Is Sambhv Steel Tubes’ IPO a risky bet for investors?

ET Intelligence Group: Sambhv Steel Tubes plans to raise ₹400 crore through fresh equity to repay debt and ₹100 crore through an OFS. The promoter group's stake will dilute to 56% after listing from 71.9%. Its backward integration and diverse product applications give a competitive edge. Yet, execution remains critical. Investors having a high risk appetite, and comfortable with cyclical sectors and a medium- to long-term outlook may consider the IPO.

Business

Sambhv makes electric resistance welded (ERW) steel pipes and structural tubes, with an installed capacity at Chhattisgarh growing to 1.7 million metric tonnes per annum (MMTPA) in March 2025 from 1.1 (MMTPA) in March 2024. It will install 1.2 MMTPA in 3 phases with phase I due by FY27. This aligns with an industry outlook, as domestic steel pipe demand is expected to grow 8-9% between FY25 and FY29, as per Crisil report.

Financials
The company has shown a steady revenue growth, with income rising to ₹1,289.3 crore in FY24 from ₹820.7 crore in FY22. Net profit increased to ₹82.4 crore in FY24 from ₹60.4 crore in FY23 though it remained below ₹72 crore in FY22.

It plans to use ₹390 crore of fresh issue proceeds to reduce borrowings from ₹554.6 crore as of April 30, 2025. The company's debt-equity ratio dropped to 0.8 in FY24 from 1.6 in FY22. Ebitda margin declined to 12.4% in FY24 from 15.2% in FY22. The return on equity fell to 25.4% from 63.7% while trade receivable days surged to 37 days from 7 days during the period.

Valuation
The company's debt reduction initiative is a plus, and the industry outlook is favourable. The IPO is priced at a price-earnings (P/E) multiple of 44.5 while peers trade at price-earnings between 10 and 68.