Analysts 'neutral' on German Green Steel IPO despite attractive valuations

German Green Steel IPO Review: Analysts suggested observing German Green Steel's performance for one to two quarters post listing as the company is exposed to a highly cyclical industry.

German Green Steel IPO Review:  The initial public offer (IPO) of German Green Steel opened for subscription on Friday. The company is looking to raise ₹303.90 crore through the share sale to fund its expansion plans and debt repayment. 

 

Analysts suggested observing German Green Steel’s performance for one to two quarters post listing as the company is exposed to a highly cyclical industry. 

 

German Green Steel IPO review 

 

Despite attractive valuation and promising capacity expansion plans, analysts assigned a ‘Neutral’ rating to German Green Steel IPO as the company mostly deals in heavily cyclical steel and TMT bar industries, which usually experience high price volatility. 

 

 

German Green Steel is expanding its sponge iron capacity at the Samakhiyali facility to 1.49 million tons per annum (MTPA) from 66,000 MTPA, and MS Billets production capacity to 4.13 TPA from 2.15 TPA, respectively. The company is also in the process of expanding TMT bars production capacity to 3.37 MTPA from 1.82 MTPA, SBI Securities said. 

 

The vertical steel manufacturer is setting up a new hybrid wind-solar power plant with a total capacity of 25.2 megawatts in Bharuch district, Gujarat. Out of the total capacity, it has already commissioned a hybrid wind-solar plant of 16.2 megawatts. 

 

German Green Steel has started production of value-added products like cut and bend bars, and epoxy coated TMT bars. In the near future, the company is aiming to increase its presence in the value-added section and also strengthen its presence in the adjoining states of Rajasthan, Maharashtra, and in central India, beginning with Madhya Pradesh, SBI Securities said. 

 

The profit after tax (PAT) margins have improved to 4.8 per cent from 3.7 per cent between the financial years 2024 and 2026 (FY24-FY26). However, the return on net worth (RoNW) fell for three straight years because the equity base has grown faster than profit. The RoNW fell to 18.9 per cent from 23.7 per cent, Swastika said in a report.  

 

Valuation rationale

 

At the upper price band of ₹139, the issue is valued at an FY26 EV/EBITDA multiple of 6.4 times based on post-issue capital, which is at a discount to its listed peers, as per SBI Securities' estimates. The brokerage has assigned a ‘Neutral’ rating as it would track the performance of the company for a few quarters. 

 

“Priced at 8.85 times–9.32 times FY26 diluted EPS, a sharp discount to the industry average of 35 times — among the cheapest in the peer set,” said Swastika. For conservative investors, the brokerage suggested waiting for one-to-two quarters post-listing performance while assigning a ‘Neutral’ rating. 

 

Key risks 

 

RoNW and customer concentration pose risks, according to Swastika. Steel sector cyclicality also exposes German Green Steel’s earnings to demand and pricing swings.  

German Green Steel price band, lot size

German Green Steel set the price band at ₹132 to ₹139 for the IPO. Investors require a minimum investment amount of ₹14,873 to apply to the issue as the lot size is 107 shares. 

 

The book-build issue is a combination of fresh share sale worth ₹290 crore and an offer-for-sale (OFS) worth ₹13.90 crore. 

 

The IPO will close for subscription is on September 29.

 

German Green Steel IPO GMP 

 

The grey market premium of German Green Steel IPO was at ₹29, which indicated a listing price of ₹168 and a listing pop of 20.86 per cent. 

 

About German Green Steel 

German Green Steel is a vertically integrated iron and steel manufacturer with a focus on TMT bars. The primary presence is in Gujarat with two manufacturing facilities located at Samakhiyali and Viramgam.

 

Disclaimer: Views and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.