Sambhv Steel IPO: A Look At Key Strengths, Financials And Opportunities

The initial public offering of Sambhv Steel opened on Wednesday. This ₹540-crore issue, combining a fresh issue of shares and an offer-for-sale, aims to capitalise on the company's strong position in the steel pipe manufacturing sector. Here's a look at the company's current position in the market and the future focus areas.

What sets Sambhv Steel apart was its position as the only player in India to manufacture narrow-width hot roll coil with backward integration capability. This strategic advantage came from its operations mainly in Chhattisgarh and Odisha. The iron ore pellets are sourced from Godawari Power, Sarda Energy and other suppliers like Shyam Metalics, enabling it to produce its own hot roll coils.

The current stable coal prices give a positive outlook given the company's reliance on external coal rather than captive mining. This, with the backward integration in HR coil, is a substantial positive, insulating it from market fluctuations that could impact competitors. The company also sells sponge iron as part of revenue from operations apart from captive uses, with sale of sponge iron accounting for 21.50% of revenue in the financial year 2024.

Sambhv Steel manufactured a diverse range of ERW steel pipes and structural tubes. Its products are used in critical applications across various sectors, including housing, automobiles, telecommunications, and solar energy, showcasing the breadth of market reach. This strong brand establishment in north and west India allowed it to consistently match competitors' pricing.

The company expects its earnings before interest, taxes, depreciation and amortisation (EBITDA) margins to remain stable in the range of 12-13% in the near future for next 1-2 years, which implies that the profit growth would be led by growth in revenue and volumes.

Looking ahead, Sambhv Steel identified galvanized pipes as a key driver for future growth. These specialised pipes and tubes were essential in highly corrosive environments, particularly in segments like raw water supply to rural areas. With galvanized pipes accounting for 4-4.5 MT of the 12.3 MT total steel pipes demand in FY24, this segment presents a significant opportunity for the company.