IPO: Bansal Wire Industries

Bansal Wire Industries, a steel wire manufacturer, is launching its IPO (initial public offering) on July 3, 2024. We break down the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality : Its three-year average ROE and ROCE were 24.9 per cent and 14.7 per cent, respectively. Growth : Its revenue and net profit grew 5.9 and 17.3 per cent per annum, respectively, during FY22-FY24. Valuation : Post the IPO, the stock will be valued at a P/E and P/B of 50.9 and 3.4 times, respectively. Overview: About 40 per cent of demand for steel wires comes from infrastructure and automobile sectors. The government's massive capital expenditure (capex) on infrastructure like roads, highways, and railways, combined with the strong momentum in the automobile sector, will drive demand for the steel wires market where the company is primarily present in. However, the product is commoditised and the market is highly competitive with no entry barriers. About Bansal Wire Incorporated in 1985, Bansal Wire is a steel wire manufacturer that operates under three main segments-high carbon steel wire, mild carbon steel wire, and stainless steel wire. It offers over 3,000 SKUs (stock-keeping units) under these segments, accounting for 2 per cent of the market share in India. The company's present capacity is around 0.26 MTPA (million tonnes per annum) across five facilities with an average capacity utilisation of 84 per cent. Bansal Wire's distribution is spread across 22 states and six union territories, with two-thirds of its revenue coming from Delhi, Haryana, Maharashtra, and Uttar Pradesh in FY24. Strengths of Bansal Wire Diversified customer base: The company caters to more than 5,000 customers, with no customer contributing more than 5 per cent to revenue and no single sector or segment contributing more than 25 per cent to revenue (as of FY24). Customer retention: The company has retained almost 90 per cent of its top 300 customers (contributing more than 75 per cent of its revenue) during FY22-FY24. Weaknesses of Bansal Wire Geographical concentration: The company's manufacturing capacity is concentrated in the national capital region or NCR. This is why more than 60 per cent of its revenue originates from the North. Since steel wires are commoditised products, regional pricing competition and additional charges like transportation make it difficult for the company to scale its operations in other regions. This is perhaps why the company's revenue growth has been muted against the industry. Its topline grew about 6 per cent annually during FY22-FY24, while the industry revenue grew 8-10 per cent per annum in the same period. Working capital intensive: High working capital is an industry-wide trait in the steel sector and Bansal Wire is no exception. The company has recorded an average cash conversion cycle of over 70 days between FY22 and FY24 and has had to rely on debt to meet its working capital requirements. IPO details Total IPO size (Rs cr) 745 Offer for sale (Rs cr) - Fresh issue (Rs cr) 745 Price band (Rs) 243-256 Subscription dates July 3-5,2024 Purpose of issue Loan repayment and working capital requirement Post-IPO M-cap (Rs cr) 4,007.8 N