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Published on 13/07/2020 3:41:14 PM | Source: Nirmal Bang Ltd

IPO Note - Rossari Biotech Ltd by Nirmal Bang

Posted in IPO Reports| #Nirmal Bang Ltd #IPO

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Company Overview

Rossari Biotech Ltd (Rossari) is one of the leading specialty chemicals manufacturing companies in India providing customized solutions to specific industrial and production requirements of the customers primarily in the FMCG, apparel, poultry and animal feed industries through its diversified product portfolio comprising home, personal care and performance chemicals (HPPC); textile specialty chemicals; and animal health and nutrition products. Its Promoters, Mr. Edward Menezes, and Mr. Sunil Chari are both career technocrats cumulatively having over 45 years of experience in the specialty chemicals industry.

Objects of the Issue

The issue of Rs 496 cr (at upper band) comprised of Rs 50 cr fresh issue and Rs 446 cr Offer for Sale. The company intends to repay debt from the fresh issue.

Investment Rationale

* Conducive Environment - (a) World is looking for a replacement of China (b) Covid-19: Being blessing in disguise (c) Industry Opportunities

* Diversified Product Portfolio – (a) Wide range of Products catering to different industries (b) Specialised need based products (c) Strong distribution network (d) Marque Clientele

* Healthy Financials – (a) Best in class Working Capital Cycle (b) Robust Return Ratios (c) Improving profitability

Valuation and Recommendation

Between FY17-20 Rossari Biotech’s revenues have grown at CAGR of 37% while EBIDTA grew at higher pace of 63% CAGR. We expect Rossari to grow at 15-18% CAGR for next 2-3 years which is ahead of industry growth. We expect EBITDA margins to improve from hereon, on the back of (a) improved margins in HPPC segment (b) benefits coming from recently commenced Dahej facility (c) increased economies of scale. We have compared Rossari Biotech with all the leading specialty chemicals companies and found it to be better in almost all financial parameters. The issue price commands P/E of 33.7x (FY20) at the upper price of band of Rs 423- 425, which is at upper end of the industry. However, going forward the higher revenue growth, improving profitability would make it a better choice among peers. We recommend “Subscribe” on the issue for listing as well as long term gains.

 

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