronized its processes in such a manner that one product follows the other without any break leading to costs and time efficiencies. It has 32 KVA dedicated feeder for its furnace at its Unit I which makes it eligible for obtaining private power from IEX through the online bidding process, against its contracted load of 9,999 KVA with TSSPDCL with fixed power cost. In peak season for agriculture where there is shortage of supply of power from TSSPDCL, it has the alternative facility of receiving uninterrupted supply of power from IEX at competitive rates.
Risks and concerns
Significant portion of income from top 10 customers: The company typically have long term relationships with its customers, it has not entered into long terms agreements with its customers and the success of its business is accordingly significantly dependent on it maintaining good relationships with its customers. The actual sales by the company may differ from the estimates of its management due to the absence of long term agreements. The company’s top 10 customers represented 62.37%, 60.74% and 49.78%, of its revenue from operation for six months period ended September 30, 2021 and for Fiscal 2021 and Fiscal 2020, respectively. Further, its largest customer represented 24.18%, 24.46% and 19.51% of its revenue from operations for six months period ended September 30, 2021 and for Fiscal 2021 and Fiscal 2020, respectively. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows.
Seasonal business: Demand for its products is seasonal as climatic conditions, particularly the monsoon, affect the level of activity in the construction industry. As a result, it usually experience relatively weaker sales volume during the monsoon, and somewhat stronger sales in other seasons. The company expects its results of operations will continue to be affected by seasonality in the future. Its results of operations for any quarter in a given year may not, therefore, be comparable with other quarters in that year.
Geographical concern: The company’s integrated plant at Mahabubnagar District in Telangana (Unit I) manufactures finished steel products from iron scrap and Sponge Iron and its other plant at Anantapur District, Andhra Pradesh (Unit II) exclusively manufactures Sponge Iron. These facilities are subject to the normal risks of industrial production, including natural disasters, directives from government agencies and power interruptions. Any extended power supply interruption will result in reduced production at the affected facility. The company depends on TSSPDCL for the supply of power to Unit I and SPDCAPL for the supply of power to Unit II. Any shortage or interruption in the supply of electricity may adversely affect its operations and increase its production costs. This could lead to delays in delivery of its products or non-delivery, resulting in loss of revenue and damage to its reputation or customer relationships. As it does not carry business interruption insurance, any disruption that affects its operations will adversely affect the business, financial condition and results of operations.
Stiff competition: The Indian steel and steel products industry is highly competitive. The company competes to varying degrees with other Indian MS Pipe and Scaffolding manufacturers. Competing producers have increased their manufacturing capacity and it expects domestic competition to further intensify with the ramping up of new manufacturing plants by these competitors. Some of its domestic competitors may possess an advantage over it due to various reasons, such as captive raw material sources, greater economies of scale, integrated manufacturing plants, specialization in production of value-added or niche products, stronger distribution network and greater presence in certain markets.
Outlook
Hariom Pipe Industries Limited manufactures iron and steel products including Mild Steel (MS) Pipes, Scaffolding, HR Strips, MS Billets, and Sponge Iron. The company sells and markets MS Pipes in the western and southern parts of India under the brand name ‘Hariom Pipes’. As part of the B2B sales, the company sells MS Pipes and Scaffoldings to specific developers and contractors. Hariom Pipe Industries has more than 200 dealers and distributors for selling its products. The company is located in Hyderabad, Telangana. On the concern side, the company has not entered into long-term agreements with its customers for purchasing its products nor for the supply of raw materials with its suppliers. The company is subject to uncertainties in demand and there is no assurance that these customers and suppliers will continue to purchase its products or sell raw materials to it or that it will not scale down their orders. This could impact the business and financial performance of the company.
The issue has been offered in a price band of Rs 144-153 per equity share. The fresh issue size is targeted to raise Rs 130.05 crore. Minimum application is to be made for 98 shares and in multiples thereon, thereafter. On performance front, total income of the company increased by 58.13% to Rs 25,482.31 lakh for Fiscal 2021 from Rs 16115.05 lakh for Fiscal 2020, primarily due to an increase in revenue from operations. Moreover, the company’s profit for the year increased by 91.34% to Rs 1513.20 lakh for the financial year 2021 from Rs 790.83 for the financial year 2020. The company is presently serving the markets of Southern and some parts in Western India. Its distribution channels developed over the years have been critical to its growth. The company intends to continue developing and nurturing existing markets and creating new distribution channels in under and non-penetrated geographies. Moreover, the company constantly endeavours to improve its productivity levels by optimum resource utilization, improvement in manufacturing process, skill up-gradation of its workers, modernization of machineries to achieve better asset turnover.
