The company is among the most important manufacturers of textile specialty chemicals in India.
NEW DELHI: The IPO market is about to ascertain its first mainboard IPO of monetary year 2019-20 with Rossari Biotech hitting the market with its Rs 500 crore IPO on Monday.
Rossari IPO was caught in Covid blues initially attempt. it had been to launch its IPO on March 18, but cancelled its IPO news conference on March 13 as market conditions turned unfavourable. The IPO mart went into a hiatus since the last mainboard issue — the Rs 206 crore Antony Waste Handling Cell IPO — was also called off in March amid tepid investor response.
With the secondary market now looking up, Rossari is back with its fundraising plans. the corporate has faced issues with road shows and promotional activities, and tried to try to to all investor interactions mostly online, thus experimenting with variety of firsts for the first market, which, if successful, might change the way the IPO mart would add the post-Covid environment.
Here’s what you would like to understand about the issue:
What does Rossari Biotech do?
The company is among the most important manufacturers of textile specialty chemicals in India. It also manufactures acrylic polymers. the corporate offers three main product categories namely home, care and performance chemicals; textile specialty chemicals and animal health & nutrition products. the house care segment accounted for 46.81 per cent of revenues in FY20 (against just 18.63 per cent in FY18), textile specialty 43.71 per cent (from 71.54 per cent in FY18) and animal healthcare 9.48 per cent (9.83 per cent in FY18).
Rossari, which also has presence in 17 foreign countries — including Vietnam, Bangladesh and Mauritius — offered 2,030 different products across categories as of May 31. the corporate has two R&D facilities – one within the Silvassa manufacturing facility and therefore the second in Mumbai.
Who are the corporate peers?
In the listed space, Aarti Industries, Vinati Organics, Atul, Galaxy Surfactants and Fine Organic Industries NSE 0.94 you’re among the company’s coevals . These listed firms traded at a price-to-earnings multiple of 20-35, as of March 31, as per the corporate filing. Rossari is seeking a PE of 31 times.
In the home, care and performance chemicals segments, the corporate has competition from MNCs like Merck, BASF and Wacher AG, additionally to domestic players like Aarti, Galaxy and Atul.
In the textile specialty chemicals space, competition comes from players like Archroma, CHT Croda International and Huntsman Corporation. Cargill India, Zydus AH, Bayer Animal Health and Boehringer Ingelheim Animal Health are a number of its competitors within the animal nutrition products category.
What’s on the block?
The IPO would be a mixture of fresh issue and offer purchasable (OFS). The promoters would sell out to 10,500,000 equity shares, comprising an OFS of up to five ,250,000 shares by Edward Menezes and up to five ,250,000 shares by Sunil Chari. the corporate would also raise Rs 50 crore in fresh capital. during a pre-IPO placement, the corporate has raised Rs 99.99 crore through a personal placement of two ,352,920 shares to varied investors, including Malabar India Fund, Axis New Opportunities AIF-I , Mirae Asset Mid Cap Fund, Sundaram open-end fund A/C Sundaram Select Micro Cap Series – XIV, IIFL Special Opportunities Fund – Series 4 and ICICI Lombard General insurance firm .
How is that the company fundamentally placed?
The company’s total revenue grew at a compounded annual rate of growth of 41.65 per cent over FY18-20, Ebitda during an equivalent period was up 56.58 per cent annually and profit after tax expanded 60.27 per cent over an equivalent period.
Rossari reported a return on net worth of 31.79 per cent for FY20, , 43.32 per cent for FY19 and 34.08 per cent FY18. The return on capital employed (RoCE) stood at 24.79 per cent for FY20, 50.93 per cent for FY19 and 34.68 per cent for FY18.
Coronavirus impact on Rossari Biotech
Demand for disinfectants & sanitizers surged for the corporate , but the textile specialty chemicals segments witnessed a short lived plunge in demand, Rossari said.
The company got its disinfectants & sanitizers categorised under essential goods and, thus, the Silvassa manufacturing unit was unaffected. During the initial stages of the lockdown, the corporate faced limited availability of labour, supply chain constraints and logistical problems thanks to which the Silvassa facility operated at a sub-optimal capacity in April. The plant utilisation subsequently has improved with staple suppliers resuming operations and provide and logistics becoming more regular.
Some of the purchasers have requested for extended payment terms thanks to the lockdown, the corporate said.
Capex plans: Dahej facility
Rossari Biotech manufactures majority of its products in-house from their manufacturing facility at Silvassa and currently fixing another manufacturing facility at Dahej in Gujarat with a proposed installed capacity of 132,500 MTPA. the corporate says the power will enjoy a proximity to the deep-water, multi-cargo port of Dahej which may be a cost and logistical advantage.
It plans to venture into the development chemicals market and water treatment formulations. It intends to use the proceeds of the fresh issue and therefore the proceeds from the pre-IPO placement to repay or prepay borrowings to the tune of Rs 65 crore, to fund its capital requirements worth Rs 50 crore and towards general corporate purposes.
What do valuations say?
Nirali Shah, Senior Research Analyst at Samco Securities, said a strong management and sound corporate governance policy will drive growth for the corporate going ahead. “Since the asking P/E is slightly overvalued at 31 times compared with a mean P/E of 27 times, short-term investors can subscribe just for listing gains. Long-term investors can hold on to the present stock, because it remains a good deal because the handsome growth and powerful book with a mere 0.3 debt-equity ratio and sufficient cash still justifies the valuation,” Shah said.
Shah, however, feels the over-dependence on the textile space with 43.71 per cent of revenues in FY20 may be a concern, albeit the share has come down from 71.54 per cent in FY18.
What does the grey market trend suggest?
Unlisted shares of the corporate are demanding up to 30-35 per cent premium over the IPO price in grey market or unofficial marketplace for trading in unlisted shares. within the pre-IPO market, the premium on the stock has shot up to Rs 140 on Wednesday, July 8 from Rs 20 on Monday, July 6.
Traders expect the premium to rise further till the difficulty closes for subscription. Narottam Dharawat of Dharawat Securities, a Mumbai-based firm that deals in unlisted shares, said the premium is rising because the IPO is inching closer. “It is probably going to maneuver northward within the next few days,” he said.