Vraj Iron and Steel IPO booked 3.47x on first bidding day. 10 key risks investors should know before investing

Vraj Iron and Steel IPO subscription status: With a full subscription on the first day of bidding, Vraj Iron and Steel Ltd's initial public offering is off to a terrific start. The Sensex, Bank Nifty, and Nifty 50 have all reached all-time highs, which seems to have also helped the Vraj Iron and Steel IPO apart from other fundamental factors, where the retail component was snapped up within hours of opening, followed by non-institutional investors. Vraj Iron and Steel IPO subscription status is 3.47 times, as per BSE data.

The initial share sale got bids for 2,12,84,928 shares against 61,38,462 shares on offer, according to BSE data.

Also Read: Vraj Iron and Steel IPO: GMP, subscription status, price, review, other details. Buy or not?

The portion for retail individual investors received 5.07 times subscription while the category for non-institutional investors got subscribed 3.53 times. Qualified institutional buyers (QIBs) was booked 61%.

A day before its initial share sale opened for public subscription, Vraj Iron and Steel stated on Tuesday that it had secured slightly more than ₹51 crore from anchor investors.

The ₹171-crore IPO is an entirely fresh equity share issue without any component of an offer-for-sale. 

On June 26 and 28, shares will be available for public subscription at a price per share between ₹195 and ₹207.

The company intends to use the revenues from the IPO for general corporate purposes and expansion initiatives at the Bilaspur site.

Also Read: Vraj Iron and Steel IPO: Steel maker raises ₹51.29 crore from anchor investors ahead of public issue

Under the Vraj brand, the firm produces sponge iron, M.S. Billets, and TMT bars. The firm now employs 52.93 acres of space across two industrial facilities, Raipur and Bilaspur in Chhattisgarh. As of December 31, 2023, the company's production facility in Raipur additionally has a captive power plant with an aggregate installed capacity of 5 MW.

Here are some of the key risks listed by the company in its Red-Herring Prospectus (RHP):

Vraj Iron and Steel IPO: Key Risks

• The company's two current manufacturing sites are located in the same area of Chhattisgarh, specifically in Raipur and Bilaspur. Furthermore, the company face concerns relating to geographical concentration because their expansion project is also being conducted in Bilaspur, Chhattisgarh.
• Selling the company's steel products, such as TMT Bars, MS Billets, sponge iron, and other related goods, generates 100% of their income. The iron and steel sector is prone to frequent fluctuations in pricing and demand, which are often cyclical in nature. Their business, operational outcomes, future prospects, and financial situation might all be significantly harmed by a drop in steel prices.
• The firm may continue to have negative cash flows in the future as it has recently had negative cash flows from financing, investing, and operating. The table below shows the company's net cash flow for the specified period (or years).
• The Net Proceeds of the Issue would be used to finance the ₹1,295 million in capital expenditures needed for the "Expansion Project" in Bilaspur. Therefore, the business hasn't made any further plans for the same. Any failure to raise or achieve the same might have a negative impact on their operations, financial performance, and expansion goals.
• The firm has already spent ₹1,020 million of the ₹1,645 million total capital expenditure for the expansion project as of June 3, 2024. Regarding the ₹625 million that would be spent on the Expansion Project, the corporation has not yet placed any orders or paid any money. Time and expense overruns may arise from any delay in making the orders, from the vendors' failure to deliver the plant and machinery, or from their failure to finish the civil and associated works etc. on time or at all.

Also Read: Vraj Iron and Steel IPO: Price band set at 195-207 per share; check details here

• The company's operating results and financial situation may suffer if its expansion project, which includes a captive power plant, is not implemented effectively.
• The firm does not have long-term contracts with its clients, and the top 10 (ten) clients account for a sizable amount of its income. The loss of one or more of these clients, or a large decline in the money they get in from them, would materially harm their operations, financial situation, and company.
• With regard to the financing the company obtained, their lenders have custody of both their moveable and immovable goods. The company's operations, financial flows, and business might all suffer if they are unable to fulfill their debt financing requirements.
• After the Issue, the company's promoters will still own a majority of the company's shares, giving them considerable control over the business.
• Their operations, cash flows, profitability, and financial situation might all suffer from an inadequate or interrupted supply of raw materials and price fluctuations.

Also Read: Vraj Iron and Steel IPO opens tomorrow: GMP, issue details, 10 key things to know

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