Rhetan TMT
Rhetan TMT is coming out with an initial public offering (IPO) of 8000000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 70 per equity share.
The issue will open on August 22, 2022 and will close on August 25, 2022.
The shares will be listed on SME Platform of BSE.
The share is priced 7.00 times higher to its face value of Rs 10.
Book running lead manager to the issue is Aryaman Financial Services.
Compliance Officer for the issue is Payal Pandya.
Profile of the company
The company owns and operates a Steel Rolling Mill with an aggregate installed capacity of 30,000 MTPA. It is an IS 1786: 2008 certified company and it manufactures TMT Bars and Round Bars which are primarily used in construction industry. Its products have been used in construction of dams, bridges, residential and commercial towers and major infrastructure projects in Gujarat. Its plant is located at Survey No. 325, Karannagar, Kadi-Kalol Road, Taluka Kadi, Dist. Mehsana, Gujarat and is spread over 15,000 sq. yards. The plant is fully geared with latest technologies to provide good quality steel products and the plant is operating smoothly since 2019. It has a vision to become one the trusted brands in TMT Bars manufacturing in its geography.
The company’s sales have increased at a CAGR of 83.18% from Rs. 2,000.84 lakh in FY 2020 to Rs 6,702.87 lakh in FY 2022. Further its EBIDTA has increased at a CAGR of 167.07% from Rs 64.62 lakh in FY 2020 to Rs 459.67 lakh in FY 2022. Due to this strong historical growth, it has decided to further expand its manufacturing capacities and hence it has decided to raise funds to increase its plant capacities and also its working capital capabilities.
Proceed is being used for:
Funding capital expenditure for expansion and modernization at 325, Karannagar, Kadi-Kalol Road, Taluka Kadi, Dist. Mehsana, Gujarat.
Funding working capital requirements.
General corporate purpose.
Industry overview
The India special steel market size was valued at $7.00 billion in 2020, and is projected to reach $38.8 billion by 2035, growing at a CAGR of 10.9% from 2021 to 2035. The Indian steel industry is modern, with state-of-the-art steel mills. It has always strived for continuous modernisation of older plants and up-gradation to higher energy efficiency levels. The Indian steel industry is classified into three categories - major producers, main producers and secondary producers. In FY22 (till January), the production of crude steel and finished steel stood a 98.39 MT and 92.82 MT, respectively. According to CARE Ratings, crude steel production is expected to reach 112-114 MT (million tonnes), an increase of 8-9% YoY in FY22. The consumption of finished steel stood at 86.3 MT in FY22 (till January). Between April 2021-January 2022, the consumption of finished steel stood at 86.3 MT. In January 2022, India's finished steel consumption stood at 9.65 MT. In FY22 (until February 2022), exports and imports of finished steel stood at 12.2 MT and 4.3 MT, respectively.
TMT bars or Thermo-Mechanically Treated bars are high-strength reinforcement bars having a tough outer core and a soft inner core. Thermo-Mechanically Treated bars or TMT bars are widely used for different construction projects. Made from high strength steel, TMT bars possess several qualities that make them the most preferred material for various construction projects. With a unique metallurgical process that combines work hardening along with heat-treatment to create robust and high strength bars from low-carbon steel, TMT bars have a great demand. The demand for low-cost reinforcement bars of higher yield strength has gone up exponentially over the last few decades. Increasing project scales with, ranging from spectacular high-rises, to mammoth dams and bridges spanning for miles together, the fascination for building 'mega' structures meant that plenty of research went into finding low-cost reinforcement bars of higher yield strength. The sale of construction materials including TMT bars are estimated to grow at a Compounded Annual Growth Rate (CAGR) of 6.18% in terms of volume. Currently, the size of the Indian construction industry is $2.8 billion.
Pros and strengths
Well educated and experienced management: The company’s senior management team is well educated and experienced in the trading and manufacturing industry of steel products. Its Promoter Director –Shalin Shah has completed his Civil Engineering from L.D. Engineering College, Ahmedabad and he has over three decades of experience in various businesses. Its management team's experience and their understanding of the relevant business cycles will enable it take advantage of both current and future market opportunities. It is also expected to help it on addressing and mitigating various risks inherent in its business, including significant competition, reliance on independent agents, and fluctuations in prices.
Group synergies: The company is part of Gujarat based diversified business group promoted by Shalin Ashok Shah and family. Its group has business interests in various sectors including Oil and Gas, Steel, Infrastructure, Electronic Equipments and Chemical Products. Its interests and networks amongst the real estate and infrastructure space would help it identify sustainable business opportunities in its structural steel business.
