Rossari Biotech’s Rs 496 Crore IPO Over-Subscribed

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Edward Menezes and Sunil Chari, Co-founders of Rossari Boitech.
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The public issue consists of a fresh issue of Rs 50 crore and an offer for sale of 1.05 crore equity shares by its promoters Edward Menezes and Sunil Chari.

The Rs 496-crore public offer of Rossari Biotech, a specialty chemical maker, has been oversubscribed. Till the morning of July 15, the issue was oversubscribed by  3.5 times, the final day of bidding. The IPO has received bids for 2,86,22,335 equity shares against issue size of 81,73,530 equity shares (excluding anchor book), the data available on the exchanges showed.

The reserved portion for retail investors has seen 3.26 times subscription and non-institutional investors portion is subscribed five times. The portion set aside for qualified institutional buyers has been subscribed 2.7 times. The price band for the issue has been fixed at Rs 423-425 per share. The company garnered Rs 146 crore from anchor investors.

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The public issue consists a fresh issue of Rs 50 crore and an offer for sale of 1.05 crore equity shares by its promoters Edward Menezes and Sunil Chari. Promoters’ shareholding will be reduced from 95.1% to 72.7% post issue. Majority of analysts advised investors to subscribe the issue given its strong financial performance and return ratios, robust business model, demand for hygiene products due to Covid-19 pandemic and doubling of capacity by adding one more plant in Dahej, Gujarat, though the issue is highly valued compared to listed peers.

“At upper end of the price band of Rs 425, the issue is valued at a at a P/E of 34x at FY20 post IPO EPS which we believe is at a premium owing to its robust business model, big opportunity presented in Covid-19 crisis and strong return ratios. The recent fancy for speciality chemical companies instills confidence on this issue,” said Akash Jain, Vice- President Research at Ajcon Global who has recommended subscribing the issue for listing gains.

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Ajcon Global has a positive bias to the company owing to the following factors: a) diversified product portfolio, b) largest textile specialty chemical manufacturer in India, c) surge in demand for home, personal care and performance chemicals segment, d) strong R& D capabilities with focus on innovation and sustainability, e) proven track record of robust financial performance, d) ROE of 31.79% and ROCE of 24.79% for FY19.

Over FY17-20, it reported revenue, EBITDA and PAT CAGRs of respectively around 37%, 63% and 66%. Its EBITDA margin expanded 724bps to 17.5%. Net debt/equity in FY20 was 0.36x compared to 0.04x in FY19 due to debt-based funding of capex. The working capital cycle shortened from 60 days in FY17 to 25 days in FY19, then increased to 34 days in FY20.

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While recommending subscribe rating to the issue, Anand Rathi also said the stock’s valuation multiple is within the range of the sector average and due to growth prospects on the greater capacity and increase in demand for the products. “The high return ratios coupled with the proof of concept in the historic growth rates provide further comfort.”

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