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. The initial public offerings (IPO) market that was in a lull since SBI Cards and Payment Services IPO floated on March 2, is all set to see its first listing with the Rossari Biotech. The company's Rs 500-crore IPO, which was earlier scheduled to launch on March 18, was cancelled due to unfavorable market conditions. The IPO is a mix of fresh issue and offer for sale (OFS), post a pre-IPO placement.
Here's what you need to know about the issue:
1. Rossari Biotech's IPO details
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 2,207 crore.
In terms of offer ratio, 50% of shares are kept for Qualified Institutional Buyers, 15% for NII and not less than 35% for retail investors. The minimum bid quantity stands at 35 shares in one lot and maximum quantity allows investment up to 470 shares in 13 lots.
2. Company's promoter holding and OFS
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. The Key Managerial Personnel cumulatively have over 80 years of experience in the speciality chemicals industry.
After the sale of 52.5 lakh shares each, the total promoter shareholding will fall to 73% from 95.06% and the remaining 27% stake will be held by public shareholding.
3. Important dates regarding IPO
The IPO of the Mumbai-based speciality chemicals maker will open for subscription on July 13 and the public issue will close on July 15. The company had filed its DRHP with SEBI on December 18 last year. The finalisation of basis of allotment will be processed on July 20, while the initiation of refunds will be done on 21 July. The credit of shares to demat account will take place on 22 July and the shares will be listed on BSE, NSE on July 23, 2020.
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.
5. How is the company fundamentally placed?
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 the debt (Rs 65 crore), and fund working capital requirements (Rs 50 crore), along with general corporate purposes.
7. Client base
Rossari Biotech customer base currently comprises a host of multinational, regional and local FMCG companies, apparel and textile companies and poultry feed, animal feed or food-service companies. 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. The company has a pan-India distribution network through 204 distributors and 17 countries through 29 distributors.
"The company has served 593 customers in fiscal 2018 and 743 customers in fiscal 2020. It enjoys relationships in excess of five years with 11 out of their top 15 customers," Kotak Securities said in its note.
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.
"Despite the lockdown and the pandemic, the company has not suffered any major losses in the revenue in the last 4 months. The company has added 201+ Private Label customers during the lockdown," Ventura Securities said in its IPO note.
"The company have multiple products customized for different stages of industrial production of textile," KIE said in its IPO note.
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. Link Intime India Private Ltd is the registrar for the IPO.
10. Valuation and 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).
Motilal Oswal in its note said" Investors can Subscribe the IPO from a long term perspective. Further, considering market conditions and bright prospects for speciality chemical space, one may also get listing gains."
"The high return ratios coupled with the proof of concept in the historic growth rates provide further comfort," Anandrathi said ion its IPO note.
"At the upper price band of Rs 425, the issue has been offered at P/E of 33x to its FY20 EPS of Rs 13, which is a little bit expensive than its peers. However, considering its debt-free status (post-issue), diversified product portfolio with the sharp capacity expansion with low leverage coupled with strong margin and best-fixed assets turnover ratio we have a positive outlook on the company's growth prospects," Arihant Capital Markets said.
Nirali Shah at Samco Securities 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."