Shares of Venus Pipes & Tubes edged higher by 5 per cent to Rs 648.90 in Wednesday’s intra-day trade. In the past one month, the stock has rallied 48 per cent after the company became the first Indian company to receive Bureau of Indian Standards (BIS) approval for stainless steel seamless and welded pipes and tubes. In comparison, the S&P BSE Sensex was down 4.5 per cent, during the same period.
Venus Pipes & Tubes is a manufacturer and exporter of stainless steel (SS), welded and seamless pipes. With Wednesday’s gain, the stock has zoomed nearly 100 per cent against its issue price of Rs 326 per share. The company made market debut on May 24, 2022. Later, it had hit a 52-week high of Rs 652 on October 7, and a 52-week low of Rs 316.40 on June 1.
The costlier imports from China and BIS certification requirement provide a competitive advantage to companies with an in-house hollow pipe manufacturing capacity to tap import substitution opportunity.
In the previous month, Venus Pipes approved capacity expansion of Rs 50 crore for bigger diameter tube mill to manufacture stainless steel welded pipes. This new line will increase existing welded pipes range to a maximum 20” inch (508mm) diameter and thickness of up to SCH80s, with a capacity by 700 mt per month. The project will be funded through a mix of debt (term loan) & internal accruals and the commercial production is expected to start by Q1FY24.
The management said that the capex cycle revival in India would drive robust demand for the company’s products across end-user industries. Moreover, this capacity expansion, would give the company an edge and help capture more market in this segment.
On October 6, CRISIL Ratings assigned long term rating of CRISIL BBB+ and short term rating of CRISIL A2 to Rs 62 crore of bank loan facilities of Venus Pipes with a ‘stable’ outlook.
“The company plans to more than double its existing capacity along with additional hollow pipe manufacturing unit in the current fiscal year (FY23), which will support growth in revenues going ahead over the medium term. However, timely completion of capex and successful ramp up in operations will continue to remain a key monitorable,” analysts at CRISIL Ratings said.
Meanwhile, analysts at Centrum Broking believe that the company is set to become the second largest player in India as it adds newer capacities. Besides that, the company is also well equipped to exploit emerging opportunities in the form of import substitution, higher exports, and huge capex upswing in demand markets.
“The demand sectors like oil refinery, petrochemicals, chemicals, and pharmaceuticals are in major capex cycle upswing with estimated investments of Rs 3.3 trillion (based on announcements made by major players) over FY23E-25E. This would roughly translate around Rs 330 billion of incremental opportunity for SS pipes. Besides, revoke of export rebates by China and use of only BIS certified products, will likely aid Venus Pipes to strengthen its market share through import substitution,” the brokerage firm said, with a ‘buy’ rating on the stock, and a target price of Rs 764 per share.