Rossari Biotech hit the IPO markets with the first IPO of the financial year 2019-2020 on Monday, July 13, 2020. The Company was all set to launch its IPO on March 18, 2020, but this was canceled amidst the tensions relating to the Coronavirus Pandemic. However, now with the secondary markets opening up somewhat, the Company decided to go forward with its IPO again.
What is Rossari Biotech IPO?
Rossari Biotech is a manufacturer of textile and specialty chemicals. It was incorporated in 2009 by promoters Edward Walter Menezes and Sunil Srinivasan Cheri. It operates in 17 countries, including Vietnam, Mauritius, India, and Bangladesh. According to the F&S report published on September 30, 2019, the Company is the largest textile specialty chemical manufacturer in India.
Coming to its product portfolio, it is quite diversified and Rossari Biotech operates in three main segments, that are-
Home, Personal Care, and Performance Chemicals.
Textile Specialty Chemicals.
Animal Health and Nutrition Products.
They offer around 2030 different products under these categories, and they primarily follow a B2B Model, which is a business to the business model of selling their products. It has over 194 traders across India, and 27 wholesalers spread across 17 other nations.
The vast majority of the organization's results are achieved internally. It has an assembly unit located at Silvassa, Dadra and Nagar Haveli with an installed limit of 100,000 MTPA. The organization is also setting up an assembly unit in Dahej, Gujarat, with a limit of 132,500 MTPA. Apart from this, Rossari Biotech also has two research and development centers. One of them is in Silvassa, while the other is in Mumbai. This is to focus on advancing new items and details and coming up with cost reduction methods.
Strengths and Opportunities available to the Rossari Biotech
Diversified Product Portfolio- One of the major strengths of the Company is the product range that it offers. If we take a look at the Company's revenue stream for the financial year 2019-20, we can see that the Company's primary driver was the home, personal care, and performance chemicals segment. This segment accounted for about 47% of the entire revenue. The second segment of textile chemicals accounted for approximately 44%, and the animal health and nutrition segment made up around 9% of the revenue stream. One thing to notice and compare is the revenue figures for the year 2019-20 and 2018-19. In the year 2018-19, the home care segment had accounted for around 19% of the revenue, while the textile segment had accounted for 72%. The major jump in the home care segment in one year came from the sales to Hindustan Unilever. This was a major boom to the Company as it had reduced its reliance on the textile sector and had worked on the opportunity of the home and personal care category.
Good Foothold in India- If we look at the Company's geographical distribution, then we see that around 87% to 89% of its total revenue comes from operations in India while the exports account for around 13% to 11%. With its Pan-India distribution network and the good research facilities in the country, the Company has managed to acquire a good customer base.
Untapped segments- One of the opportunities that the Company can really take advantage of is from the fact that out of the entire global specialty chemicals market, Rossari Biotech only operates in around 50% of the segments. The other segments like dyes and pigments, agrochemicals and flavors, and fragrances account for the other half, and the Company has not yet tapped into these segments. This serves as a huge opportunity for the Company that should be taken advantage of.
The Coronavirus Pandemic- The pandemic resulted in the surge of demand for disinfectants and sanitizers. Being an essential product, Rossari was still able to operate its Silvassa unit. The pandemic has also made people and businesses realize the importance of anti-bacterial and antimicrobial textile materials. This is something that the Company deals in and could further lead to a rise in its sales for textile specialty chemicals.
The popularity of specialty chemicals- The industry for specialty chemicals are doing quite well, both globally and domestically, in India as well. There is a growing demand for these chemicals, and the hype around the industry could seriously work in favor of the Company in the coming years.
Weakness and Threats of the Company
Rising Raw Material Costs- The raw materials of the Company are expensive, to say the least, and it is one of the major weaknesses of the Company. It could pose a serious threat to the operations of the Company. The raw materials used are acrylic acid, silicone oil, etc., which account for around 60% of the entire revenue. Such costs could end up eating a major chunk of the revenues and profits earned.
The concentration of Customers- The customer base of the Company is highly concentrated in the hands of a few major players, and this could serve as a huge threat to the Company. Around 44% of the Company's revenues come from the top 5 customers, and around 54% from the top 10 customers. Losing such customers could result in major losses to the Company.
The sole dependence on Silvassa Manufacturing Unit- Until now, the Company has only one manufacturing unit in Silvassa. If operations for some reason were to stop in this unit for any reason, the Company would have no production for days. This is a weakness that the Company is currently working on by planning to open another unit in Dahej, Gujarat.
The Rossari Biotech IPO issue
If we look at the promoter holding before the IPO, it accounted for about 95%, which is about to be reduced to around 73% after the IPO issue. The IPO is going to be a mix of fresh issue and Offer for Sale. The promoters of the Company, Edward Menezes and Sunil Chari, will be selling 52,50,000 shares each, which sums up to 1,05,00,000 equity shares and fresh capital of Rs. 50 crore would also be raised.
The bidding for the issue started on July 13, 2020, and ended on July 15, 2020, with a bid lot of 35 shares and a face value of Rs.2. Also, the price range specified by the Company was from Rs. 423 to Rs. 425.
We should also look at the objectives of this issue. They are:
Repayment/prepayment of certain indebtedness availed by the Company (including accrued interest);
Funding working capital requirements; and
General corporate purposes.
Our thoughts on the IPO Rossari Biotech issue
If we look at the growth rate of the Rossari Biotech Company, we see that it has witnessed high growth rates for the past few years. The Company has seen a massive growth rate of around 60% CAGR, as compared to its peers. With sound management and ethical corporate governance practices, the Company could grow further. However, the dependence on the textile chemical sector could serve to pose a threat to the Company, even though the number has come down from the previous 72% to the current 44%. Also, it seems that the Company's P/E Ratio might be overvalued at 31 times as compared to its peers and the industry average of 27 times.
Taking account of all these factors, the Company seems like a good investment for the long term, with its low debt to equity ratio and high growth potential. Short term investors might not be able to gain a lot and may just be able to enjoy the listing gains.