Rossari Biotech IPO – Overpriced IPO – Should you Invest?
Rossari Biotech IPO Review
After 6 months, there is a mainline IPO in India. Rossari Biotech IPO date is 13 July, 2020. Rossari Biotech is one of the leading specialty chemical manufacturing companies in India. Rosario Biotech Limited IPO would be first IPO that would get listed in lockdown phase. Should you invest in the Rossari Biotech IPO? What are the risk factors you should consider before investing in this Rossari Biotech Ltd IPO?
Conclusion of our review
Here is the conclusion of the review.
1) Rossari Biotech is one of the leading specialty chemical manufacturing companies in India
2) Rossari Biotech revenues and margins are consistently improving
3) Rossari Biotech IPO price is highly priced
4) High risk investors can subscribe to this IPO considering some of the risk factors indicated in this article.
Let us check Rossari Biotech IPO details now.
About Rossari Biotech Limited
Rossari Biotech is one of the leading specialty chemicals manufacturing companies in India based providing customized solutions to specific industrial and production requirements of its customers primarily in the FMCG, apparel, poultry and animal feed industries through its diversified product portfolio comprising home, personal care and performance chemicals; textile specialty chemicals; and animal health and nutrition products. They operate in India as well as in 17 foreign countries, including Vietnam, Bangladesh and Mauritius. They are the largest manufacturer of textile specialty chemicals in India providing textile specialty chemicals in a sustainable, eco-friendly yet competitive manner. As a manufacturer of specialty chemicals, they focus on functionality and application of its products which form a key ingredient to its customers’ manufacturing and industrial processes.
Rossari Biotech IPO details
IPO opening date: 13-July-2020
IPO closure date: 15-July-2020
Face Value: Rs 2 per share
Issue price band: Rs 423 to Rs 425 per share
Issue size: Rs 496 Crores on upper price band
IPO Lot size: 35 shares
Minimum investment: Rs 14,805
Leading Managers: Axis Capital and ICICI Securities
Listing: BSE / NSE
What are the Objects of the Rossari Biotech IPO?
Here are the objects of the IPO issue.
1) Offer for Sale (OFS): The object of the Offer for Sale is to allow the selling shareholders to sell equity shares held by them. The company will not receive any proceeds from the Offer for Sale.
2) Fresh Issue: Gross proceeds of the fresh issue less the Offer Expenses apportioned to Company i.e. Net Proceeds are proposed to be utilised in the following manner
i) Repayment/prepayment of certain indebtedness availed by company (including accrued interest)
ii) Funding working capital requirements
iii) General corporate purposes
Who are the Company Promoters?
Mr. Edward Menezes and Mr. Sunil Chari are the promoters of this company.
How is the company doing in terms of Financial Performance (Reinstated)?
Here is the performance of the company in the last few years in terms of revenue and profits. Company revenues grew at 42% CAGR during FY2018 to FY2020. In a similar period its profits grew at 60% CAGR.
Its average EPS in the last 3 years is 10.73 and FY2020 is 13.42.
What are the key strengths of Rossari Biotech Limited?
Every investor should understand the company’s key strengths so that they can compare with its competitors to know how unique such company in their business is. Their investment decision would change based on these facts. Here are the key strengths of the Rossari Biotech.
1) Diversified product portfolio addressing the needs of varied and long-standing customers across industries
2) Largest textile specialty chemical manufacturer in India
3) Extensive manufacturing and technical capabilities
4) Strong R&D capabilities, with focus on innovation and sustainability
5) Wide sales and distribution network
6) Experienced Promoters with a strong management team having domain knowledge
7) Proven track record of robust financial performance
What are the various strategies of Rossari Biotech Ltd?
Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.
