Rossari Biotech - IPO Review - ICICI Securities

Rossari Biotech (RBL) is one of the leading specialty chemicals manufacturing companies in India, providing customised solutions to specific industrial and production requirements of customers primarily in the FMCG, apparel, poultry and animal feed industries through diversified product portfolio comprising home, personal care & performance chemicals, textile specialty chemicals and animal health & nutrition products. The company operates in India as well as 17 foreign countries including Vietnam, Bangladesh and Mauritius. As on May 2020, it had a range of 2,030 different products sold across the three product categories.

Investment Rationale

Capex provides earnings visibility for medium term

Rossari Biotech has a present capacity of 100,000 MT at Silvassa. The company's plants are fungible. Hence, based on the demand environment, it can alter the product mix. Over the past four years, increase in plant capacity and rising awareness on the home & personal care (HPCC) have led HPCC segment revenue mix to inch up from 15% in FY17 to 47% in FY20. Going ahead, management expect capacity increase of 152,500 MT (20,000 MT at Silvassa, 132,500 at Dahej) to assist better growth visibility for the entire group performance in medium to long term.

Strong balance sheet, better FCF generation likely to continue...

Rossari Biotech raised around Rs. 100 crore through pre-placement of shares with institutional investors in February 2020, which led to liquid investment & cash of Rs. 141 crore against total debt of Rs. 67 crore. Further, the company plans to raise Rs. 50 crore through a fresh issue, which would lead to further improvement in balance sheet. As per the object of the issue, the company clarified that they may use this proceeds to repay a debt and fund working capital. Further, they mentioned in their strategies that they may also go for inorganic expansion in the years to come.

Priced at P/E of 34x (post issue) FY20 on upper band

The company is into acrylic polymer business, which finds application into home & personal care along with paints. Management highlighted that they have witnessed decent traction from the home & personal care products due to covid-19. The company has return ratios in the high thirties. At the higher end of the price band of Rs. 425, the stock is available at a P/E of ~34x (on post issue basis) and EV/EBITDA of ~19.9x (post issue).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_RossariBiotech_IPOReview.pdf

Source : Equity Bulls

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