Bansal Wire IPO offers exposure to domestic manufacturing opportunity

IPO Details

Issue dates: July 03-05, 2024

Issue price: Rs 243-256

Issue size: Upto Rs 745 crore

Implied market cap: Rs 4,000 crore

Face value: Rs 5

Lot Size: 58 shares

Retail portion: 35%

Bansal Wire Industries (BWI), a manufacturer of industrial steel wires, plans to raise Rs 745 crore through a fresh issue of shares Of this, Rs 452 crore will be used to reduce debt and the rest will be used towards meeting working capital needs. The promoter stake will decrease to 77% after the IPO from 95.7%. Recently, the company doubled its installed capacity through an investment of Rs 500 crore. The full benefits of the new plant, which was commissioned towards the end of FY24, are expected to reflect in the current fiscal year. Additionally, long-term debt will be reduced by two-thirds following the IPO, leading to lower interest expenses. However, the steel wires segment is highly fragmented, with the top 10 companies holding just over 22% market share. Given these factors and a rich valuation, the stock looks suitable for long term investors with a high risk appetite.

Business

Incorporated in 1985 and headquartered in Delhi, BWI manufactures high carbon, low carbon, and stainless-steel (SS) wires. The high carbon wire finds applications in springs, cutting tools, and industrial components while the low carbon wire is used in power transmission, agriculture, poultry, fencing, and construction. SS wire, the company's highest-volume product, is used in consumer durables, hardware, automotive, agriculture, and general engineering products. SS wire contributes nearly half to the total revenue followed by high carbon wire at 22% and low carbon wire at 8%. Bansal Wire is the country’s largest SS wire manufacturing company and the second-largest steel wire company in India with capacities of 72,176 metric tonnes per annum (MTPA) and 206,466 MTPA, representing 20% and 4% market share, respectively. The company's total installed capacity is six lakh MTPA after the recent capacity expansion.

Financials

Revenue grew at an annual rate of 19.7% between FY13 and FY23, reaching Rs 2,422 crore, while operating profit before depreciation and amortisation (EBITDA) increased by 20.9% to Rs 114 crore during the period.However, due to capacity constraints, revenue grew at a slower annual rate of 6.2% between FY22 and FY24 reaching Rs 2,466 crore while net profit rose by 17% to Rs 78.7 crore, mainly driven by a superior product mix. The EBITDA margin expanded by 130 basis points year-on-year to 6% in FY24. The company's borrowings rose to Rs 681 crore in FY24 from Rs 422 crore in the previous year, resulting in a debt-to-equity ratio of 1.5. BWI’s RoE and RoCE of 21.19% and 18.46%, respectively, are above the industry average.

Risks: The steel wire industry is highly fragmented, with more than three-fourths of the market held by unbranded players. Increased competitive pressure may impact margins. The company's top five suppliers account for 50% of total purchases. Any shortage, delay, or disruption in the raw materials supply may adversely affect financial performance.

Valuation

The company demands price-earnings (P/E) multiple of 50 based on FY24 earnings. Its peers who earn lower revenues, trade at P/Es between 42 and 48.