The iron and steel industry is seeing a surge in small and medium enterprises (SMEs) going public, hoping to leverage the buoyant market conditions and investor appetite for new offerings.
On June 20, Vraj Iron and Steel formally launched its initial public offering (IPO), making it the third SME in the sector to go public in the last six months.
This trend is driven by a substantial increase in infrastructure spending, creating a fertile ground for growth and expansion.
Vraj Iron and Steel's IPO comes on the heels of two other entries into the public market -- Shree Marutinandan Tubes Limited in January and Maiden Forgings Limited in April. Both the companies debuted with a 40 percent and 20 percent premium over the IPO price, signaling a significant interest from investors.
IPO fever for steel SMEs
This wave of SMEs tapping into IPO market is partly driven by the increasing infrastructure spending in India, which bolsters demand for steel products.
"With fresh capital influx from IPOs, it is highly likely that we will see more capacities being added by these SMEs. The proceeds will enable them to invest in advanced technologies, improve production efficiencies, and scale their operations. This expansion is crucial not only for meeting domestic demand but also for enhancing their competitiveness in the global market. Moreover, going public provides SMEs with better access to capital markets and improved financial credibility, which can attract further investment," said Sanjay Gupta, Chairman & Managing Director of APL Apollo Tubes Ltd.
In 2023, Ratnaveer Precision Engineering Ltd, Aeroflex Industries Ltd, Cosmic CRF Ltd, Maiden Forgings Ltd, and Earthstahl & Alloys Ltd went public, marking a busy period for SME IPOs in the steel sector.
"A company with a well-balanced mix of debt and equity for capex and having a low leverage is better positioned to weather the downturns without facing severe liquidity issues as the steel industry is very volatile. The rationale is to ensure a comfortable/ low balance-sheet leverage," said Rohit Sadaka, Director and Head Steel Sector, India Ratings & Research, explaining the potential reason for the SMEs' interest in going public.
Betting high on demand
With predictions that Indian steel consumption will grow over 10 percent in the current fiscal, primary and secondary steel makers are ramping up their capacities to capture the demand, while navigating the high import scenario.
Sector majors JSW Steel and Tata Steel are gearing up to meet the rising demand, driven by infrastructure projects, urbanisation and industrial growth in India and overseas.
JSW Steel is targeting a 50 million tonne per annum (MTPA) capacity, ahead of 2030, while Tata Steel is aiming for 40 MTPA production capacity by the same period.
Analytics firm CRISIL said that steel consumption in the country grew 13.6 percent in fiscal 2024, reaching 136 MT. This upward trend is supported by strong finished steel production, which increased 12.7 percent on year, reaching 139 MT.
"This cycle of growth and investment can significantly bolster the overall capacity of the iron and steel industry," added Gupta.
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