Rossari Biotech IPO Financial Analysis (Subscribe for Long Term)

Rossari Biotech IPO Fundamental Analysis

Rossari Biotech Limited (RBL) was incorporated in the year 2009, its inception dates back to year 2003, when it was started as a partnership firm named as “Rossari Labtech”. RBL is a leading specialty chemical manufacturing companies in India providing customized solutions to specific industrial and production requirements in FMCG, apparel, poultry and animal feed industries. RBL operates in India as well as in 17 foreign countries including Vietnam, Bangladesh and Mauritius.

RBL‘s product portfolio comprises of

Home, personal care and performance chemicals,contributing 46.81% of total revenues
Textile specialty chemicals, contributing 43.71% of total revenues
Animal health and nutrition products, contributing 9.48% of total revenues.

Strengths

Geographically well diversified. RBL operates in India as well as in 17 foreign countries including Vietnam, Bangladesh and Mauritius.
The effect of COVID -19 pandemic would be seen in the next few financial years but being in the essential goods category, saved it from shutting its manufacturing activities. Demand of disinfectants, sanitizers from HPCC product category would show an increase due to the pandemic.
Good manufacturing and technical capabilities. Installed capacity would double (2,52,500 MTPA by FY 21) with new manufacturing facility at Dahej.
Robust financials with strong and consistent operating and net margins.
Good promoter experience of 45 years in the industry.
Well- known brand in speciality chemical sector.

Weaknesses

Dependent on limited no. of customers for significant portion of revenues.
Competition from unorganized textile chemical manufacturers.
Due to the pandemic there is a temporary reduction in textiles for India.

Rossari Biotech Limited IPO Financial Analysis

Management

The promoters of the company are Mr. Edward Menezes and Mr. Sunil Chari. Both of the promoters cumulatively have over 45 years of experience in the specialty chemical industry. RBL’s management focus on innovation, process improvements for customers production cycle, agile customised solutions, sustainable eco-friendly portfolio of products and increased scale of operations have made them a well-knownbrand in the Indian speciality chemicals market.

Manufacturing Facility

RBL has an in-house manufacturing facility at Silvassa with installed capacity of 100,000 MTPA and additional capacity of 20,000 MTPA is in the process of being installed by March 2021. Plant capacities can be exchanged across the product categories which gives flexibility to manufacture any of the products and make changes as per the changing requirements of the customers. The annual capacity utilization of our Silvassa Manufacturing Facility has grown from 61.88% in Fiscal 2017 to 74.19% in Fiscal 2018 and to 93.94% in Fiscal 2019.

RBL is setting up another manufacturing facility at Dahej in Gujarat with a proposed installed capacity of 132,500 MTPA. The proposed facility will be well-equipped with advanced technologies and will be commissioned in FY21.

Rossari Biotech Limited IPO details

RBL plans to raise Rs 50 crore by fresh issue of equity shares (around 11,76,470) and an offer for sale to sell Rs 10.5 crore(10,50,0000 equity shares) by the promoters of the company.RBL is likely to issue around 116,76,470 equity shares of Rs. 2 each in a price band of Rs. 423 - Rs. 425 per share. The issue is opening for subscription from 13th July 20 to 15th July 20.

RBL had raised equity at a fixed price of Rs. 425 per share in Feb 2020 as pre-IPO placement. The company has also issued bonus shares in the ratio of 6 for 5 in December 2019. With this IPO RBL aims at a market cap of Rs. 2207 cr.

The lead managers of the issue are Axis Capital Ltd and ICICI Securities Ltd. Link Intime India Pvt Ltd. is the registrar to the issue.

Fresh Issue

The net proceeds of the fresh issue are proposed to be utilised in the following manner:

Repayment/prepayment of debt of RBL (Rs 65 crore)
Funding working capital requirements (Rs 50 Crore)
General corporate purposes.

Rossari Biotech Financial Performance

Total revenues for the FY 20 have increased by 17% to Rs 6038 million from Rs 5171 million in FY 19. EBITDA has increased to Rs 1082.5 million in FY 20 from Rs 785.3 million in FY 19. Gross profit margin has remained strong at 17.93 % in FY 20 and has been consistent since the last three financial years. RBL has recorded healthy net margin of 10.81% in FY 20.

RBL has strong interest coverage ratios (25.7x in FY 20) as can be seen from the table below. Debt to equity has remained low at 0.21x in FY 20. Return on net worth is strong throughout all the three fiscal years. (23% in FY 20, 37% in FY 19 and 30% in FY 18)

Table 1 - Financials and Ratios (Amount in INR Million)
	FY 2020	FY 2019	FY 2018
Total revenue	6038.18	5171.24	3004.29
PAT	652.53	456.83	254.03
EBITDA	1082.5	785.34	440.02
Total Assets	4715.5	2498.45	1649.5
Gross profit margin	17.93	15.19	14.65
Net profit margin	10.81	8.83	8.46
Interest coverage ratio (times)	25.70	23.03	28.66

Rossari Biotech Valuation

Net profit attributable to equity shareholders for FY 20 is Rs 65 crore with 50754096 outstanding equity shares as on 8 July 2020. Hence EPS =12.8. With a P/E of 33, the IPO looks fully priced at Rs 425. The peer comparison data can be seen below:

Table 2 - Peer comparison
Listed Peers	Total Revenue (Million)	RoNW	P/E
Aarti Industries Ltd	41,863	18.89%	30.93
Vinati Organics Ltd	10,288	28.65%	30.45
Atul Ltd	40,930	22.70%	19.94
Galaxy Surfactants Ltd	25,963	23.70%	22.02
Fine Organics Industries Ltd	10,380	29.45%	35.24

Conclusion and Review

RBL has shown a good track record in the last three fiscals and the issue is fully priced. RBL shows future growth prospects with an increase in installed capacity and strong financial performance. So investors might invest in the IPO but considering the current market sentiments and fluctuations over the short term, investors should aim for long term to reap the benefits!

Reviewer recommends Subscribe for Long Term to the issue.

Review By CA Priyanka Choudhary on 8th Jul 2020

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.