A G Universal coming with an IPO to raise Rs 8.72 crore

A G Universal

• A G Universal is coming out with an initial public offering (IPO) of 14,54,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 60 per equity share.
  
• The issue will open for subscription on April 11, 2023 and will close on April 13, 2023.
  
• The shares will be listed on NSE Emerge Platform.
  
• The share is priced 6.00 times higher to its face value of Rs 10.
  
• Book running lead manager to the issue is Share India Capital Services.
  
• Compliance Officer for the issue is Sushil Kumar.
  

Profile of the company

At present, A G Universal deals in trading of various products including Stainless Steel Pipes, Mild Steel Pipes, ERW Black Pipes, GI Pipes, Hollow Sections, uPVC Pipes cPVC Pipes, TMT Bars, CR Coils and HR Coils. The company acts as a dealer for Surya Roshni, Jindal Supreme (India), Swastik Pipe, Ravindra Tubes, Sks Ispat & Power etc. The company has strengthened its position as one of the suppliers of high-end industrial MS Tubes, GI Pipes, and Hollow Sections.

A G Universal is a supplier and manufacturer of high quality Hollow Section Pipes and ERW Pipes in India. The company manufactures Hollow Section Pipes in different sizes, grades and specification as per international guidelines. The company also exports its products in many countries. Hollow section pipes are supplied to clients all over India for variety of applications in mechanical engineering such as for manufacturing of booms, frames and other vehicle components especially for those applications where high strength combined with excellent usability is required. Hollow section pipes are more durable and have a longer life span than conventional steel sections.

Proceed is being used for:

• Meeting the Working Capital requirement of the Company.
• General Corporate Purposes.
  
• Issue related expenses.
  

Industry overview

Though steel usage in India dates to ancient times, production of steel using modern technology began only during the late-nineteenth century. In 1875, the Bengal Iron and Steel Company employed modern methods in the manufacturing of pig iron which was a first in India. This is often considered as the initial push for what would later become the Indian steel industry. But the official establishment of the Indian steel industry can be traced back to the setting up of the Tata Iron & Steel Company (TISCO) in Bihar in 1907. The Indian steel industry was further strengthened post-independence, with the establishment of Steel Authority of India Ltd. (SAIL) in 1973.  As of April 2022, India was the world's second-largest producer of crude steel, with an output of 10.14 MT. In FY22, the production of crude steel and finished steel stood at 133.596 MT and 120.01 MT, respectively.

The growth in the Indian steel sector has been driven by the domestic availability of raw materials such as iron ore and cost-effective labour. Consequently, the steel sector has been a major contributor to India's manufacturing output. The Indian steel industry is modern, with state-of-the-art steel mills. It has always strived for continuous modernization 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, the production of crude steel and finished steel stood at 133.596 MT and 120.01 MT, respectively. The consumption of finished steel stood at 105.751 MT in FY22. In April 2022, India's finished steel consumption stood at 9.072 MT. In FY22, exports and imports of finished steel stood at 13.49 MT and 4.67 MT, respectively. In FY22, India's export rose by 25.1% YoY, compared with 2021. In FY21, India exported 9.49 MT of finished steel.

Pros and strengths

Quality Policy: The company is constantly focused on building quality into the culture of the organization. It continuously assess and improve its operations, methods and dealings with people, both inside and outside the organization, while deploying effective tools and techniques of quality management.

Strengthen human capital: The company’s employees and management team are its most valuable asset. Investing in human capital by training, and retaining its key people has been and will remain critical to its success. To achieve this, it intends to remain committed to provide its personnel with opportunities to expand its business within their areas of expertise. It will also continue to provide its personnel with personal and professional growth opportunities, including training and performance-based incentives.

Existing client and supplier relationships: The company’s existing relationships help it to get repeat business from its customers. This has helped it to maintain a long term working relationship with its customers and improve its customer retention strategy. It has strong existing client relationships which generates multiple repeat orders. Its existing relationship with its clients represents a competitive advantage in gaining new clients and increasing its business. Further being a small and medium size organization it rely on personal relationships with suppliers and customers likewise.

Risks and concerns

Dependent on few customers/suppliers: The company is substantially dependent on few customers/suppliers for its operations. As on November 30, 2022, its top 10 customers account for 60.53% of its sales, out of that top 5 customers’ accounts contributes more than 52% of the total sales. Similarly, its procurement is 95.10% from top 10 suppliers and more than 80% from its top 5 suppliers. The loss of its major customers/suppliers or a decrease in the volume of products sourced from it may adversely affect its revenues and profitability. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its operations and profitability.

Seasonality or cyclicity of business: Steel is a cyclical industry that goes through alternate phases of boom and bust. The key reason for such cyclicity in the steel business is the nature of its customers. Steel production is consumed primarily by housing, infrastructure, automobile, shipbuilding, capital goods etc. Demand from all these industries is highly dependent on the state of the general economy. During the time of economic upcycle, demand for housing, automobiles as well as infrastructure investments increases, which leads to a higher demand for steel. The opposite situation prevails in downturns which may adversely affect its business, financial condition and results of operations.

Require certain statutory and regulatory approvals: The company requires certain statutory and regulatory approvals, licenses, registrations and permissions to operate its manufacturing units, some of which have been granted for a fixed period of time and need to be renewed from time to time. There are no pending proceedings, which have been initiated against it by the statutory authorities. It cannot assure that in the near future there will not be any legal actions taken against it for the same. Further, these licenses and approvals are subject to several conditions, and the company cannot assure that it shall be able to continuously meet such conditions or be able to prove compliance with such conditions to statutory authorities, and this may lead to cancellation, revocation or suspension of relevant licenses, approvals and registrations.

Outlook

A G Universal was initially established in May 2008 as Akshata Polymers Private Limited. The company boasted dealership agreements with many companies like Reliance Industries for its petroleum (polymers) business. At present, the company deals in various steel products. The company acts as a dealer for Surya Roshni, Swastik Pipe, Ravindra Tubes, Sks Ispat & Power etc. The company has strengthened its position in India to become one of the leading suppliers of high-end industrial MS Tubes, GI Pipes, and Hollow Sections. The product range of the company includes Stainless Steel Pipes, Mild Steel Pipes, ERW Black Pipes, GI Pipes, Hollow Sections, uPVC Pipes, cPVC Pipes, TMT Bars, Wire Rods, MS Wire, CR Coils, and HR Coils. On the concern side, currently, the company does not have registered trademarks under the Trade Marks Act, 1999, and therefore may be subject to counterfeiting or imitation which would adversely impact its reputation and lead to loss of customer confidence, reduced sales and higher administrative costs. Further, the company does not enjoy the statutory protections accorded to a registered trademark.

The company is coming out with a IPO of 14,54,000 equity shares of Rs 10 each at a fixed price of Rs 60 per share to mobilize Rs 8.72 crore. On performance front, the company’s total revenue increased by 83.07% to Rs 7,074.15 lakh for the financial year 2021-22 from Rs 3864.25 lakh for the financial year 2020-21. Net Profit has increased by 383.42% from profit of Rs 14.66 lakh of financial year ended March 31, 2021 to profit of Rs 70.88 lakh in the financial year ended March 31, 2022. Meanwhile, as part of its growth strategy it intends to focus on increase in volume of sales. It wants to focus on larger volume of sales. It has the ready infrastructure as well as know how to scale this business further; and it has a long-term strategy to increase its sales from this business vertical. Going forward, it proposes to diversify its product portfolio and add more products to its portfolio based on its own assessment of market, demand and supply position.