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IPO Analysis: Rossari Biotech

Shashikant Singh
·5-min read

IPO Rating -  Invest with limited exposure

About the Issue

Rossari Biotech, a textile and speciality chemicals manufacturer focussing on home, personal care and performance chemicals is entering the primary capital market with its initial public offer (IPO) of equity shares of the face value of Rs 2 each. The price band has been fixed between Rs 423 and Rs 425.

The issue size is of Rs 496.25 crore including a fresh issue of Rs 50 crore and an offer for sale of Rs 446.25 crore shares by the existing shareholders. At the upper price band of Rs 425, the company will issue up to 0.117 crore of equity shares aggregating up to Rs 50 crore.

The proceeds from the fresh issue of IPO will be used for the repayment of outstanding debt as well as for general corporate purpose.

The IPO opens for public subscription on July 13 and will close on July 15.

Rossari Biotech IPO Details

IPO Date

Jul 13, 2020 - Jul 15, 2020

Issue Type

Book Built Issue IPO

Issue Size

1,16,76,647 Eq Shares of Rs 2
(aggregating up to Rs 496.25 Cr)

Fresh Issue

11,76,471 Eq Shares of Rs 2
(aggregating up to Rs 50.00 Cr)

Offer for Sale

1,05,00,000 Eq Shares of Rs 2
(aggregating up to Rs 446.25 Cr)

Face Value

Rs 2 Per Equity Share

IPO Price

Rs 423 to Rs 425 Per Equity Share

Market Lot

35 Shares

Min Order Quantity

35 Shares

Listing At

BSE, NSE

Market Cap (Rs Cr)

2,207

 

About the company

Incorporated in 2009, Rossari caters to three main product categories – (i) home, personal care and performance chemicals; (ii) textile speciality chemicals; and (iii) animal health and nutrition products. As on May 31, 2020, the company had a range of 2,030 different products sold across the three product categories. The company primarily operates in a business-to-business model for home, personal care and performance products.

Home, personal care & performance chemicals

Rossari is a leading manufacturer of acrylic polymers in India and currently, manufactures over 300 products for its customers in this segment. The company is into advanced stages of expanding the home, personal care and performance product portfolio to water treatment formulations, speciality formulation for breweries as well as dairies. Revenue from sales of home, personal care and performance products constituted 46.81 per cent of total revenue in FY20.

Textile speciality chemicals

The company provides speciality chemicals for the entire value-chain of the textile industry. As of May 31, 2020, the company manufactured and sold approximately 1,543 products in this product category. Revenue from the sale of textile chemicals constituted 43.71 per cent of the company’s total revenue in the fiscal year 2020. It has come down from 71.54 per cent at the end of FY18.

Animal health & nutrition

The company has diversified into animal health and nutrition and currently, supplying poultry feed supplements and additives, pet grooming and pet treats for weaning, infants and adult pets. It currently manufactures over 100 products in this category.

Financials of the company

In FY20, the company generated the total revenue of Rs 603.81 crore, which grew at a CAGR of 41.7 per cent between FY18 and FY20. Operating profit or EBITDA in the same period grew at CAGR of 56.7 per cent and was at Rs 104.744 crore for FY20. Profit after tax has increased at a compound annual growth rate of 60.1 per cent over the same period. It posted profit of Rs 65.23 crore in FY20. The company reported return on the net worth of 31.79 per cent, 43.32 per cent and 34.08 per cent with a total debt to equity ratio of 0.23 for FY20, FY19 and FY18, respectively.

Particulars

FY20

FY19

FY18

CAGR (FY18-20)

Revenue from operations

600.094

516.218

299.061

41.7%

Other Income

3.724

0.906

1.368

 

Total Income

603.818

517.124

300.429

41.8%

Total Expenses

515.759

453.732

262.955

 

Finance costs

3.557

2.878

1.355

 

Depreciation and amortization expenses

16.852

12.264

5.173

 

EBITDA

104.744

77.628

42.634

56.7%

Profit Attributable to owners

65.028

45.454

25.36

60.1%

Restated Profit for the year

65.253

45.683

25.403

 

EBITDA Margin(%)

17.5%

15.0%

14.3%

 

PAT(%)

10.9%

8.8%

8.5%

 

 

Valuation and recommendation

At the higher price band of Rs 425 and on the expanded equity base considering the IPO, the offer is demanding market cap to sales (FY20) of 3.6 times, which is comparable to the industry average and its peers.

In terms of PE, the offer is made at around 33.68 times its FY20 earnings per share on a post-issue equity share capital of around Rs 5.2 crore of the face value of Rs 2 each.

Other established players such as Aarti Industries and Atul Limited are available at PE of 31 times and 20 times, respectively. The return ratio of Rossari is better than other listed players in the industry. For example, ROEs of the company for FY20 was at 31.79 per cent as compared to 18.9 per cent and 22.7 per cent for Aarti Industries and Atul Limited, respectively and 20.5 per cent respectively.

We believe that the issue is fairly priced. However, looking at the better return ratios and not enough capital required going forward; a long-term investor can invest with limited exposure.