Vraj Iron and Steel, which manufactures sponge iron, MS billets, and TMT bars under the brand Vraj, is likely to make a market debut with more than 30 percent gains on July 2, experts said. Robust subscription demand for IPO, positive earnings, reasonable valuation, healthy business prospects and sector tailwind are some of key reasons behind the expected decent listing.
Investors picked 73.07 crore equity shares of the company via initial public offering, which were 119.04 times higher than the offer size of 61.38 lakh shares. Non-institutional investors (high networth individuals) were at the forefront, buying 208.81 times the allotted quota, followed by qualified institutional buyers who bid 163.9 times the reserved portion, while the part set aside for retail investors was booked 54.93 times.
"The issue appears reasonably priced based on the FY24 annualized earnings. We expect a listing at around Rs 275-285 per share, resulting in a listing gain of around 33 percent," Amit Goel, Co-Founder & Chief Global Strategist at Pace 360 said.
He further said the company has shown positive results so far and is optimistic about continuing this trend after capacity expansion. In fact, it is rapidly expanding to keep up with the growing demand for its products.
Vraj, which effectively manages its costs by utilizing in-house power plants, currently operates through two manufacturing plants at Raipur and Bilaspur in Chhattisgarh, with installed capacity of 2,31,600 tonnes per annum. The Raipur plant also includes a captive power plant with a capacity of 5 MW.
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The company is in the process of increasing its capacities of existing manufacturing plants and captive power plant to 5,00,100 tonnes per annum and 20 MW, respectively. The proposed expansion of sponge iron and captive power plant is expected to become operational by Q4FY25, while MS billets expansion is expected to become operational by Q1FY26.
Parth Shah, Research Analyst at StoxBox also expects Vraj shares to list at a premium of about 35 percent over the issue price of Rs 207 per share.
With the company planning to expand its existing manufacturing and power plant capacity, Parth believes that the domestic growth prospects align with the company’s plans and would further aid its operational efficiency. The company boasts a diversified product mix which helps in de-risking its revenue streams.
Chhattisgarh-based Vraj Iron clocked a massive 88.1 percent on-year growth in net profit at Rs 54 crore for the fiscal year 2023 on healthy operating numbers. Revenue for the year increased by 24.5 percent to Rs 515.7 crore compared to previous year.
On the operating front, its EBITDA (earnings before interest, tax, depreciation and amortisation) for the financial year 2023 grew by 63.7 percent to Rs 81.3 crore with margin expansion of 378 bps at 15.77 percent compared to previous year.
Net profit for the period of April-December FY24 was at Rs 44.58 crore on revenue of Rs 301.3 crore.
"Considering the business prospects and sector tailwind, we are expecting a decent listing of Vraj," Narendra Solanki, Head Fundamental Research - Investment Services at Anand Rathi Shares and Stock Brokers said.
Meanwhile, the Vraj IPO shares were available at 32-33 percent premium over the issue price in the grey market, the market observers said.
The company raised Rs 171 crore through solely fresh issue at upper end of price band of Rs 195-207 per share. It will spend Rs 129.5 crore out of the net fresh issue proceeds for its expansion project at Bilaspur plant, and the remainder funds for general corporate purposes.
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