Bansal Wire Industries
- Bansal Wire Industries is coming out with a 100% book building; initial public offering (IPO) of 3,06,58,436 shares of Rs 5 each in a price band Rs 243- 256 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% 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 July 3, 2024 and will close on July 5, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 5 and is priced 48.60 times of its face value on the lower side and 51.20 times on the higher side.
- Book running lead managers to the issue are SBI Capital Markets and DAM Capital Advisors.
- Compliance Officer for the issue is Sumit Gupta.
Profile of the company
The company along with its Subsidiary, Bansal Steel & Power, offers over 3000 SKUs (i.e., stock keeping units) in three broad segments, i.e., high carbon steel wire, mild steel wire (low carbon steel wire) and stainless steel wire, with the company’s offering of approximately 2000 SKUs and its Subsidiary’s offering of 1500 SKUs. Further, there are approximately 500 SKUs which are common in both the company and Subsidiary. High carbon steel wires refer to wires made from high carbon steel with 0.30% to 1.00% carbon and are known for their exceptional strength, hardness, and durability. They are used in applications where these properties are crucial, such as in the manufacturing of springs, cutting tools, and various industrial components that require resilience and resistance to wear and fatigue. Mild Steel Wire is made out of a low-carbon steel with a carbon content ranging from 0.05% to 0.25% and is known for its ductility, malleability, weldability, and versatile nature. They are commonly used in power & transmission, agriculture, poultry, fencing, and construction. Stainless steel wire is made from a corrosion-resistant alloy which is a combination of iron, chromium, nickel, and other elements and is used in consumer durables, hardware, automotive, agriculture and other general engineering products. The company operates from its four established manufacturing facilities in the National Capital Region, India, with three manufacturing facilities in Ghaziabad (U.P.) and one manufacturing facility in Bahadurgarh (Haryana).
The company operates in three broad segments, i.e., high carbon steel wire, mild steel wire (low carbon steel wire) and stainless steel wire and it will be also adding new segment of specialty wires through its manufacturing plant in Dadri, which will help it to grow and expand its market presence in upcoming fiscals. The extensive range of its products include sizes as thin as 0.04 mm to as thick as 15.65 mm like high carbon steel wires for springs, wire for ropes, mild steel wires (low carbon steel wires), stainless steel wires, cold heading quality wires, cable armoring wires and strips, galvanized steel wires in high/ mild steel wire (low carbon steel wire) in wide range of, zinc coating, profile/ shaped wires in various steel grades in different cross sections etc.
Proceed is being used for:
- Repayment or prepayment of all or a portion of certain outstanding borrowings availed by the company.
- Investment in Subsidiary for repayment or prepayment of all or a portion of certain of its outstanding borrowings.
- Funding the working capital requirements of the company.
- General corporate purposes.
Industry overview
India’s steel industry is a key contributor to its economic growth, accounting for a significant share of the manufacturing sector. Its performance is influenced by macroeconomic factors such as GDP growth, inflation, exchange rates and gross fixed capital formation. The domestic steel industry has witnessed significant growth at a compound annual growth rate of 5.74% between fiscals 2018 to 2023, rising to 119.90 Million Tonnes in fiscal 2023 from 90.72 Million Tonnes in fiscal 2018 because of aggregate effect of growth in the end-use sectors of steel such as automobile, infrastructure, construction, etc and market volatility faced during the pandemic. It is expected to grow even faster at a compound annual growth rate of around 7% till fiscal 2027, rising to 155-160 Million Tonnes. The industry grew steadily at a compound annual growth rate of 5.07% between fiscals 2018 and 2020. It was then hit by a 5.27% on-year decline in fiscal 2021 because of Covid-19. Demand rebounded by 11.44% on-year in fiscal 2022 on account of resumption in industrial activities, pent-up demand, and growth in key end-use sectors. Growth picked up 13.38% in fiscal 2023, mainly driven by high demand in infrastructure and construction sectors.
In the alloy steel segment, demand increased at a compound annual growth rate of 2.72% between fiscals 2018 and 2023, while demand for carbon steel rose at a compound annual growth rate of 6.02%. Demand for long steel increased at a compound annual growth rate of 6.38% between fiscals 2018 and 2023, led by healthy growth in infrastructure and modest growth in the housing segment. Demand for flat steel, on the other hand, rose at 5.00% compound annual growth rate during the same period. This led to the share of long steel in overall finished steel demand increasing from around 53% in fiscal 2018 to 54% in fiscal 2023. India produced 7.5 Million Tonnes of wire rods in fiscal 2023, registering an around 7% compound annual growth rate during fiscals 2019-2023. The wire rods market is an unorganised one, with national players such as JSW Steel, TATA, RINL, SAIL, and JSPL holding nearly half of the market share, while the other half is held by regional and local players. The wire rods produced form nearly 10-12% of the total re-rolling production done in India during fiscals 2019-2023.
