Rossari Biotech is all set to be the first to break the four-month dry run in the initial public offerings (IPO) market with its Rs 500-crore IPO. This would be the first IPO since SBI Cards and Payment Services IPO float on March 2.
Here are the top ten things to know before investing in Rossari Biotech's IPO
1. About the IPO
The IPO comprises fresh issue of shares to the tune of Rs 150 crore and sale of more than 1 crore equity shares by the company's promoters through offer-for-sale route. The issue size is expected at around Rs 494-Rs 496 crore. The face value of each share is Rs 2. Company's market capitalisation is pegged at Rs 2,200 crore.
2. Promoter holding
The IPO consists of a fresh issue and an offer-for-sale by its two promoters-Edward Menezes and Sunil Chari. Currently, Edward Menezes and Sunil Chari hold 42.10% and 42.05% stake as promoters of the company, while the public shareholding stands at 4.9%.
Where Sunil Chari is the Promoter and Managing Director, Edward Menezes is the Promoter and Executive Chairman of the company.
After the sale of 52.5 lakh shares each, the total promoter shareholding will fall to 73% from 95% and the remaining 27% stake will be held by public shareholding.
3. Important dates
The IPO of the Mumbai-based speciality chemicals maker is likely to hit the market next week from July 13 to July 15. The company had filed its DRHP with SEBI on December 18 last year.
4. Pre-IPO placement
As per company's red herring prospectus (RHP), Rossari Biotech has raised Rs 100 crore in a pre-IPO placement in March with Malabar India Fund, White Oak, Kotak Infina, Axis AMC, Mirae Asset, Sundaram Mutual Fund, IIFL and ICICI Lombard General Insurance.
Rossari Biotech's debt-equity ratio stood steady at 0.23 across FY2018-2020, the company said in its DHRP. The company generated total revenues of Rs 603.80 crore and a net profit after tax of Rs 65.25 crore.
On Rossari Biotech's balance sheet, Nirali Shah, Senior Research Analyst at Samco Securities said, "Fundamentally it is extremely strong with a top line, EBITDA and net profit CAGR of 32%, 63% and 67% respectively from FY17 to FY20."
One major risk could be its dependence on the textile space however they are trying to reduce this exposure eventually (Textiles formed 71.54% of its revenue in FY18 which is 43.71% in FY20). This is a big positive, she added."
6. Net proceeds use
As per the draft papers, the proceeds from the IPO will be used to primarily repay debt and fund working capital requirements, along with general corporate purposes.
7. Client base
Rossari Biotech operates in India as well as in 17 foreign countries including Vietnam, Bangladesh and Mauritius. As on September 30, 2019, it is the largest manufacturer of textile speciality chemicals in India. Rossari Biotech has a pan-India distribution network through 204 distributors and 17 countries through 29 distributors.
8. Company operations
Company's business is organised in three main product categories-home, personal care and performance chemicals (HPPC), textile speciality chemicals and animal health and nutrition products (AHNP). Rossari Biotech 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 in Mumbai.
Nirali Shah said," It carries a moat of leading the manufacturing of speciality chemicals for the textile space and caters to other categories such as home, personal care, animal health etc. with a list of a top-notch client base. Robust management and sound corporate governance policy will drive growth going forward and this is already visible in its current return ratios (ROCE 25% and RONW of 32% in FY20)."
9. Merchant bankers
Axis Capital and ICICI Securities are the merchant bankers for the IPO and Axcelus Finserv Private Limited is the adviser to the offer.
10. Investment outlook
Since it is the first IPO after the Covid-19 outbreak, market traders are expecting the issue to list at a hefty premium. Post the IPO, the company's equity shares will be later listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
Nirali Shah said," Since its P/E is slightly overvalued at 31x compared to average P/E of 27x, short term investors can subscribe only for listing gains. However, for long term investors can hold on to this stock as it is still a fair deal because the handsome growth and strong book with a mere 0.3 debt/equity ratio and sufficient cash still justify the valuation."