Venus Pipe Fundamental Analysis: Paving the Way to Success

Summary

Venus Pipe, a dynamic manufacturing company, is thriving with impressive financial performance and a diverse product portfolio. Its recent financial highlights include substantial revenue and profit growth, setting the stage for ambitious future goals, though an increased debt level presents a potential investment risk.

Introduction

In the realm of manufacturing and supply, Venus Pipe, a dynamic and innovative company, has been making waves with its exceptional performance and ambitious growth plans. This fundamental analysis delves into the company's recent achievements, its role as a proxy play for India's manufacturing progress, and the highlights from its con call.

About the Company

Venus Pipe specializes in the manufacturing and supply of a wide range of pipes, including stainless steel, carbon steel, and alloy steel pipes. With an impressive global reach, the company prides itself on delivering its products to more than 25 countries across the world.

Product Portfolio

The company offers a diverse product portfolio that includes stainless steel high precision and heat exchanger tubes, hydraulic and instrumentation tubes, seamless pipes, welded pipes, and box pipes. These products cater to various industries, such as chemical, engineering, pharmaceutical, power, food processing, paper, oil & gas, and aerospace.

End User Industries 

Clientele

Venus Pipe boasts an extensive and prestigious clientele, including Asian Paints, Tata, JK Paper, L&T, Cipla, BHEL, Adani, Aarti Industries, Coromandel, Bharat Petroleum, Godrej, ITC Ltd., and many more.

Manufacturing Facilities

The company operates one manufacturing plant located on the Bhuj-Bhachau highway in Gujarat, with a capacity of 10,800 metric tons per annum. Typically operating at around 90% utilization, the plant is equipped with storage facilities for raw materials and finished products.

Industry Growth Drivers

Venus Pipe operates in industries with robust growth drivers. There is a strong demand for pipes and tubes in the chemical, pharmaceutical, and engineering sectors. The chemical industry is expected to grow to USD 300 billion by 2025 at a 9% annual rate, and the Indian pharmaceutical industry aims to achieve an INR 7,840 billion turnover with a 10% CAGR by 2030. Government schemes in sectors like Oil & Gas, Pharmaceuticals, and Chemicals are poised to boost the demand for steel pipes and tubes in India.

Financials

Operating Profit is consistently improving along with 11x increase in PAT.

Debt to equity of Venus Pipes is managable, there is no issue with respect to debt.

Q2FY24 Financial Highlights

The company's Q2FY24 financial performance is nothing short of impressive:

- Revenue stood at ₹191 Crores, showing a 6.1% QoQ increase and an astonishing 51.58% YoY growth.
- Profit After Tax (PAT) increased to ₹20 Crores, up by 17.64% QoQ and an impressive 100% YoY.
- Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) reached ₹71.5 Crores, marking a 39% YoY increase.
- Earnings Per Share (EPS) surged to ₹9.98, a 16.31% QoQ increase and a remarkable 94.92% YoY growth.
- Operating Profit Margin (OPM) showed significant improvement, reaching 18%, compared to 12% in the same period last year.

Q2FY24 Con Call Highlights

Financial Performance

Venus Pipes reported a strong Q2 FY2024 performance, achieving record-high revenue and margins. Notably, 15% of the Q2 FY2024 revenue is primarily derived from exporting seamless pipes. However, it's worth mentioning that the company's debt increased from ₹90 Crores to ₹145 Crores, mainly due to the prior tube mill expansion project, which added approximately ₹13-14 Crores to the debt.

Capacity Expansion & Backward Integration

The company's order book currently stands at ₹210 Crores, with the expansion of a 400 metric tons per month (MTM) seamless pipe capacity on track, expected to be completed by Q4 FY2024. Backward integration has played a crucial role in enhancing product acceptance in Europe and reducing the reliance on raw material imports. The expansion is anticipated to boost profit margins and address the growing export demand. The company has also established a piercing line for manufacturing mother hollow pipes, positioning itself to meet increased demand.

Volume and Revenue Growth

In terms of volume and revenue growth, seamless pipes have experienced an impressive growth rate of over 100%, while welded pipes have shown growth in the high teens. Specifically:

- Seamless pipes grew by 153%.
- Welded pipes grew by 1%.

Capex & Infrastructure Projects

The pipes and tubes industry is capitalizing on the capex cycle and infrastructure development. [Venus Pipe] tripled its capacity in India, increasing it from 12,000 MTA to 33,600 MTA.

Location Advantages

Venus Pipe's strategic location near Kandla and Mundra ports provides significant advantages for import and export, further enhancing its position in the market.

Future Outlook

Looking ahead, Venus Pipe has set ambitious goals for itself. The company aims to achieve a 35% Compound Annual Growth Rate (CAGR) in FY2024 and FY2025, with additional growth of 15-20% in the following years. It also aspires to realize a 40-50% EBITDA margin increase for seamless pipes and a 15-20% improvement for welded pipes. The company is actively acquiring new clients from sectors such as oil and gas, chemicals, pharmaceuticals, railways, and more.

Board & Management

Analysis

Since the company is available at very cheap valuations of 45x PE and with such growing potential. With the Government push from various incentives and a strong client base with such a company, there is a lot enough room available with the company. 

Company is also expecting 35% CAGR in FY24 and 25, showing the strength of management and the future visibility of the profitability of the comapny. With increasing capex, there is enough potential to increase the revenue and PAT. Company is also planning to expand SKUs, that will also help in improvement of margins and increasing the operational profitability going forward.

Looking forward, this company is a potential to gain the market share and expand geographically.

Conclusion

Venus Pipes is a shining example of a company that has harnessed the potential of the manufacturing and supply industry. With a commitment to excellence, strategic expansion plans, and a keen eye on future opportunities, the company is poised for continued success. However, potential investors should be mindful of the debt increase and consider the associated risks before making investment decisions.