Sambhv Steel Tubes

• Sambhv Steel Tubes is coming out with a 100% book building; initial public offering (IPO) of 7,01,47,658 shares of Rs 10 each in a price band Rs 77-82 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on June 25, 2025 and will close on June 27, 2025.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 7.70 times of its face value on the lower side and 8.20 times on the higher side.
• Book running lead managers to the issue are Nuvama Wealth Management and Motilal Oswal Investment Advisors.
• Compliance Officer for the issue is Niraj Shrivastava.

Profile of the company

Sambhv Steel Tubes is one of the key manufacturers of electric resistance welded (ERW) steel pipes and structural tubes (hollow section) in India in terms of installed capacity as of March 31, 2024. Its backward integration processes allow it to manufacture a range of finished products including ERW black pipes and tubes (hollow section), pre-galvanized (GP) pipes, Cold Rolled Full Hard (CRFH) Pipes and galvanized iron (GI) pipes and steel door frames, using intermediate products such as sponge iron, blooms/slabs and hot rolled (HR) coil, cold rolled (CR) coil (mild steel) and GP coils which are manufactured in-house. It is one of the two players in India manufacturing ERW steel pipes and tubes (along with hollow section pipes and tubes) using narrow-width HR coil, as of December 31, 2024.

Its products are rust-resistant and tailored to meet specific market requirements, ensuring wide application across multiple sectors including housing and infrastructure, water transportation, agriculture, automobile, telecommunications, oil and gas, engineering, solar energy, fire-fighting systems, and for support structures of conveyors. It has a wide distribution network in India which extends across 15 states and one union territory as of December 31, 2024.

It is amongst a very limited number of players in India, manufacturing stainless steel coils with backward integration and currently has the capability of manufacturing stainless steel (SS) blooms/slabs which are captively consumed to produce HR coil, hot rolled annealed pickled (SS HRAP) coil and CR coil. It commenced its operations in 2018 with the manufacturing of sponge iron. In its seven-year journey, it has continuously moved towards manufacture of value-added products through its integrated set up.

Proceed is being used for:

• Pre-payment or scheduled re-payment of a portion of certain outstanding borrowings availed by the company
• General corporate purposes

Industry Overview

During the last 9-year period i.e., between CY 2014 and CY 2023, the global crude steel production grew at a nominal CAGR of 1.4%. Crude steel production has been largely rangebound over the past few years as it grew from 1,878 million tonnes in 2019 to 1,892 MT in 2023. China, which has been the largest steel producer in the world for a long period, produced 1,019 million tonnes of crude steel in 2023, accounting for approximately 54% of the total global crude steel production in the year. It was followed by India, which produced around 140 million tonnes of crude steel, accounting for a share of 7.4% in global crude steel production in 2023. Global steel demand is also estimated to have remained flat on-year in 2023, at 1,763 MT, on the back of persistent elevated inflation and high interest rates in most economies. However, in India, the demand for finished steel in fiscal 2024 increased by 13-14% on-year to 136.2 MT backed by strong growth in construction and infrastructure segment.

The domestic steel demand decreased in fiscal 2021 owing to pandemic led subdued demand in key end use sectors of steel. In fiscals 2022 and 2023, the domestic steel demand grew 11% and 13% on-year, respectively, on the account of pent-up demand in key end-use sectors after a pandemic-led slowdown in the previous fiscals, restoration of economic activities, and revival of consumer sentiments post pandemic. The demand for finished steel further increased by around 14% on-year in fiscal 2024 and by an estimated 12% on-year in fiscal 2025 primarily owing to a growth in automobile demand on the back of increased disposable income levels, a growth in housing and construction sector primarily led by government’s affordable housing schemes, and an increase in government led capital expenditure in the infrastructure segment, especially in the run-up to the 2024 general elections.

Demand for long steel and flat steel increased at respective estimated CAGRs of 12 and 14% between fiscals 2022 and 2025 due to robust growths in primary end use industries of both steel segments. In particular, the demand growth for flat steel was supported primarily by automobile and construction segments, while that for long steel was fuelled by strong infrastructure development sector. Going forward, the domestic steel demand is expected to log a healthy CAGR of 7-8% over fiscals 2025-30, to rise to 210-230 MT in fiscal 2030. This growth will be led by healthy growth prospects in the key steel end-use sectors of building and construction, infrastructure, and automobile, with a strong push from government’s national steel policy. 

Pros and strengths

A single location backward integrated facility in India: The company’s fully integrated manufacturing operations encompass production of intermediate products, namely sponge iron, mild steel blooms/slabs, HR coils, GP coils and CR Coils which are used primarily for captive consumption for manufacturing its final products, namely ERW black pipes and tubes (hollow section), CRFH Pipes, Corten Steel Pipes, GP pipes, GI pipes, steel door frames. It has also recently started manufacturing stainless steel such as blooms/slabs and HR coil, SS HRAP coils and CR Coils. Backward integration helps it in achieving operational efficiency, reducing product costs, controlling supply of raw materials, and monitoring the quality of its products, thus giving it a competitive advantage. Its integrated set up also reduces delivery timelines which allows it to service its customers faster, leads to higher operating margins and allows it to produce value added products.

Strategically located manufacturing plants resulting in operational efficiencies: The company’s manufacturing facilities are located in close proximity to its key raw material suppliers. It sources its iron ore requirements from a “Navratna” public sector undertaking (PSU) mining company’s mines, which are known for producing India’s highest grade of iron ore. This enables it to access directly reduced calibrated lump ore (DRCLO) grade iron ore as raw material for its products. Further, it sources its coal requirements from a “Maharatna” PSU through one of its highest coal producing subsidiary whose mines are Asia’s largest coal mines and are merely 250 kilometres from its Sarora (Tilda) Facility.

