Rossari Biotech IPO review (May apply)

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Review By Dilip Davda on July 7, 2020

•    RBL is a leading specialty chemicals manufacturing company.
•    Its product range used by Home/Personal care, Poultry, apparel industry.
•    The company has posted steady growth in top and bottom lines.
•    Based on current parameters, the issue appears fully priced.
•    Investment for the long term may be considered.

ABOUT COMPANY:
Rossari Biotech Ltd. (RBL) is one of the leading specialty chemicals manufacturing companies in India. It is providing customized solutions to specific industrial and production requirements of customers that are primarily in FMCG, apparels, poultry and animal feed industries. RBL has well-diversified activities and has a vast product portfolio comprising home, personal care and performance chemicals, textile specialty chemicals, animal health and nutrition products. Besides India, the company's operation is spread across 17 foreign countries. According to the F & S Report, as on 30th September 2019, RBL is the largest manufacturer of textile specialty chemicals in India and it providing textile specialty chemicals in a sustainable, eco-friendly yet competitive manner. As on May 31, 2020, it had a wide range of 2030 different products (consisting of 1543 products for textile specialty chemical alone).

The company derives 46.81% of its total revenues from its home, personal care and performance chemicals, 43.71% from textile specialty chemicals and the rest from animal feeds and nutrition products. To stay tuned with the time and demand of its customers, RBL keeps monitoring the fast-changing trends across the segment it deals with. The company enjoys a long term relationship with most of its top customers. In domestic markets, the company's client list includes HUL, Arvind Ltd., Raymonds, Panasonic, IFB, Bosch, etc.  

The company has its R & D facilities with two most modern facilities in the western region. As on 31st May 2020, it has a network of 204 distributors for the domestic market and 29 distributors across the 17 countries and two international offices in the primary markets of its reach.

RBL's current manufacturing capacity of 120000 MTPA will more than double to 252500 MTPA by the end of current fiscal with its ongoing expansion plans. According to a survey, the global green chemical market is expected to grow at a CAGR of 10.5% from 2019 to 2023. Thus RBL is poised for bright prospects going forward.

OVERVIEW OF INDIAN AND GLOBAL SPECIALTY CHEMICAL INDUSTRY:
The specialty chemical industry has immense scope of growth globally as well locally. The global specialty chemical industry is expected to grow at a CAGR of 5.3% and the Indian specialty chemical industry is expected to grow at a CAGR of 12%. The Asia Pacific countries are expected to grow in the range of 6-7%.

There is a major shift towards 'green' chemicals that are bio-degradable and environment friendly. The global green chemicals market is expected to grow at a CAGR of 10.5% during 2019-2023.

The Indian specialty chemicals industry is driven by both domestic consumption and exports.  Further fur to tightening of environmental norms in developed countries, the slowdown of China and the recently launched 'Make in India' campaign are expected to add impetus to the emergence of India as a manufacturing hub for the chemicals industry in the medium term.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans of repayment/prepayment of certain debts (Rs. 65 cr.), working capital (Rs. 50 cr.) and general corpus fund needs, RBL is coming out with its maiden book building route combo issue consisting fresh equity issue worth Rs. 50 cr. (approx 1176470 shares) and offer for sale of 10500000 equity shares by promoter stakeholders. The company is likely to issue around 11676470 equity shares of Rs. 2 each in a price band of Rs. 423 - Rs. 425 per share. With this issue, the company expects to mobilize Rs. 493.91 to Rs. 496.25 cr. based on lower and upper price bands. RBL is spending around Rs. 19.5 cr. for this IPO proceeds.

While the company intended to come with this issue in March 2020 (March 18 to March 20, 2020), due to weak market sentiment and following COVID 19 pandemic the lockdown implementation from 22nd March 2020 had to postpone its entry till this time.

Now, this issue is opening for subscription on 13.07.2020 and will close on 15.07.2020. Minimum application is to be made for 35 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 22.49 % of the post issue paid-up capital of the company.

The issue is jointly lead managed by Axis Capital Ltd. and ICICI Securities Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue.

Having issued initial equity at par, RBL raised further equity at a fixed price of Rs. 425 per share in February 2020 as pre-IPO placement. The company has also issued bonus shares in the ratio of 6 for 5 in December 2019. With this IPO RBL aims at a market cap of Rs. 2207 cr.

Post issue RBL's current paid-up equity capital of Rs. 10.15 cr. will stand enhanced to Rs. 10.39 cr.

FINANCIAL PERFORMANCE:
For the last three fiscals, on a consolidated basis, RBL has posted turnover/net profits of Rs. 300.43 cr. / Rs. 25.40 cr. (FY18), Rs. 517.12 cr. / Rs. 45.68 cr. (FY19) and Rs. 603.82 cr. / Rs. 65.25 cr. (FY20). Thus it has shown consistent growth in top and bottom lines. The company has posted 56.58% CAGR for EBITDA and 60.27% for PAT. Management is confident of maintaining the tempo of growth. According to them, ongoing COVID-19 pandemic is likely to change the lifestyle and there it is likely to play a vital role with the introduction of ayurvedic health care products. The company paid a dividend of 200% for FY18 and 50% for FY19. For FY20 it has not yet announced any dividend.

For the last three fiscals, the company has posted an average EPS of Rs. 10.73 and an average RoNW of 36.02%. The issue is priced at a P/BV of 7.52 based on its NAV of Rs. 56.48 per share as of 31.03.2020. Its RoCE for the last three fiscals is 34.68%, 50.93%, and 24.79% respectively. The company's current debt/equity ratio is 0.3 to 1 that will get reduced post this issue. The average cost of acquisition of shares by the promoters is Rs. 4.16 and Rs. 4.17 per share.

If we attribute FY20 earnings on fully diluted post issue equity then asking price is at a P/E of around 33.81 thus issue appears fully priced.

PEERS COMPARISION:
As per offer documents, RBL has shown Aarti Industries, Vinati Organics, Atul Ltd., Galaxy Surfactants and Fine Organics as its listed peers that are currently trading at a P/Es of around 30.89, 31.09, 21.25, 31.32 and 35.25 (as on 07th July 2020). However, they are not comparable on an apple to apple basis.
 
MERCHANT BANKERS TRACK RECORDS:
The two Book Running Lead Managers associated with this issue have handled 31 issues in the past three fiscals, out of which 14 issues closed below the issue price on the listing date.

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