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ROSSARI BIOTECH IPO NOTE (Apply)

Review By Rudra Shares & Stock Brokers Ltd on Jul 13, 2020

VALUATION

The company is in the process of establishing new manufacturing, unit at the Dahej Gujarat with a proposed installed capacity of 132,500 MTPA (already has an installed capacity of 120,000 MTPA in the Silvassa Manufacturing Facility). The estimated commissioning of this unit is FY2021. This would significantly double the company's capacity. Moreover, with the additional capacity the management is confident of not requiring any further capex done for the next 3-4 years tenure.

Company generates around 43% of revenue from Textile specialty segment, which can be a concern as this sector is hit hard by pandemic. Although, company has reduced its dependence from 72% in FY19.

On an upper price band of Rs 425, with EPS at Rs 13.42 for FY 20, the stock is available at a P/E ratio of 32x which is greater than the industry average P/E of 27x. Though the company is overvalued at the current P/E but, as the company has strong balance sheet with impressive RONW at 32% and to be debt free in near term, we expect after pandemic the forward earnings could  be very good. In addition to this, the business model & the specialty chemical space that the company is into, this particular sector is gaining attraction. Thus, we recommend to subscribe the IPO for listing gains or very long term.

 

THE OFFER

 

Issue Open : 13 July 2020 to 15 July 2020

  »»  Issue Type:  Book Built Issue IPO

    »»  Total Issue Size: Rs 496.49 cr

   Ü Fresh issue:  Equity Shares @ 2 aggregating up Rs 50.00cr 

       Ü  Offer for Sale: 10,500,000 Equity Shares @ 2 aggregating up to Rs 446.49cr 

       »»  Face Value:  Rs 2 Per Equity Share 

  »»  Issue Price:  Rs 423  - Rs 425 Per Equity Share 

  »»  Market Lot:  35 Shares 

  »»  Minimum Order Quantity:  35 Shares 

  »»  Listing At:   NSE & BSE

 

CAPITAL STRUCTURE

The  share capital of Company, is set forth below:-

                                                                                                                   (Amount in Rs except share data)

Authorized Share Capital :-

   60,000,000 Equity Shares @2 Aggregate value Rs 120,000,000

Issued, subscribed and paid up capital before the Offer :-

   50,752,920 Equity Shares @2 Aggregate value Rs 101,505,840

Fresh issue:  Equity Shares @ 2 aggregating up to Rs 50.00cr

 

OBJECT OF THE OFFER

    The objects of the Offer are:

ØRepayment/prepayment of certain indebtedness availed by company (including accrued interest)-amounting to Rs 65cr

ØFunding working capital requirements- amounting to Rs 50cr

ØGeneral corporate purposes

 

COMPANY OVERVIEW

Rossari biotech is one of the leading manufacturing companies and a well-known brand in Indian specialty chemicals market, offering large portfolio of chemicals and enzymes. It is the leading manufacturer of acrylic polymers in India. Also, it operates in 17 foreign countries including Vietnam, Bangladesh and Mauritius. Has a pan-India distribution network of over 204 distributors.

  Company provides customized solutions to specific industrial and production requirements of customers primarily in the FMCG, apparel, poultry and animal feed industries. It has diversified product portfolio comprising of:

   Home, personal care and performance chemicals (HPPC);

   Textile specialty chemicals; and

   Animal health and nutrition products.

  As on May 31, 2020, had a range of 2,030 different products sold across the above mentioned product categories.

EXPANSION PLANS

Rossari is in the advanced stages of expanding its HPPC product portfolio to water treatment formulations, specialty formulation for breweries as well as dairies. Also, it is planning to introduce certain new products in the personal care and cosmetics segments. Though primarily company operates in the B-B model, but it also sells certain end formulations to direct consumers under private label or in partnership with digital market platfor.ms such as Amazon.

In the Animal health and nutrition products portfolio, company have introduced additional products in pet grooming and pet treats product sub-category, which are relatively new to the portfolio. This was pursuant to acquisition of the 'Lozalo' brand, related trademarks and intellectual property in FY2019. 

Thus, the expertise of company has been in supply of specialty chemicals and industrial enzymes to institutional customers following a business-to-business or a business-to-business-to-consumer model for HPPC & textile specialty chemicals product categories. But, through introducing additional products in pet grooming and pet treats product sub-category, they are targeting on making direct sales to the end consumer in the business-to-customer segment.

