Surani Steel Tubes Limited

Started in 2012, Gujarat based Surani Steel Tubes Limited is a company engaged in the business of manufacturing of Electric Resistance Welding Mild Steel ("ERW MS") Pipes. The company's products are used in many industries like Architectural, Infrastructural, Industrial and Engineering etc. Surani majorly relies on its dealer network to sell its products. As on March 31, 2018, it has arrangements/understanding with more than 300 dealers spread across Gujarat. Selling of scraps also contributes to its revenue. Surani Steel is ISO 9001: 2015 certified for manufacturing and Supply of ERW pipes. The company's manufacturing plant is located at Dahegam, Gandhinagar in Gujarat. The plant has installed capacity of 25,000 MT p.a. Surani is setting up a new manufacturing facility at Dahegam, Gandhinagar to increase its product range. The company has 52 employees on its payroll across various functions. As per financial performance front, Surani Steel has posted total income/net profits of Rs. 36.00 cr. / Rs. -(0.03) cr. (FY14), Rs. 58.14 cr. / Rs. 0.16 cr. (FY15), Rs. 68.46 cr. / Rs. 1.09 cr. (FY16), Rs. 76.70 cr. / Rs. 0.99 cr. (FY17) and Rs. 100.80 cr. / Rs. 1.72 cr. (FY18). For FY19 upto 31.07.18, it has posted net profit of Rs. 0.41 cr. on a turnover of Rs. 36.14 cr. For last three fiscals, it has posted an average EPS of Rs. 2.75 and an average RoNW of 20.33%. Issue is priced at a P/BV of 2.79 on the basis of its NAV of Rs. 18.65 as on 31.07.18. If we annualise FY19 upto 31.07.18 earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 34, which looks very aggressively priced as industry average is 18. As per offer documents, Rama Steel Tubes Limited, Hi-Tech Pipes Limited and APL Apollo Tubes Limited are listed peers with P/E ration of 14.71, 14.29 and 25.38 respectively. On BRLM's front, for Pantomath Capital Advisors Private Limited this is the 76th IPO in last three fiscals and from last 10 IPOs, all opened above issue price with 1% to 8% premium on the day of listing. As of now, from last 10 IPOs, 3 are trading below issue price and remaining above issue price. ( As on 22.01.19 ) Company's financial performance is good, but bottom line remained zig-zag, RoNW is 16.56% for last three fiscals and issue looks aggressively priced.  Performance of BRLM is good. We may get some better options in secondary market with much cheaper valuations. So we give AVOID rating to this SME IPO.

• 1 Mr. Mukesh Patel
• 2 Mr. Dinesh Patel
• 3 Mr. Karshan Patel
• 4 Mr. Prakash Patel
• 5 Mr. Mani Patel
• 6 Prakash Karsanbhai Patel HUF
• 7 Karsanbhai Devjibhai Patel HUF