Sambhv Steel Tubes IPO analysis

Sambhv Steel Tubes IPO (initial public offering) will open for subscription on June 25, 2025, and close on June 27, 2025. Below is a breakdown of the pipes and tubes manufacturer's strengths, weaknesses and growth prospects to help investors make an informed decision.

Sambhv Steel Tubes IPO in a nutshell

• Quality: Between FY22 and FY24, Sambhv Steel Tubes reported a three-year average ROE and ROCE of around 36 and 25 per cent, respectively.
• Growth: Between FY22 and FY24, its revenue and net profit grew by 25 and 7 per cent per annum, respectively.
• Valuation: At the upper price band of Rs 82, the stock is expected to be valued at a P/E and P/B ratio of around 29 times and 2.6 times, respectively. In comparison, its listed peers trade at a median P/E and average P/B ratio of 29 times and 5 times, respectively.
• Overview: The company is set to benefit from strong demand for welded pipes and tubes, led by growing government spending on affordable housing, Jal Jeevan Mission, Har Ghar Nal Yojana and other schemes aimed at improving city-level gas distribution networks and oil and gas transmission pipelines . However, the fragmented nature of the industry and competition from other established players remain a risk for the company.

About Sambhv Steel Tubes

Sambhv Steel Tubes is a leading manufacturer of high-quality ERW (electric resistance welded) pipes and tubes, which are produced from steel and are extensively used in the oil and gas and infrastructure sector.

The company prides itself on its backward integration model, which allows it to control the entire production process from manufacturing steel coils to producing the final product. Its manufacturing facility in Raipur is strategically located, providing proximity to essential raw materials like iron ore and coal, which helps reduce production costs.

The company currently has a total annual installed capacity of 17 lakh metric tons. As of FY24, it had a market share of around 2 per cent in the domestic ERW pipe market by sales volume.

Strengths of Sambhv Steel Tubes

• Backward integration: Sambhv Steel is the only ERW pipe and tube manufacturer with a single-location, backward integrated manufacturing facility in India. This facility produces sponge iron, HR coils, and stainless steel coils, enabling the company to reduce raw material procurement and inventory costs.

Weaknesses of Sambhv Steel Tubes

• High distributor concentration: The company largely depends on distributors for sale of its finished products. For the nine months ending December 2024, the top 10 distributors contributed nearly 52 per cent to revenue. A loss of any of these key distributors can sharply affect its operations.
• Cyclicality: The steel industry is highly cyclical in nature. The pricing in the industry is subject to market demand and global economic conditions. Fluctuations in industry dynamics including steel prices risks materially affecting the company’s business and operations.

Risk report

Company and business

• Will the company be able to scale up its business?

Yes. The demand for domestic steel pipes and tubes is expected to grow 9 per cent per annum by FY29, led by government spending to augment urban infrastructure and to support the oil and gas sector. These tailwinds will allow the company to scale up its business.

• Does the company have recognisable brands with client stickiness?

No. It operates in a highly-commoditised market with no differentiation.

• Does the company have a credible moat?

No. Sambhv Steel operates in a highly competitive Indian steel industry and competes with established players like APL Apollo Tubes, Hariom Pipe, Hi-Tech Pipes, etc.

Financials

• Was the company's operating cash flow positive during the last three years?

Yes. It reported positive cash flow from operations in each of the last three years.

• Is the company free from reliance on huge working capital for day-to-day affairs?

No. Sambhv Steel Tubes has a long working capital cycle of nearly two months due to its high inventory days of around 70 days.

• Can the company run its business without relying on external funding in the next three years?

No. Although Sambhv Steel is operating cash flow positive and raising money to repay borrowings, it currently has significant debt on its books (its net debt to equity ratio was 1.3 times as of December 2024). The company itself stated in the offer document that it may have to rely on external funding going forward due to the capital intensive nature of the business.

Assessing an IPO requires a careful evaluation of a company's strengths, weaknesses, and growth potential, just like we've outlined for Sambhv Steel Tubes. But wealth creation can only be achieved through a well-researched, balanced stock portfolio.

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Disclaimer: This story is not a stock recommendation. Investors should do their due diligence before investing.

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