Shankara Infrastructure to raise second round of private equity

Reliance eyes part exit from this round

Shankara Infrastructure, the Bangalore-based privately-held company specialising in manufacturing steel tubes, is understood to be looking to raise its second round of private equity to the extent of $20 million. The company had during 2011 raised around Rs 80 crore from Reliance Alternative Investment Fund. It is understood that in this second round of fund raise, the Anil Ambani-owned private equity fund may look to exit partially.

Started in 1995 as Shankara Pipes, the company is expected to post revenues of Rs 1,800 crore and operating profits of around Rs 100 crore for the present fiscal. The management of Shankara Infrastructure offered not to comment on the possibility of the second round of fund raise stating it is too premature.

The company has since over the past few years been consolidating its position as a large distributor of steel pipes/tubes with an established presence in South India, extensive retail network, diversified customer base, established relations with key suppliers and the wide range of products distributed spanning branded and non-branded steel pipes/tubes.

However, according to the credit rating agency ICRA, the diversification into the retailing and manufacturing segments has resulted in deterioration of the capital structure given that the increased working capital requirement arising out of expansion has been largely debt-funded.

"Besides, high working capital intensity of the business coupled with topline growth, resulted in negative funds flow from operation in FY12 and dependence on borrowings to fund the same resulted in a moderately high level of leveraging," ICRA said.

Shankara Infrastructure has 21 distribution outlets and 41 retail outlets presently in the states of Karnataka, Tamil Nadu, Andhra Pradesh, Kerala, Goa, Maharashtra, Orissa, Gujarat and Madhya Pradesh.

The company subsequently forayed into manufacturing by setting up a 12,000 TPA (tonnage per annum) steel tube plant in 2008-09 in Hyderabad. Further a 75,000 TPA plant had been commissioned in Hyderabad in June 2011. SIML also owns 100 per cent stake in 'Vishal Precision Steel Tubes and Strips Pvt. Ltd (Vishal)' which is a manufacturer of steel pipes & other steel products and operates out of a 36,000 TPA plant in Hosekote, Bangalore.

According to HDFC Securities, the Indian plumbing industry is estimated at around Rs 17,000 crore and is growing at a CAGR of 15 per cent. While galvanised iron (GI) pipes account for 41 per cent of the market, 53 per cent is for the PVC pipes, while around 4 per cent of the market is for CPVC pipes.

"CPVC is still a very underrated product in India due to preconceived notions of the Indian public. In reality, CPVC pipes are as good as GI/PVC pipes and in some aspects such as life, fire resistance and corrosion proof even better. GI pipes are steel pipes coated with zinc. PVC pipes are made of plastic and vinyl. CPVC pipes are made of CPVC resin, which is a value-add of PVC," HDFC Securities noted.