Vraj Iron & Steel hits 5% upper circuit after listing at 16% premium; should you buy?

Vraj Iron & Steel made a decent debut on Wednesday, July 3, listing at ₹240 apiece on both BSE and NSE, a premium of 15.94 percent from its IPO price of ₹207. Although it fell short of listing gain expectations, the stock witnessed follow-up buying to hit its 5 percent upper circuit limit at ₹251.95, achieving a 21.7 percent overall gain over the issue price.

"Vraj Iron & Steel has debuted at Rs. 241, i.e., +16% above its issue price, and received a good listing. A manufacturer of Spong Iron, M.S. Billets, and TMT bars. The company's financial performance paints a positive picture. Vraj Iron & Steel has a proven track record of consistent profitability over the past three years, demonstrating its ability to generate healthy returns," said Shivani Nyati, Head of Wealth, Swastika Investmart Ltd.

However, Nyati also warned that investors should acknowledge certain risks, such as the concentration of manufacturing facilities in a single region and the lack of long-term customer contracts. The steel industry's inherent competitiveness is another factor to consider. Despite these considerations, the IPO's P/E valuation of 9.48x appears reasonable. Considering these factors and the current market sentiment, Nyati has maintained a buying rating for a stop loss of ₹240 and a target of over ₹300.

The ₹171 crore IPO was open for subscription between June 26 and June 28. The issue was entirely a fresh share sale of ₹82,60,870 equity shares with no offer for sale component. The IPO of Vraj Iron and Steel was offered at a price range of ₹195-207 per share, with a lot size of 72 shares. The company intends to utilise the IPO proceeds for general corporate purposes and an expansion project at its Bilaspur site.

Supported by strong institutional investor interest, Vraj Iron and Steel's IPO was subscribed 119 times on its final bidding day, Friday, June 28. The non-institutional investor quota saw 208.81 times subscriptions, while the QIB (qualified institutional buyers) portion received 163.90 times subscriptions. The retail investor category had 54.93 times subscriptions. Additionally, on June 25, Vraj Iron and Steel announced it raised slightly over ₹51 crore from anchor investors.

Incorporated in June 2004, Vraj Iron and Steel manufactures Sponge Iron, MS Billets, and TMT bars under the Vraj brand. Its product portfolio includes Sponge Irons, TMT Bars, MS Billets, and by-products like Dolochar, Pellets, and Pig Iron, catering to both industrial customers and end-users.

During the IPO process, brokerage firms were largely positive, recommending investors to subscribe. Aryaman Financial Services acted as the book-running lead manager, with Bigshare Services serving as the registrar.