Strong process innovation and execution capabilities allowing it to produce value-added products: The company commenced its operations in 2018 with the manufacturing of sponge iron and has since then expanded its product offerings to include value added and customized pipe and tube products. Its innovation journey began with the manufacturing of narrow-width HR coils. It uses sponge iron or DRI as a feed in induction furnaces and as a substitute for steel scrap because high-quality scrap is costly and scarcely available. The induction furnaces convert steel scrap and sponge iron into liquid steel by induction heating. This liquid metal is further processed into blooms/slabs, narrow width HR coils and other products.

Wide-spread well connected distribution network across India: As of December 31, 2024, the company has 37 distinct distributors with two distributors distributing through six branches in 15 states and one union territory taking the total distributor network to 43. These distributors in turn distribute its finished products through over 700 dealers in India as of December 31, 2024. Its distribution network provides it with a competitive advantage over other players in the ERW steel pipes and structural tubes sector. Its distribution network and its marketing initiatives have resulted in effective outreach of its products to a wide network of retailers and fabricators.

Risks and concerns

Revenues are concentrated in north and west India: The company’s products were distributed by 37 distinct distributors with two distributors distributing through six branches in 15 states and one union territory taking the total distributor network to 43 in India and a major portion of sales value in the nine-month period ended December 31, 2024, in Fiscal 2024 and Fiscal 2023 came from north and west India, respectively. Due to the geographic concentration of the sale of its products, its operations are susceptible to local and regional factors, such as economic and weather conditions, adverse social and political events, natural disasters, demographic changes, and other unforeseen events and circumstances. Consequently, any significant social, political or economic disruption, natural calamities or civil disruptions in these regions, changes in policies of the State or local governments or the Government of India or adverse developments related to competition in these regions, may adversely affect its business, results of operations, financial condition and cash flows.

Business is dependent on certain key distributors and direct customers: The company depends largely on its distributors and direct customers to sell its finished products, i.e., ERW black pipes and tubes (hollow section), pre-galvanized (GP) pipes, GP coils, GI pipes, CRFH pipes, SS HRAP Coils and SS CR Coils. In addition to its distribution network, it also supplies its products through direct customers, including steel manufacturers and to construction and infrastructure companies and cater to government organizations and projects. A decrease in the revenue it earns from such key distributors and direct customers and an inability to expand or effectively manage its distributor network, or any disruptions in its distribution network could adversely affect its business, results of operations, profitability and margins, cash flows and financial condition.

Substantial working capital requirements: As the company’s business grows, its business requires a significant amount of working capital primarily due to cost of its raw materials and power and fuel requirements, and due to limited availability of credit lines for procurement of its raw materials. It has continuously expanded its Sarora (Tilda) Facility, recently commissioned its Kuthrel Facility and is also planning to commission a greenfield manufacturing facility in Village - Kesda, District Baloda Bazar Bhatapara, Chhattisgarh. During the course of such expansion, if its cash resources are insufficient to satisfy its cash requirements, it may seek to issue additional equity or debt securities or obtain new or expanded credit facilities. If it decides to raise additional funds through the incurrence of debt or issuance of debt securities or a combination of both, its interest and debt repayment obligations will increase, which could have a significant effect on its profitability and cash flows.

Steel industry is cyclical in nature: Steel prices fluctuate based on a number of factors, such as the availability and cost of raw material, steel demand, worldwide production and capacity, fluctuation in the volume of steel imports / exports, transportation costs and various social and political factors. Low steel prices adversely affect the results of operations of the industry, resulting in lower revenue and margins and write down of products and raw material inventories. Fluctuations in industry dynamics including the steel prices may materially and adversely affect its business, results of operations, profitability and margins, cash flows and financial condition.

Outlook

Sambhv Steel Tubes is a manufacturer of electric resistance welded (ERW) steel pipes and structural tubes (hollow section) in India. The company's manufacturing facility is located in Tilda, Raipur in the mineral-rich state of Chhattisgarh. It is the only single location backwards integrated facility in India. Its strong process innovation and execution capabilities are allowing it to produce value-added products. On the concern side, the company’s business is dependent on certain key distributors and direct customers. A decrease in the revenue it earns from such key distributors and direct customers could adversely affect its business, results of operations, profitability and margins, cash flows and financial condition. Moreover, the company’s revenues are concentrated in north and west India. Any adverse changes in the conditions affecting these regions may adversely impact its business, results of operations, profitability and margins, cash flows and financial condition.

The issue has been offering 7,01,47,658 shares in a price band of Rs 77-82 per equity share. The aggregate size of the offer is around Rs 540.14 crore to Rs 575.21 crore based on lower and upper price band respectively. Minimum application is to be made for 182 shares and in multiples thereon, thereafter. On performance front, the company’s revenue from operations increased by 37.19% to Rs 12,857.57 million in Fiscal 2024 from Rs 9,372.20 million in Fiscal 2023. Moreover, the company’s profit after tax for the year increased by 36.53% to Rs 824.39 million in Fiscal 2024 from Rs 603.83 million in Fiscal 2023.

The company intends to continue to expand its distribution network by leveraging its relationship with its existing distributors, while simultaneously pursuing opportunities to develop new relationships in new geographies by expanding its production capacities. With its capacity expansion plan, it expects to expand its reach to other Indian States while increasing the supply to existing States as well which will also improve product availability. To achieve this goal, it plans to increase the number of distributors which will ensure outreach of its products to a much larger pool of dealers, retailers and fabricators. Its sales and expansion strategy is tailored to state-wise distributor requirements based on analysis of market size, demand and target potential. Further, in addition to its distribution network, it also supplies its products directly to direct customers such as construction and infrastructure companies and government organizations and projects.