Rossari Biotech IPO: Things you must know about specialty chemical company

The company is among the largest manufacturers of textile specialty chemicals in India.

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Rossari, which also has presence in 17 foreign countries, offers 2,030 different products across categories.
NEW DELHI: The IPO market is set to see its first mainboard IPO of financial year 2019-20 with Rossari Biotech hitting the market with its Rs 500 crore IPO on Monday.

Rossari IPO was caught in Covid blues at first attempt. It was to launch its IPO on March 18, but cancelled its IPO press 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 company has faced issues with road shows and promotional activities, and tried to do all investor interactions mostly online, thus experimenting with a number of firsts for the primary market, which, if successful, might change the way the IPO mart would work in the post-Covid environment.


Here's what you need to know about the issue:

What does Rossari Biotech do?
The company is among the largest manufacturers of textile specialty chemicals in India. It also manufactures acrylic polymers. The company offers three main product categories namely home, personal care and performance chemicals; textile specialty chemicals and animal health & nutrition products. The home 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 company has two R&D facilities – one within the Silvassa manufacturing facility and the second in Mumbai.

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Who are the company peers?
In the listed space, Aarti Industries, Vinati Organics, Atul, Galaxy Surfactants and Fine Organic Industries are among the company's peer group. These listed firms traded at a price-to-earnings multiple of 20-35, as of March 31, as per the company filing. Rossari is seeking a PE of 31 times.

In the home, personal care and performance chemicals segments, the company has competition from MNCs such as Merck, BASF and Wacher AG, in addition to domestic players such as Aarti, Galaxy and Atul.

In the textile specialty chemicals space, competition comes from players such as Archroma, CHT Croda International and Huntsman Corporation. Cargill India, Zydus AH, Bayer Animal Health and Boehringer Ingelheim Animal Health are some of its competitors in the animal nutrition products category.

What's on the block?
The IPO would be a mix of fresh issue and offer for sale (OFS). The promoters would sell up to 10,500,000 equity shares, comprising an OFS of up to 5,250,000 shares by Edward Menezes and up to 5,250,000 shares by Sunil Chari. The company would also raise Rs 50 crore in fresh capital. In a pre-IPO placement, the company has raised Rs 99.99 crore through a private placement of 2,352,920 shares to various investors, including Malabar India Fund, Axis New Opportunities AIF-I , Mirae Asset Mid Cap Fund, Sundaram Mutual Fund A/C Sundaram Select Micro Cap Series - XIV, IIFL Special Opportunities Fund – Series 4 and ICICI Lombard General Insurance Company.

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How is the company fundamentally placed?
The company's total revenue grew at a compounded annual growth rate of 41.65 per cent over FY18-20, Ebitda during the same period was up 56.58 per cent annually and profit after tax expanded 60.27 per cent over the same 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.

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Coronavirus impact on Rossari Biotech
Demand for disinfectants & sanitizers surged for the company, but the textile specialty chemicals segments witnessed a temporary 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 company faced limited availability of labour, supply chain constraints and logistical problems due to which the Silvassa facility operated at a sub-optimal capacity in April. The plant utilisation subsequently has improved with raw material suppliers resuming operations and supply and logistics becoming more regular.

Some of the customers have requested for extended payment terms due to the lockdown, the company said.

Capex plans: Dahej facility
Rossari Biotech manufactures majority of its products in-house from their manufacturing facility at Silvassa and currently setting up another manufacturing facility at Dahej in Gujarat with a proposed installed capacity of 132,500 MTPA. The company says the facility will enjoy a proximity to the deep-water, multi-cargo port of Dahej which is a cost and logistical advantage.

It plans to venture into the construction chemicals market and water treatment formulations. It intends to use the proceeds of the fresh issue and the proceeds from the pre-IPO placement to repay or prepay borrowings to the tune of Rs 65 crore, to fund its working 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 robust management and sound corporate governance policy will drive growth for the company going ahead. "Since the asking P/E is slightly overvalued at 31 times compared with an average P/E of 27 times, short-term investors can subscribe only for listing gains. 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," Shah said.

Shah, however, feels the over-dependence on the textile space with 43.71 per cent of revenues in FY20 is a concern, even though the percentage has come down from 71.54 per cent in FY18.

What does the grey market trend suggest?
Unlisted shares of the company are demanding up to 30-35 per cent premium over the IPO price in grey market or unofficial market for trading in unlisted shares. In 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 are expecting the premium to rise further till the issue closes for subscription. Narottam Dharawat of Dharawat Securities, a Mumbai-based firm that deals in unlisted shares, said the premium is rising as the IPO is inching closer. “It is likely to move northward in the next few days,” he said.
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