Location of manufacturing unit: The company’s manufacturing unit is located at around 45 kms from Ahmedabad at Industrial area of Kadi near Ahmedabad-Mehsana highway. Both Ahmedabad and Mehsana large markets for steel products and thus the location is strategically advantageous. There are many steel industries nearby from where raw materials are easily made available. The location of the project is surrounded by states like Maharashtra, Rajasthan and Madhya Pradesh, which are producing ample quantity of iron and steel raw material. So, the basic raw materials for its products are all indigenously available at short notice and in required quantity and quality. The location of its plant is important for the smooth and economical operation of the industrial unit.
Risks and concerns
Low operating margins: The company’s business is a high volume and low margin business. Its inability to maintain consistent growth in turnover with high business processes operating efficiency could lead to lower profitability and hence adversely affect its operating results, debt service capabilities and financial conditions. Due to the nature of the products it sells, it may not be able to charge higher margins on its products. Hence, its business model is heavily reliant on its ability to effectively grow its turnover and manage its business processes including but not limited to raw material procurement, timely sales / order execution and continuous cost control of non core activities.
Exposed to fluctuations in prices of raw materials: The company is exposed to fluctuations in the prices of various raw materials like, M.S. Billets / ingots, as well as its availability, particularly as it typically do not enter into any long term supply agreements with its suppliers and all the above mentioned raw materials are bought by the company from various suppliers. It may be unable to make adequate provisions for the price fluctuations and, consequently, any adverse fluctuations that it has not factored in or provided for may adversely affect the results of its operations and its financial conditions. It also face the risks associated with compensating for or passing on such increase in its cost of production on account of such fluctuations in prices to its customers. Particularly, it face the risk of its competitors being able to sell the products at lower rates than its due to their economies of scales, if it pass on the increase in the cost of production to its customers through a corresponding increase in the price of its products in order to maintain its historical margins.
Dependent on third party transportation providers: The company relies substantially on third party transportation providers for the supply of its products to its customers. Transportation strikes / non-availability of Transportation could have an adverse effect on its ability to deliver the same to its customers. In addition, transportation costs in India have been steadily increasing over the past several years. While usually the end consumer bears the freight cost, it may not always be able to pass on these costs to its customers. Continuing increases in transportation costs or unavailability of transportation services for its products may have an adverse effect on its business, financial condition, results of operations and prospects.
Outlook
Incorporated in 1984, Rhetan TMT manufactures TMT Bars and Round Bars which are primarily used in the construction industry. The company's plant is located in Gujarat and is spread over 15,000 sq. yards. The company's products have been used in the construction of dams, bridges, residential and commercial towers and major infrastructure projects in Gujarat. It has invested in the latest technology and upgraded its machinery which has aided it in manufacturing better quality products. Its manufacturing facility has various automated and semi automated plant and machinery for the manufacturing process, other material preparation tools, handling equipments and quality control lab. Also its manufacturing facility and registered office is well equipped with computer systems, internet connectivity, other communication equipment, security and other facilities, which are required for its business operations to function smoothly. On the concern side, the industry in which it operates is highly cyclical. Steel prices fluctuate based on macroeconomic factors, including, amongst others, consumer confidence, employment rates, interest rates and inflation rates, general levels of infrastructure activities in the region of sale etc. The company requires certain statutory and regulatory permits, licenses and approvals to operate its business, some of which the company has either received, applied for or is in the process of application.
The company is coming out with a maiden IPO of 8000000 equity shares of Rs 10 each at a fixed price of Rs 70 per share to mobilize around Rs 56 crore. On performance front, in fiscal 2022, its total income increased by 1,490.44 lakh or 28.59%, from 5,213.01 lakh in fiscal 2021 to 6,703.45 lakh in fiscal 2022. The increase in the year 2022 was due to increase in the sale of finished goods as compared to last year. The company’s Profit after Tax increased by 221.13 lakh or 1645.82 %, from 13.44 lakh in fiscal 2021 to 234.57 lakh in fiscal 2022. Meanwhile, as part of its expansion, the company proposes to increase the installed capacity by 15,000 MTPA. As a result, the increased installed capacity at its Manufacturing unit will be 45,000 MTPA. The company intends to continue developing and nurturing existing markets, and create new distribution channels in the under and non-penetrated geographies. It aims to further develop its domestic sales networks in those territories where there are lower transportation costs and those which have a significant demand of its products, where it can sell at price-points that can effectively offset higher transportation costs.