Pros and strengths
More than 5,000 customer base with presence across various sectors: The company has a customer base exceeding 5,000 customers, spreading across various industrial sectors. Except Bansal High Carbons Private Limited, one of its Group Companies, which contributed 7.30% and S. S. Pranav Steels Private Limited, one of its distributor/dealer companies, which contributed 6.05% of the total sales of the company for Fiscal 2024, none of its customer contributed to more than 5% of its sales and no individual sector or segment constituted more than 25% of its sales in Fiscal 2024, Fiscal 2023 and Fiscal 2022, which is a testament to its diverse portfolio. Some of the major sectors that it serves include automotive, cables, fencing, infrastructure and agriculture out of which automotive and consumer durables sectors give it the highest EBITDA margins. Some of its key domestic and international customers include S.S. White Technologies India Private Limited, Connecton Fasteners S.A., NHK Automotive Components India Private Limited, Hettich, Hi-Lex India Private Limited, KEI Industries Limited, Lapp India Private Limited, Suprajit Engineering Limited, Helical Springs, Haver Standard India Private Limited, RR Kabel Limited, Remsons Industries Limited, ASK Automotive Limited, etc. It has maintained an average customer retention ratio of 89.56% of its top 300 customers contributing 78.22%, 78.20% and 77.84% of its sales for Fiscals 2022, 2023 and 2024, respectively.
Product Portfolio with over 3,000 stock keeping units across the steel wire industry: The company along with its Subsidiary, Bansal Steel & Power, offer one of India’s most extensive steel wire product portfolios, encompassing over 3000 stock keeping units (SKUs), categorized majorly into three segments, i.e., high carbon steel wire, mild steel wire (low carbon steel wire) and stainless steel wire, with the company’s offering of approximately 2000 SKUs and its Subsidiary’s offering of 1500 SKUs. Further, there are approximately 500 SKUs which are common in both the company and Subsidiary. Its diverse portfolio of products has been backed by the global certifications and accreditations awarded to them. It keeps on adding new SKUs as per the customer’s requirement offering customized solutions, during the Fiscal 2024, it has launched 27 new products and has 6 products under development.
Business model with stable and consistent margin profile: The company’s products are offered at various price points and the pricing risk is suitably mitigated as majority of its sales are directly to customers. Its sales and marketing team takes into consideration various factors such as landing costs, discounts, and applicable taxes to arrive at the list price of its offerings. To counter the volatility in the cost of its raw materials, it adjusts and revise the prices for its products on a monthly basis. Furthermore, when the fluctuation in the price of raw materials go beyond a certain level during the period concerned, the list prices of products are revised as and when required. Most of the production that it entails is carried by it after the receipt of the order at a pre-agreed price and hence, as a result it is able to maintain the margins and work on a cost plus model and are largely immune to commodity price fluctuations, which has helped it in maintaining EBITDA margins between 4.73% to 6.04% consistently over last three Fiscals.
Promoters and management with industry expertise of over 38 years: The company’s leadership team comprises of seasoned whole-time directors, key managerial personnel and senior management with extensive experience in the steel wire industry. They play a pivotal role in formulating business strategies, driving innovation, integrating systems, processes and technologies, diversification and expansion of business, and commitment to customer-focused approach. With the support of a qualified pool of employees including its quality assurance team, it has collectively demonstrated an ability to manage and grow its operations. Its management team under their guidance, has demonstrated its ability to develop and execute a focused strategy to grow its steel wire manufacturing business across various sectors and continents fortifying its market position and allowing it to deliver products that emphasize quality and safety.
Risks and concerns
Highly dependent on skilled personnel: The company’s success in expanding its business will also depend, in part, on its ability to attract, retain and motivate skilled personnel. Competition for skilled personnel in its industry is intense. Its competitors may offer compensation and remuneration packages beyond what it is offering to its employees. It may also be required to increase its levels of employee compensation more rapidly than in the past to remain competitive in attracting employees that its business requires. Because of these factors, there is no assurance that it can effectively attract and retain sufficient number of skilled personnel to sustain its expansion plans, which would have a material adverse impact on its business, results of operations, financial position and cash flows. Its inability to attract and retain skilled personnel may impact its production, day to day operations and in turn adversely impact its results of operations and financial results.