1) Expand manufacturing capacity and increase production efficiency
2) Introduce new products and focus on green products which promote sustainability
3) Continue to focus on innovation and grow business across customer segments
4) Increase wallet share with existing customers and continued focus to expand customer base
5) Expand its international operations
6) Inorganic growth through strategic acquisitions
Positive Factors to invest Rossari Biotech IPO
These positive factors can impact company growth, its revenue and margins which can increase its share price. Investors should go through these points and understand these positive factors while investing.
1) Rossari Biotech one of the leading specialty chemical manufacturing companies in India.
3) Company revenues and margins have shown consistent growth in the last few years. It has improved margins of 5.5% in FY2017 to 10.8% in FY20. Such companies would always reward investors.
Major risk Factors to consider before investing in Rossari Biotech IPO
These risk factors can impact company revenue and margins which would affect its share price. Investors should go through these points and understand these risk factors before investing.
1) Company is reliant on the demand from the textile industry for a significant portion of its revenue. Any downturn in the textile industry or an inability to increase or effectively manage its sales could have an adverse impact on the company’s business and results of operations.
2) They derive a significant portion of its revenue from a few major institutional customers in its TSC and HPPC product categories. Any loss of its major customers or a reduction in their demand for its products could adversely affect its business, results of operations, financial condition and cash flows.
3) Its manufacturing facility situated in Silvassa is critical to its business and any disturbance, slowdown or shutdown of its Silvassa Manufacturing Facility, may have an adverse impact on its business, results of operations and financial conditions.
4) Increase in the cost of raw materials as a percentage of its revenue could have a material adverse effect on its results of operations and financial conditions.
5) Its success depends on its ability to develop and commercialize new products in a timely manner. If its research and development efforts do not succeed, the introduction of new products may be hindered, which could adversely impact its business, growth and financial condition.
6) They do not have any long term agreements with most of its customers, and the loss of one or more of them or a reduction in their demand for its products could adversely affect its business, results of operations, financial condition and cash flows.
7) As part of its growth strategy, they are in the process of establishing a manufacturing facility at the Dahej.
8) Implementation risks along with possible time or cost overruns could adversely affect its business and results of operations.
9) They are subject to risks associated with its strategic partnership with Buzil.
10) Its failure in maintaining its quality accreditations and certifications may negatively impact its brand and reputation.
11) Its growth strategy includes evaluating opportunities for strategic investments and acquisitions. If they are unable to successfully identify and integrate acquisitions, its growth strategy, business, financial condition, results of operations and prospects may be adversely affected.
12) For complete internal and external risk factors, you can refer the RHP of the company.
Rossari Biotech IPO Schedule
Offer Opens – 13-July-2020
Offer Closes – 15-July-2020
Finalization of Basis of Allotment – 20-July-2020
Unblocking of ABSA and Initiation of Refunds – 21-July-2020
Credit of shares to Demat Accounts – 22-July-2020
IPO Shares Listing Date – 23-July-2020
Rossari Biotech IPO GMP would fluctuate day by day, hence not covering in this article.
How is the IPO Priced?
On the upper price band of Rs 425 and the last 3 years average EPS of Rs 10.73, the P/E works out to be 39x. Similarly, on the upper price band of Rs 425 and the last year FY20 average EPS of Rs 13.42, the P/E works out to be 31x. Its peers like Fine organic industries limited is trading at P/E of 35x (Highest) and Atul India is trading at P/E of 20x (Lowest) and industry average P/E is 27.7x. Hence, Rossari Biotech IPO share price (upper band) of Rs 425 in the P/E range of 31x to 39x is highly priced.
Should you invest in Rossari Biotech IPO for long term?
Rossari Biotech is one of the leading specialty chemical manufacturing companies in India. Its revenues and margins are consistent and growing. Rossari Biotech IPO price is highly priced. Considering bright prospects company has, high risk investors can invest in such IPOs. Moderate to low risk takers should avoid such IPOs.
Disclaimer: This article is for educational purpose only. Please consult your investment advisor before you invest in such high risk IPOs.
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Rossari Biotech IPO Review
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