Rossari Biotech IPO opens, should investors subscribe in this market environment or not?

Among other key strengths of the company is its sales and distribution network that has 204 customers as of May this year.

Rossari Biotech’s Rs 500 crore initial public offering (IPO) opened today for subscription at a price band of Rs 423-425, this is the first time since March that the IPO market will see some activity. Rossari Biotech’s issue will consist of a fresh issue of equity shares of Rs 50 crore and an offer for sale of 1.05 crore shares by the promoters with each equity share having a face value of Rs 2. The specialty chemicals firm has said that it will use the proceeds from the IPO to repay debt and fund working capital. The issue will stay open for subscription till July 15.

Offering 1.17 crore shares in multiples of 35, Rossari Biotech’s IPO has 50% portion reserved for qualified institutional bidders (QIB) while 15% is open for non-institutional bidders and 35% for retail. The IPO has attracted mixed emotions on the street. Some are advising investors to subscribe while some say caution is necessary at this juncture. Rossari Biotech raised around Rs 100 crore through pre-placement of shares with institutional investors in February this year. 

“The company is into the acrylic polymer business, which finds application into home & personal care along with paints,” said ICICI Direct in a note. The brokerage firm has not rated the IPO. “The company has return ratios in the high thirties. At the higher end of the price band of | 425, the stock is available at a P/E of ~34x (on post-issue basis) and EV/EBITDA of ~19.9x (post issue),” it said. Rossari Biotech has operations in 17 countries and has a diverse product mix, according to analysts. “Over the past four years, increase in plant capacity and raising awareness on the home & personal care (HPCC) have led HPCC segment revenue mix to inch up from 15% in FY17 to 47% in FY20,” the note said.

The company caters to various customers’ needs across FMCG, apparel, and poultry and animal feed industries through their diversified product portfolio comprising home, personal care and performance chemicals; textile specialty chemicals; and animal health and nutrition products. Among other key strengths of the company is its sales and distribution network that has 204 customers as of May this year. “Rossari Biotech has an experienced management team led by its founders and Promoters, Edward Menezes and Sunil Chari who have cumulatively over 45 years of experience in the chemicals industry and the company benefits immensely from their expertise,” said Kotak Securities in a note. Kotak Securities has not rated the issue.

In financial year 2020, financial year 2019, and financial year 2018, Rossari Biotech generated total revenue of Rs 603 crore, Rs 517 crore, and Rs 300 crore, respectively, EBITDA was at Rs 104 crore, Rs 77 crore, and Rs 42 crore, respectively. With the debt going to be trimmed post the IPO, the company is looking for inorganic expansion. Geojit Financial Services has a Subscribe rating on the IPO after evaluating the post-IPO cash flows of the firm, customer list, and industry outlook. “At the upper price band of Rs 425, Rossari Biotech is available at P/E of 33.8x FY20 which seems expensive when compared to peers. However, considering RoE at ~44% (last 3- year Avg.), strong revenue growth and expanding margin profile support our ‘SUBSCRIBE’ rating for long term perspective,” it said.