Substantial working capital requirements: The actual amount and timing of the company’s future capital expenditure or working capital requirements may differ from estimates due to, among other factors, unforeseen delays or cost overruns, unanticipated expenses, regulatory changes, economic conditions, engineering design changes, weather related delays, technological changes, additional market developments and new opportunities in the steel wires industry. Its sources of additional financing, in the event that it needs to draw on them to meet its working capital or capital expenditure needs, may include the incurrence of debt, the issue of equity or debt securities or a combination of both. If it decides to raise additional funds through the incurrence of debt or issuance of debt securities or a combination of both, its interest and debt repayment obligations will increase, which could have a significant effect on its profitability and cash flows. If it does incur debt in the future, its interest and debt repayment obligations will increase, which may adversely affect its profitability and cash flows. It may also become subject to restrictive covenants in its financing agreements, which could limit its ability to access cash flows from operations and undertake certain types of transactions.
Subject to strict quality requirements: The company faces an inherent business risk of exposure to product defects and subsequent liability claims if the use of any of its products results in personal injury or property damage. It may not be able to meet regulatory quality standards in India or abroad, or the quality standards imposed by its customers, raw material suppliers and applicable to its manufacturing processes, which could have a material adverse effect on its business, financial condition, results of operations and cash flows. It is also required to obtain material approvals and certifications for product quality verification in India and other jurisdictions. It is, ISO 9001: 2015, IATF: 16949 : 2016, certified manufacturer. Further, its manufacturing facilities are subjected to rigorous quality control checks, accreditation requirements, and periodic inspections from various regulatory agencies that have issued it product and system certifications. While it has not experienced any instances of defect issues or failure to comply with the quality standards in the past, if any of its steel wire products do not meet regulatory standards or are defective, it may be, inter alia, (i) responsible for damages relating to any defective products, (ii) required to replace, recall or redesign such products, (iii) incur significant costs to defend any such claims or (iv) restricted to produce or market such products to its customers.
Failure to maintain optimum inventory levels: The company’s products are offered at various price points and the pricing risk is suitably mitigated as majority of its sales are directly to customers. Its sales and marketing team takes into consideration various factors such as consistency, landing costs and discounts, and applicable taxes to arrive at the list price of its offerings. Most of the production that it entails is carried by it after the receipt of the order at a pre agreed price and hence, as a result it is able to maintain the margins and work on a converter model and is largely immune to commodity price fluctuations. Its future earnings through the sale and distribution of its products may not be realized as forecasted, due to cancellations or modifications of firm orders or its failure to accurately prepare demand forecasts. If it is unable to appropriately estimate the demand for its products for any reason, it could result in excess inventory levels or the unavailability of its products during increased demand, resulting in loss in potential sales.
Outlook
Bansal Wire Industries (BWIL) is a closely held public limited company incorporated on December 11, 1985, into manufacturing of various kind of wires which have multiple application across sectors including power and cable, automotive, fencing, infrastructure, agriculture, consumer durables, general engineering. The company manufactures high and low carbon steel wires/ galvanized wire / cable armoring wires and strips / stainless steel wires / profile, shaped wires, speciality wires and so on which have multiple application. The company has a long-standing track record of generating operating profits, they have demonstrated their ability to navigate challenges and maintain a successful and sustainable business. To meet the diverse customer needs, the company manufactures more than 3,000 stock keeping units, the highest among all steel wire manufacturers in India, with sizes ranging from as thin as 0.04 mm to as thick as 15.65 mm. On the concern side, the company’s manufacturing processes are labor intensive in nature. If the company or its contractors are unable to negotiate with the labor, it could result in work stoppages or increased operating costs due to higher than anticipated wages or benefits. Also, it faces significant competition in its business from other manufacturers and suppliers of steel wires products.
The company is coming out with an IPO of 3,06,58,436 equity shares of face value of Rs 5 each. The issue has been offered in a price band of Rs 243-256 per equity share. The aggregate size of the offer is around Rs 745.00 crore to Rs 784.86 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 1.99% to Rs 24,708.86 million for Fiscal 2024 on a consolidated basis, from Rs 24,225.68 million in Fiscal 2023. Profit for the year increased by 31.48% from Rs 787.98 million for Fiscal 2024 on a consolidated basis to Rs 599.30 million for Fiscal 2023. Meanwhile, the company intends to leverage its suite of globally accredited products to grow its exports business and further increase its overseas presence by increasing its customers base and global representatives and setting up warehouses, as and when required. It will also introduce new products like wire for elevator ropes and springs which have a high potential in export markets. It intends to focus on manufacturing of shaped wire in all three product streams, i.e, high carbon steel wires, mild steel wires (low carbon steel wires) and stainless steel wires which are very high margin products and being used in the growing sectors like automotive, power and transmission and infrastructure.
