HariOm Pipe IPO has opened for subscription and is scheduled to close on 5 April 2022. The company makes Mild Steel (MS) pipes and scaffoldings of more than 150 different specifications. HariOm IPO Review is aimed at bringing readers up to the speed with regards to the company’s business, strengths and valuation.
HariOm Pipe IPO Review – Strengths
- Integrated operations – all intermediate products such as Sponge Iron, MS Billets and HR Strips are produced in-house.
- Strategic location of manufacturing units – Unit I is nearly 70 km from Hyderabad, Unit II is 18 km from Bellary which is a major iron ore production hub.
- Lower manufacturing costs
- Competitive pricing of products
HariOm Pipe IPO Analysis – Risk Factors
- No long-term agreements with suppliers for raw materials or customers for end products
- Excessive reliance on big customers. Top-10 customer accounted for 62.4% of revenues in H1 FY2022.
- Volatile and cyclical nature of the industry
- Negative cashflows in recent years
- Certain contingent liabilities have not been provided for in its financials
HariOm Pipe IPO Analysis – Financial Performance
| Â | FY2019 | FY2020 | FY2021 | H1 FY2022 |
| Revenue | 133.9 | 161.1 | 254.8 | 211.2 |
| Expenses | 122.3 | 149.8 | 233.6 | 183.5 |
| Net income | 8.0 | 7.9 | 15.1 | 12.9 |
| Net margin (%) | 6.0 | 4.9 | 5.9 | 6.1 |
HariOm Pipe Valuations & Margins
| FY2019 | FY2020 | FY2021 | |
| EPS | 7.34 | 5.93 | 9.80 |
| PE ratio | NA | NA | 14.69 – 15.61 |
| RONW (%) | 22.22 | 16.37 | 21.38 |
| ROCE (%) | 22.44 | 24.77 | 27.41 |
| EBITDA (%) | 12.95 | 14.81 | 13.72 |
| Debt/Equity | 1.55 | 1.41 | 1.13 |
| NAV | (242.50) | 36.50 | 49.79 |
HariOm Pipe IPO Review – Subscribe or Avoid?
As mentioned above, the company caters to various sectors including housing, infrastructure, agriculture, automotive, power, cement and mining. The IPO is a small one, seeking only INR130 crore by issuing fresh shares. Out of this, INR50 crore are earmarked for funding capital expenditure while another INR40 crore are slated to go towards funding working capital requirements.
HariOm Pipe has several advantages to its credit, including the ones mentioned above. Its integrated operations and proximity to raw material sourcing locations allow it to price its products competitively and gain market share. While the company is currently a regional player focusing on southern parts of India, it has aspirations to expand in nearby geographies.
However, there are no indications of desperation on the part of the company and it recognises its limitations in terms of geographical expansion. Therefore, it plans to expand only in the geographies where it is able to effectively offset the transportation costs. Similarly, there are plans to expand manufacturing capacity as well as product range in order to get better margins and wider market acceptance.
In terms of financial performance, the company has demonstrated robust uptick in sales and profits. It has also demonstrated consistently high return ratios and a decline in debt equity ratio. Its EBITDA margins in the last 3 years have been north of 12%, indicating superb cost control. The IPO pricing translates into a PE ratio of 15.6 at the upper end of the price range. This is lower than its competitors including APL Apollo Tubes, Hi-Tech Pipes, Rama Steel Tubes and is higher only to JTL Infra. Its return on net worth of 21.4% is better than all of four competitors mentioned above.
Since metals are cyclical in nature, any investment in this sector needs to be made after understanding the risks. However, there still appears to be industry tailwinds left for the industry in the ongoing inflationary environment. Considering the industry setup and the internal strengths demonstrated by HariOm Pipe Industries, it appears to be a decent bet on a small company with a long runway of growth.
HariOm Pipe IPO Review – Broker Calls
Angel One –
Arihant Capital –
Ashika Research –
Asit C Mehta –
BP Wealth –
Canara Bank Securities – Subscribe
Choice Broking – Subscribe with caution
Elite Wealth – Avoid
GEPL Capital – Subscribe
Hem Securities – Subscribe
ICICIdirect –
KR Choksey –
Marwadi Financial Services –
Motilal Oswal –
Nirmal Bang –
Religare Broking –
Samco Securities – Subscribe with caution
Share India Securities –
SMC Global – 2/5
Systematix –
Ventura Securities – Subscribe
