Bansal Wire IPO: Should you subscribe to it? Know all about it here

The IPO of Bansal Wire Industries Limited, which manufactures stainless steel wires, opens for subscription today and will remain till July 5th. The company aims to raise Rs 745 crore, all via fresh issue. The share's price band is set between Rs 243 and 256. But should you subscribe to this IPO? How are the financials of Bansal Wire Industries? What are the experts saying? Let's understand

About Bansal Wire Industries

Established in 1985, Bansal Wires operates primarily in three wire segments, namely high carbon steel wire, low-carbon steel wire (mild steel wire), and stainless steel wire. Catering to more than 5,000 customers across various industries, the company produces over 3,000 different types of steel products. The company wants to utilize funds raised from IPO to repay all or certain potions of their loans, finance their work capital needs, and for other general corporate purposes. While the company's profit after tax for FY24 was Rs 78.8 crore, slightly up from Rs 59.93 crore in FY23, it also saw negative cash inflows from operating activities (Rs 536.93 crore) and investing activities (Rs 495.92 crore) in FY24.

With 86% of its production sold within India, North India continues to remain Bansal Wire's primary market. Amidst exports, 70% of revenue stems from US and Europe markets. Even though the company maintains a solid presence in 22 Indian states and 6 union territories, it generated about 65.61% of its FY22 revenue, and 67.78% of FY23 revenue exclusively from Delhi, Haryana, Uttar Pradesh and Maharashtra.

What are the risks?

In addition to having experienced negative cash flows in the recent past, the company also faces some serious risks, which include:

• Heavy reliance on top 10 suppliers for raw materials, given a slight disruption can impact business negatively.
  
• Hefty working capital requirements, which may need additional financing.
  
• Even though steel demand is correlated to GDP growth, the cyclical nature of steel segment can adversely impact the company's demand.
  
• All of company's manufacturing facilities are geographically concentrated in North India.
  
• The company has unsecured borrowings worth Rs 612.12 million, which can be recalled by creditors.
  
• The company has seen frequent changes in their statutory auditors over the last 2 fiscals, which makes them vulnerable to compliance risks.

How much can you invest?

50% of the IPO is allocated for Qualified Institutional Buyers (QIBs), while 35% has been set aside for non-institutional investors. 35% of the issue has been earmarked for retail investors. The minimum investment a retail investor can make is in 1 lot, or 58 shares, which are worth Rs 14,848. On the other hand, the maximum allowed investment for retailers is in 13 lots, or 754 shares, which would come to Rs 1,93,024. The allotments will be finalised by 8th July, with listing on NSE and BSE scheduled for 10th July, 2024.

What are the experts saying?

According to Swastika Investmart, "The company offers a favorable mix of high-volume and higher-margin
products, contributing to a stable and consistent margin profile. Bansal Wire's financial performance has been positive, demonstrating consistent growth in both revenue and profitability. However, some key risks require careful consideration. The company's operations are susceptible to fluctuations in raw material supply and costs due to the inherent volatility of the steel market. Also, the steel wire industry is highly competitive and fragmented, presenting challenges for market share expansion".

"The IPO is priced at a P/E ratio of 41.41x, which appears on the higher end. Considering both the company's strengths and potential risks, we recommend this IPO only for investors with a high-risk tolerance", it continued.

Mastertrust broking and investments recommends subscribing to the IPO, only for listing gains, calling the IPO fairly valued as compared to its peers."The company is looking to raise funds to pay off its debt in its own company as well as infuse funds into its subsidiary for the same purpose, and the balance funds will be used to fund the working capital for growth. The company will become virtually debt free post this transaction and they are currently operating at 80% utilization on most of its facilities, indicating they have some room to grow", it notes.