Rolex Rings IPO: Rolex Rings IPO Price Band, Issue Date, Financials & Review
Rolex Rings IPO opens for subscription on 28th July. The company is looking to raise Rs 731 crore through the public issue. Here are the details:
About Rolex Rings IPO:
Rolex Rings IPO Date: 28 July – 30 July 2021
Rolex Rings IPO Price band: Rs 880 – 900 per share
Issue Size: Rs 731 crore (Fresh equity shares worth Rs 56 crore and offer for sale by promoters and shareholders worth Rs 675 crore.)
Reservation: QIB 50%, Retail – 35%, NII 15%.
Post Issue Market Cap: Rs. 2398 – 2451 cr
Employee Reservation: NA
Bid lot: 16 shares, and in multiples of 16 shares
The Offer comprises of the Fresh Issue and the Offer for Sale. The company proposes to utilize the Net Proceeds from the Fresh Issue mainly towards funding long-term working capital requirements.
About Rolex Rings company:
- The company was incorporated in 2003, and it is one of the top five forging companies in India.
- Rolex Ring manufactures and supplies hot rolled forged and machine bearing rings, and automotive components for segments of vehicles including passenger vehicles, two-wheelers, commercial vehicles, off-highway vehicles, industrial machinery, electric vehicles, wind turbines, and railways, amongst other segments.
- At present, the company has three manufacturing units in Rajkot with 22 forging lines and an aggregated installed capacity of 1,44,750 MTPA.
- In FY20, the company exported automotive components and bearing rings in 17 countries. Some of them are France, Thailand, Italy, the USA, and others.
Rolex Ring Products
Bearing Rings – Bearing Rings form a critical part of bearings and provide a surface on which the rolling element of bearings ride. The company offers a diverse range of machined alloy steel bearing rings and hot forged weighing from 0.01 kilograms to over 163 kilograms, and with an inner diameter of 25 millimeters to an outer diameter of 900 millimeters. The design and machining of the bearing ring depend on the customers’ requirements.
Automotive components – Under this category, the company manufactures automotive components including shafts and spindles, wheel hubs, gears, etc. All the components are manufactured as per customer specifications and comprise parts of the gearbox, among others.
Rolex Rings Financials
- The company’s revenue from operations declined from Rs 904 cr in FY19 to Rs 616 cr for FY21 but the Net profit increased from Rs 59 cr to Rs 87 cr in the same time period.
- Looking at the net profit here is misleading because of deferred tax credit Rolex Rings got in FY21. Profit before tax delivers a much truer picture with PBT falling almost 50% from FY19 to FY21.
- Rolex Rings earned 53% of their revenues from Bearing rings and 38% from auto components.
- EBITDA Margins are falling as well due to higher input costs.
- The only good thing about their financials is that they are reducing debt and hence their interest costs fell 73% in the given time period.
- The company has not declared any dividend for the last three fiscals.
The industry is very competitive but has good growth potential since still 40% of the requirements are imported. The listed peers of Rolex Ring are Bharat Forge, Ramkrishna Forging, and MM Forging
- Among the listed peers, Bharat Forge is the biggest player with revenue almost 10x that of Rolex Rings but Bharat Forge reported a loss of Rs 126 cr in FY21.
- The company is being listed at a P/E of 28.18 at the upper price brand. This is significantly lower than its peers.
- Earning Per Share (EPS) is the highest for Rolex Rings among listed peers.
- Rolex Rings also leads the RoNW at 24% with MM Forging tailing at 9.6%.
Long standing customer relationships:They have been able to maintain long standing relations with their customers and 70% of their 10 largest customers for Fiscal 2021 have been with them for over a decade.
Diversified customers base: Rolex Rings in FY20 supplied bearing rings and automotive components to over 60 customers in 17 countries, primarily located in India, USA and in European countries such as Germany, France, Italy, Czech Republic etc. Having customers from various countries reduces their risk of downfall in their business due bad economic conditions in one single market.
Product Portfolio: Rolex Rings offers a diverse range of hot forged and machined alloy steel bearing rings weighing from 0.01 kg to over 163 kg and with inner diameter of 25 mm to outer diameter of 900 mm. This makes their products suitable for a wide range of end-user industries such as automotive, railways, industrial infrastructure and renewable energy, among others.
Import substitution opportunity: The Indian bearing market is estimated at Rs 12,000 crore, and it constitutes less than 4% of the global bearing demand. In terms of consumption, about 60% requirement is met through domestic production while the remaining is met through imports. There is a lot of scope for the Rolex Ring to capture the market.
More business from existing customers:The company plans on increasing the share of business from existing customers by broadening the portfolio of products offered, higher engagement with existing customers, and continuing to engage with such customers during new product development.
Improving operational efficiency: One of the largest expenses for the company is power and fuel expenses which range between 8 and 10 percent of total revenue. Currently, the company gets electricity from the state electricity board. Now they plan to reduce their carbon footprint through investment in renewable energy. Over time, it will help them save a lot of cost. They have implemented automation solutions in certain of their machining centres to reduce cycle times and reduce manpower requirements.
Improve financial performance: Rolex Rings has scheduled to exit the CDR scheme in March 2022 which should offer them improved flexibility in managing their borrowings and taking other business related decisions. They also aim to use the proceeds from the IPO to further improve their financial profile.
The COVID impact – The continuing impact of the outbreak of the COVID-19 could have a significant impact on the operations of the company. Since the company generates revenues from different geographies due to exports, if those geographies are impacted because of COVID, the company’s future growth will also be impacted.
Dependency of top customers – The company is highly dependent on the top 10 customers. For FY20, FY19, and FY18, the revenue from the top 10 customers was 76.94%, 65.56%, and 69.76% of the total revenue, respectively. For the same reason, the company may face certain issues including pricing pressure. If any of the top 10 customers leave, the balance sheet of the company will be severely impacted.
The foreign demand – The demand for a company’s products in foreign countries is subject to international market conditions and regulatory risks that could adversely affect the business. Any imposition of trade barriers may hurt the results of operations, cash flows, and financial condition of the company.
Outstanding Borrowing – As of September 30, 2020, the company had total borrowings of Rs 234 crore. In the past, the company has delayed repayment of loans and interest in Fiscal 2018 and Fiscal 2019 to financial institutions and banks to the extent of Rs 103 crore and Rs 37 crore, respectively.
Rolex Rings IPO: INDmoney recommendation
Rolex Rings has reported a decline in topline over the last three years, from Rs 904 cr in FY19 to about Rs 616 cr in FY21. Without taking into account the impact of tax credits, the company’s bottomline has also halved from FY19 levels with Profit before tax of Rs 75 crore in FY21.
According to the company’s RHP the company had defaulted in payment of certain loans in the past, and had approached CDR Cell for restructuring debt in FY 2013.
In terms of positives of the issue, the company has better margins and return ratios as compared to listed peers Bharat Forge and MM Forgings. The company derives a significant amount (around 55%) from outside India, which could help to mitigate the impact of a drop in domestic demand due to Covid. Rolex Rings is one of India’s top five bearings makers and has a sizable exposure to the automobile ancillary segment.
At the higher end of the price band, the issue is priced at a PE ratio of ~25 times based on FY21 earnings per share (on a post-issue basis). This is lesser than its listed peers Ramkrishna Forgings and MM Forgings.
Given a decline in the company’s topline and bottomline, and concerns around the company’s delayed repayments in the past we remain ‘Neutral’ on the prospects of the issue. Given a fancy for IPOs in the ongoing season, the company may still see strong subscription numbers. However, from a long-term perspective, it would be better to wait and watch a few more quarters before investing.