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BACKGROUND

Rolex (Rolex Rings Ltd) is one of the top five forging companies in India, designing, manufacturing and supplying hot rolled forged and machined bearing rings, and automotive components for vehicles including two-wheelers, passenger vehicles, commercial vehicles, off-highway vehicles, electric vehicles, industrial machinery, wind turbines and railways. Rolex supplies its products to leading bearing manufacturers such as SRF India, Schaeffler India and Timken India which account to 81% of the market share of Indian bearings industry.

Details and Objects of the Issue

* The total issue size is Rs. 731 Cr constituting (i) Offer For Sale of up to 0.75 Cr equity shares aggregating to Rs. 675 Cr by Rivendell PE; and (ii) fresh issue of up to 0.06 Cr equity shares aggregating to Rs. 56 Cr. The offer shall constitute 29.8% of the post-offer paid-up equity capital of the company.

* Rolex shall utilise the proceeds from the fresh issue for funding working capital requirements.

Investment Rationale

* Strong growth outlook for the Bearings industry to act as a tailwind

* Import substitution together with development of India as a manufacturing hub for exports at the bearings industry level shall propel higher growth in the bearings rings industry

* Comprehensive product portfolio makes the company a preferred supplier

* Long standing customer relationships; geographically diversified revenue base

* Manufacturing capabilities offering scale, flexibility and locational advantage

* Strong improvement in balance sheet strength and credit rating

Valuation and Recommendation

Rolex is a proxy play on global growth in the industries of bearings and auto components. With global as well as domestic industrial investment cycle having troughed out last year, we expect a gradual recovery to have a positive rub-off on auto ancillary plays such as Rolex. Although there is no direct comparable peer to Rolex, we compare it with prominent forgings and auto component players. We observe that Rolex’s financial metrics as well as valuations are broadly in line with that of other players. The historical growth is lagging others which is compensated by the company’s higher return ratios. Considering these metrics, we recommend subscribing to the issue from a long term perspective.

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