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Published on 27/07/2021 10:41:38 AM | Source: Religare Broking Ltd

IPO Note - Rolex Rings Ltd By Religare Broking

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About the Company

Rolex Rings (Rolex) is one of the top five forging companies in India in terms of installed capacity and a manufacturer and global supplier of hot rolled forged and machined bearing rings, and automotive components. It supply domestically and internationally to large marquee customers including some of the leading bearing manufacturing companies, tier-I suppliers to global auto companies and some auto OEMs. Its product portfolio includes a wide range of bearing rings, parts of gear box and automotive components, among others. Rolex supplies bearing rings and automotive components to over 60 customers in 17 countries, primarily located in India, United States of America and in European countries such as Germany, France, Italy, and Czech Republic, and Thailand. In terms of revenue, Rolex earns 56% of its overall revenue from exports. Rolex has 3 manufacturing plants in Rajkot and has 22 forging lines with a combined installed capacity of 1,44,750 MTPA, machining facilities consisting of 528 spindles with a combined installed capacity of 69 million parts per annum and other machinery including heat treatment furnaces, cold rolling machines and other infrastructure.

 

Objects of the Issue

* Funding long-term working capital requirements

* General corporate purposes

 

Valuation

The Indian bearing market is estimated at Rs. 12,000 cr and it constitutes less than 4% of the global bearing demand. In terms of consumption, about 60% requirement is met through domestic production while the remaining is met through imports. OEMs constitute 60% of demand whereas the rest is driven by aftermarket and exports. Going forward, ICRA expects overall revenue to grow by 9%-11% CAGR for the industry during FY21-25. With an improved off-take, bearings will get increasingly localized, which will help bearing component suppliers like Rolex in the medium to long term. The demand for domestic bearing components (rollers, rings) is expected to grow at a faster rate (~10-12% CAGR) than the underlying bearing industry. Moreover, increasing complexity of bearings will further add to realizations for bearing component suppliers.

Rolex rings is well placed to benefit from growing industry trends due to its comprehensive product portfolio and manufacturing facilities with scale and location advantages. Further, the company has long standing relationship with its customers wherein 70% of its 10 largest customers for FY21 have been with the company for over a decade. Going forward, the company intends to increase its share of business from existing customers by broadening its product portfolios. Additionally, it also intends to expand its customer base by tapping newer geographies. The financial performance has been impacted over FY19-21, however the company has been able to reduce its debt/equity from 1.9x in FY19 to 0.7x in FY21. Going forward, improving growth prospects coupled with company’s increased focus on improving operational efficiency and financial risk profile are key positives for the company. Considering the current market sentiments, investors may subscribe for listing gains in the short term. 

 

Key risks:

* i) Top 10 customers account for 73% of revenues,

* ii) Heavily dependent on automotive market in India, Europe, North America and Latin America.

 

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