Aditya Ultra Steel has launched its Initial Public Offering (IPO) to raise ₹45.88 Crores through a Book Built Issue, with the proceeds aimed at funding capital expenditure and working capital requirements. The company specializes in manufacturing TMT bars under the Kamdhenu brand, a key product used extensively in the construction industry and infrastructure development.

Subscription and Price Details

The Aditya Ultra Steel IPO subscription period opened on September 9, 2024, and closed on September 11, 2024. Investors were offered a price band of ₹59 to ₹62 per equity share, with a minimum investment of ₹124,000 for retail investors and ₹248,000 for High-Net-Worth Individuals (HNIs). The shares are expected to be listed on both BSE and NSE, with a tentative listing date of September 16, 2024.

The IPO garnered significant interest, closing with a subscription rate of 10.22x on its final day. This reflects high demand, especially within the non-institutional investor (NII) and retail segments, which typically focus on short-term listing gains. However, the absence of any anchor investors in the issue is noteworthy.

Grey Market Premium (GMP) Insights

As of the IPO close, the Grey Market Premium (GMP) for Aditya Ultra Steel IPO hovered between ₹6 and ₹10. While the GMP gives some indication of market sentiment, it is important to note that the grey market is unofficial and unregulated, providing a limited basis for assessing the actual market performance post-listing. Investors are advised to treat GMP data with caution and not base their decisions solely on these speculative premiums.

Company Financials

Aditya Ultra Steel’s financial performance has been steadily improving over the last three fiscal years. In FY24, the company recorded revenues of ₹58,856.29 Lakhs, a rise from ₹53,048.91 Lakhs in FY23 and ₹51,598.34 Lakhs in FY22. The company’s EBITDA also grew to ₹1,801.39 Lakhs in FY24, showing recovery after a slight dip to ₹986.79 Lakhs in FY23 from ₹1,091.53 Lakhs in FY22. The Profit After Tax (PAT) jumped significantly in FY24 to ₹792.34 Lakhs, up from ₹277.66 Lakhs in FY23, further cementing the company's profit growth trajectory.

Aditya Ultra Steel's pre-issue Earnings Per Share (EPS) stood at ₹4.62, with a Price-to-Earnings (P/E) ratio of 13.41x. Post-issue, these numbers are expected to adjust to a P/E ratio of 19.43x. While the steel industry average P/E ratio sits at 20.61x, Aditya Ultra Steel’s IPO valuation is relatively competitive. Moreover, the company's Return on Capital Employed (ROCE) and Return on Equity (ROE) figures for FY24 were recorded at 18.75% and 23.92%, respectively, which are quite robust.

IPO Allotment and Listing Dates

The IPO allotment process is expected to be finalized on September 12, 2024, with shares being credited to investors' Demat accounts by September 15, 2024. To check the status of your allotment, you can follow these steps:

Visit the registrar's website and select Aditya Ultra Steel IPO from the dropdown.

Input your application number, PAN, or Demat account details to verify the allotment status.

You can also track your allotment via your broker's platform or through the NSE and BSE websites.

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Use of IPO Proceeds

The company plans to utilize the proceeds from the IPO for the following purposes:

₹1,535.00 Lakhs for capital expenditure to upgrade and expand its manufacturing facilities.

₹1,535.00 Lakhs to meet working capital requirements, essential for sustaining its current growth rate.

A portion of the funds will be used for general corporate purposes and to cover the public issue expenses.

These investments will help the company enhance its operational capacity and cater to the rising demand for TMT bars in the construction and infrastructure sectors. However, investors should note that while the growth prospects are solid, much will depend on the broader market conditions and the steel industry’s performance over the next few years.

Review and Investment Recommendation

While Aditya Ultra Steel's financial metrics—including revenue growth, profitability, and return ratios—present a positive picture, there are several factors to consider. The relatively high valuation, combined with the modest Grey Market Premium, suggests limited listing gains. In addition, the steel sector is often subject to cyclical fluctuations, driven by global demand-supply dynamics and commodity price volatility.

Given these factors, our recommendation is to avoid the IPO for listing gains. For long-term investors, while the company’s fundamentals look sound, one should keep in mind the risks associated with the industry and monitor the company’s ability to sustain growth post-IPO.

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Conclusion

Aditya Ultra Steel’s IPO provides an opportunity for investors looking to diversify into the steel manufacturing sector, specifically in TMT bars, which cater to the growing construction and infrastructure development markets. However, caution is advised given the relatively high valuations and the uncertain grey market sentiment. Retail and HNI investors should weigh the pros and cons carefully before making any decisions.

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