Scoda Tubes IPO - Price Band, Issue Details, Financials, Peer Comparison, Risks - Read Anand Rathi's Analysis

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Anand Rathi Report

Scoda Tubes Ltd. IPO has opened today for subscription and the offer closes on May 30. The Ahmedabad-based manufacturer and marketing of stainless-steel tubes and pipes has fixed the price band in the range of Rs 130 to Rs 140 per share.

The share of Scoda Tubes will list on both NSE and BSE. The investors can place bids starting from a minimum of 100 shares and in multiples thereafter.

The Rs 220 crore IPO comprises only of fresh issue with no component of offer-for-sale.

Objects of the Issue

• Capex towards expanding production capacity of seamless and welded Pipes and tubes.

• Funding incremental working capital & General purpose.

Valuation & outlook

Scoda Tubes is involved in the manufacturing and marketing of stainless-steel tubes and pipes since 14 years. A key differentiator in Scoda Tubes’ manufacturing process is its hot piercing mill, which is utilized for the production of mother hollows the primary raw material used in the manufacture of stainless steel seamless tubes.

The company leverages a modern manufacturing process that enables cost-effective production, enhancing operational efficiency. It has an order book worth Rs 130 crore on hand. Rising demand across the industries bodes well. This being capital intensive segment, surplus working capital availability post IPO and the completion of proposed expansion will further improve its top and bottom lines going forward.

On valuation parse, based on annualised FY25 it is seeking PE of 25.2 times, FY24 earnings PE stands at 45.9 times and post issue market cap comes at Rs 8,387 million with this the issue is fully priced.

We believe that company’s key differentiator is its manufacturing process of its crucial raw material which enables backward integration, enabling Scoda Tubes to exercise greater control over production costs, reduce dependence on third-party suppliers, and improve overall operational efficiency.

As the issue is fully priced we give “Subscribe for long term” rating for the issue.

Key Risks

Customer Concentration Risk– Company’s business is primarily concentrated among its top 10 customers. A loss or significant reduction in orders from any of these key customers, particularly the largest one, could materially impact the company’s business performance and financial health.

Dependence on Stockist Network– Business relies on a network of stockists, including exclusive partners in Maharashtra (India) and the United States, for the sale and distribution of its products. Any disruption, termination, or underperformance in these arrangements could adversely impact the company’s business operations and financial performance.

Raw Material Dependency Risk– Company’s business and profitability are closely tied to the availability and cost of raw materials, sourced primarily from third-party suppliers. Any supply disruptions or price volatility could adversely affect the company’s operations and financial performance.

Capital Expenditure Risk- Ongoing capital expenditure towards welded pipes, despite low capacity utilization, may not yield a proportional increase in revenue, potentially impacting returns on investment.

Working Capital and Market Responsiveness Risk- Scoda Tubes operates with prolonged working capital cycles and an extended cash conversion period. Inability to adapt swiftly to market demand and customer preferences could adversely impact its operations, cash flows, and financial performance.

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