After a four-month lull in the IPO market, Rossari Biotech's public issue opened for subscription on Monday, was 91% subscribed by noon today. In the ₹500 crore IPO, Rossari Biotech has fixed a price band of ₹423-425 per equity share and the issue will remain open till July 15th. Rossari Biotech's IPO comprises fresh issuance of shares worth ₹50 crore and sale of 1,05,00,000 equity shares by company's promoters through offer-for-sale route. Post the IPO, the promoter shareholding will fall to 73% from 95% earlier.
Rossari Biotech IPO Lot Size
Investors can bid in lot sizes of 35 shares0.35
Rossari Biotech Listing
The equity shares will be listed on the NSE and BSE. According to brokerages, the likely date of listing could be 23rd July. Axis Capital and ICICI Securities are the merchant bankers for the share-sale. Link Intime India Pvt Ltd is the registrar of Rossari Biotech IPO.
The net proceeds from the IPO will be utilised for funding working capital requirements, repaying certain debt availed by the company and for general corporate purposes.
Rossari Biotech is a specialty chemicals manufacturing firm with focus on home and personal care, performance chemicals, textile specialty chemicals and animal health and nutrition products.
Apart from India, it has operations in 17 countries, including Vietnam, Bangladesh and Mauritius.
In FY20, Rossari Biotech had reported revenues of ₹600 core and net profit of ₹65.3 crore.
"Over FY17-20, it reported revenue, EBITDA and PAT CAGRs of respectively 37%, 63% and 66%. Its EBITDA margin expanded 724 bps to 17.5%. Net debt/equity in FY20 was 0.36x compared to 0.04x in FY19 due to debt-based funding of capex. The RoE and RoCE averaged 36% each over FY17-20," domestic brokerage Anand Rathi said.
What Analysts Say
"There are a number of reasons why Rossari is a subscribe for short and long term investors alike. Fundamentally it is extremely strong with a top line, EBITDA and net profit CAGR of 32%, 63% and 67% respectively from FY17 to FY20. It carries a moat of leading the manufacturing of specialty chemicals for the textile space and caters to other categories such as home, personal care, animal health etc. with a list of top-notch client base," says Nirali Shah, senior research analyst at Samco Securities, which has a subscribe rating on the IPO.
"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 justifies the valuation. 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)," she added.
Another domestic brokerage Anand Rathi has also a subscribe rating on Rossari Biotech IPO.
"At the higher end ( ₹425 a share) of the issue band, the stock is valued at 19.9 times EV/EBITDA and 33.1 times P/E on FY20 figures. Galaxy, Atul and Fine Organics trade at FY20 P/E multiples of 24.3x, 20.7x and 36.3x respectively while Aarti Industries and Vinati Organics trade at 30-31x. We believe this multiple is within the range of the sector average and due to growth prospects on the greater capacity and increase in demand for the products. The high return ratios coupled with the proof of concept in the historic growth rates provide further comfort," the brokerage said.
The risk factors for Rossari Biotech include downturn in textile industry, great dependence on a few customers and delay in capex, says Anand Rathi.
Risks arising on account of coronavirus can also impact its operations.
Geojit Financial Services also has a subscribe rating, though it says valuations are a tad expensive. "At the upper price band of ₹425, sc available at P/E of 33.8x FY20 which seems expensive when compared to peers. However, considering RoE at 44% (last 3-year Avg.), strong revenue growth and expanding margin profile support our 'subscribe' rating for long term perspective," it said.