NEW UNIT AT DAHEJ

Company manufactures the majority of its products in-house from their manufacturing facility at Silvassa in the Union Territory of Dadra & Nagar Haveli. It has 2 R&D facilities-one within the Silvassa Manufacturing Facility and second one is in Mumbai.

The Silvassa Manufacturing Facility, has an installed capacity of 120,000 MTPA. The annual capacity utilization of this Manufacturing Facility has moved from 74.19% in FY 2018 to 93.94% in FY 2019 and to 82.46% in FY2020.

Also, is in the process of establishing new manufacturing, unit at the Dahej Gujarat with a proposed installed capacity of 132,500 MTPA which will enjoy proximity to the deepwater, multi-cargo port of Dahej. The estimated  commissioning of this unit is FY2021. This would significantly double the company's capacity. Moreover, with the additional capacity management is confident of not requiring any further capex done for the next 3-4 years tenure.

 

FINANCIAL HIGHLIGHTS

The company generated total revenues of Rs 603.80 cr during FY20 against Rs 517.14cr in the previous year.

 EBITDA grew at Rs 104.2cr during FY20. The EBITDA margins expanded to 17.4% which are expected to sustain further.

 PAT grew at Rs 65.25cr during FY20 against Rs 45.68cr in the previous year.

 Having strong fundamentals, Rossari has significantly performed well over years. In terms of the CAGR rate, Revenue has grown at a CAGR of 41.65%, EBITDA  at a CAGR of 56.58% & PAT at  CAGR of 60.27% over FY18-20.

 Company has strong financial ratios. The RONW & ROCE stood at 31.79% & 24.79% during FY20. The total debt to equity ratio stood at 0.23.

 The management expects the company to be debt free in near term.

 

GROWTH DRIVERS

ØIncreasing Demand for Personal Care Products among Men

ØGrowing Awareness Leading to an Increase in Consumer Demand

Ø Home Furnishing Textiles Creating a Sustainable Marketplace

ØRegulatory Ban on the Use of Antibiotics as Growth Promoters in Animal Feed is expected to drive the Demand for Antibiotic Alternatives

Ø Rising Demand for Premium Pet Food will drive the Demand for Highly Specialized Ingredients:

ØGrowing per Capita Consumption of Meat Products with High Demand for Animal Protein will drive the Demand for Feed Additives, Especially Amino Acids

 

STRENGTHS

ØProven track record of robust financial performance

Ø Experienced Promoters with strong management team having domain knowledge

ØDiversified product portfolio addressing the needs of varied and long-standing customers across industries

Ø Extensive manufacturing and technical capabilities

Ø Strong R&D capabilities with focus on innovation and sustainability

Ø Wide sales and distribution network

 

RISK FACTORS 

Ø The continuing effect of the COVID-19 pandemic

Ø Downturn in the textile industry

Ø Comprise more than 90% of revenue from institutional customers in  TSC and HPPC product categories.

Ø Failure to comply with the quality standards and technical specifications.?

Ø Increase in crude oil prices.

Ø Fluctuations in foreign currency exchange rates.

Ø Competition from existing players and new entrants may  result in pricing pressure?

Ø Failure to comply with government regulations.

?

 

 


Conclusion / Investment Strategy

On an upper price band of Rs 425, with EPS at Rs 13.42 for FY 20, the stock is available at a P/E ratio of 32x which is greater than the industry average P/E of 27x. Though the company is overvalued at the current P/E but, as the company has strong balance sheet with impressive RONW at 32% and to be debt free in near term, we expect after pandemic the forward earnings could be very good. In addition to this, the business model & the specialty chemical space that the company is into, this particular sector is gaining attraction. Thus, we recommend to subscribe the IPO for listing gains or very long term.

Reviewer recommends Subscribing to the issue.

Review By Rudra Shares & Stock Brokers Ltd on Jul 13, 2020

Review Author

Rudra Shares & Stock Brokers Ltd.

Rudra Shares & Stock Brokers Ltd. is Kanpur based brokerage houses offering services to Retail and HNI customers. Rudra Shares offer a range of financial services which includes institutional and retail brokerage of Equity, Currency, Commodities, Derivatives, Online Trading, Depository Services, Fixed Deposits, IPOs and Mutual Funds Distribution, Wealth Advisory and Research.

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