Rossari Biotech Ltd

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edAshika Research - Equities

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IPO Note: Rossari Biotech Ltd.

Issue Snapshot

Company Name Rossari Biotech Ltd.

Issue Opens July 13, 2020 to July 15, 2020

Price Band Rs. 423 to Rs. 425

Bid Lot 35 Equity Shares and in multiples thereof.

The Offer

Public issue of 11,676,471 Equity shares of Face valueRs. 2 each, (Comprising of fresh issue of 1,176,471Equity Shares* (Rs. 50 cr) and Offer for Sale of10,500,000 Equity Shares (Rs. 446.25 cr*) by SellingShareholder).

Issue Size Rs. 494.15 – 496.25 Crore

IPO Process 100% Book Building

Face Value Rs. 2.00

Exchanges NSE & BSE

BRLM Axis Capital Limited and ICICI Securities Limited

Registrar Link Intime India Private Limited

Industry: Chemical Reco: Subscribe Date: July 13, 2020

1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com

Issue Break upIssue Size Allocation Equity Shares*

QIB 20% 2,335,294

Anchor Investor 30% 3,502,941

HNI 15% 1,751,471

RII 35% 4,086,765

Total Public 100% 11,676,471

Equity Share Pre Issue (Nos. Cr.) 5.1

Fresh Share (Nos. Cr.) 0.1

OFS Share (Nos. Cr.) 1.1

Equity Share Post Issue (Nos. Cr.) 5.2

Market Cap (Rs. Cr.) 2,207.0

Dilution 22.5%

Fresh 2.3%

OFS 20.2%

* Based on Higher Price Band @ Rs. 425

Objects of the Offer

Offer for SaleThe Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder. (up to 5,250,000 Equity

Shares by Mr. Edward Menezes and up to 5,250,000 Equity Shares by Mr. Sunil Chari)

Fresh Issue➢ Repayment/prepayment of certain indebtedness availed by the Company (including accrued interest);

➢ Funding working capital requirements; and

➢ General corporate purposes.

Company Highlights

Rossari Biotech Ltd. is one of the leading specialty chemicals manufacturing companies in India based on sales for

FY19 providing customized solutions to specific industrial and production requirements of their customers primarily

in the FMCG, apparel, poultry and animal feed industries through company’s diversified product portfolio comprising

home, personal care and performance chemicals; textile specialty chemicals; and animal health and nutrition

products. The company operates in India as well as in 17 foreign countries including Vietnam, Bangladesh and

Mauritius. According to the F&S Report, as on September 30, 2019, the company is one of the largest manufacturer of

textile specialty chemicals in India providing textile specialty chemicals in a sustainable, eco-friendly yet competitive

manner. Rossari’s business is organized in three main product categories – (i) home, personal care and performance

chemicals; (ii) textile specialty chemicals; and (iii) animal health and nutrition products. As on May 31, 2020, the

company had a range of 2,030 different products sold across the three product categories.

The company manufactures majority of the products in-house from their manufacturing facility at Silvassa in the

Union Territory of Dadra & Nagar Haveli. The Silvassa Manufacturing Facility has an installed capacity of 120,000

MTPA. The Silvassa Manufacturing Facility has flexible manufacturing capabilities for powders, granules and liquids.

Further, Rossari can interchange capacities across home, personal care and performance chemicals; textile specialty

chemicals; and animal health and nutrition products categories, which ensures that they can manufacture any of

these products at any point of time depending on the specific requirements of their customers and this facility also

has a comprehensive range of testing as well as packaging capabilities. The company is currently setting up another

manufacturing facility at Dahej in Gujarat with a proposed installed capacity of 132,500 MTPA which will enjoy

proximity to the deepwater, multi-cargo port of Dahej. The proposed state-of-the-art facility will be well-equipped

with advanced technologies and will be commissioned in FY21.

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The company has a wide network of distributors through which they sell products. Rossari’s pan-India distribution

network has over 204 distributors as on May 31, 2020. The company sell home, personal care and performance

chemicals; and textile specialty chemicals in a business-to-business model through their distributors primarily to

customers in FMCG and apparel industries, respectively; and sells animal health and nutrition products through

distributors either in a business-to-business model or to retailers. The company also has 29 distributors spread in

over 17 countries. The company has also set up international offices in Ho Chi Minh City, Vietnam and Dhaka,

Bangladesh as these two are primary overseas markets for their textile specialty chemical products.

Business Update – COVID-19

➢ Manufacturing of disinfectants & sanitizers as part of the Home, Personal Care & Performance Chemicals led the

Company’s products to get categorized under essential goods, therefore, manufacturing facility at Silvassa was

not shut down.

➢ During the initial stages of the lockdown, the Company faced limited availability of labour, supply chain

constraints and logistical problems due to which the Silvassa facility operated at a sub-optimal capacity in the

month of Apr-20.

➢ The plant utilization subsequently has improved with raw material suppliers resuming operations and supply &

logistics becoming more regular.

➢ The HPPC segment has been positively impacted with higher demand for disinfectants & sanitizers however the

textile specialty chemicals segments witnessed a temporary reduction in demand.

➢ Due to the COVID-19 pandemic, import of a few raw materials were restricted but were substituted with

domestic suppliers in time without impact on continuity of operation.

➢ Higher levels of inventories may have to be maintained to ensure continuity of production.

➢ Some of the customers have requested for extended payment terms due to the lockdown.

ViewRossari Biotech is one of the leading specialty chemicals manufacturing companies in India, which caters to FMCG,

Apparel, Poultry and Animal Feed industries through its diversified product portfolio comprising Home, Personal

Care and Performance Chemicals; Textile Specialty Chemicals; and Animal Health and Nutrition Products. In current

uncertainty, the home, personal care and performance chemical division is much insulated than other two business

divisions. Home & personal care division caters to mainly FMCG sector which are essential items and there is no

demand slowdown. Manufacturing of disinfectants & sanitizers as part of the Home, Personal Care & Performance

Chemicals led the Company’s products to get categorized under essential goods, thus its manufacturing facility at

Silvassa was not shut down during COVID-19 lock down period. Previously, company’s business was much

dependent on the textile space (nearly 71% revenue came from textile in FY18 which reduced to 44% in FY20), but

steadily company has brought down the revenue share and simultaneously the revenue share of Home & Personal

care division has increased and current it accounts nearly 47% of FY20 revenue, which turns a big positive for

Rossari Biotech. Company is financially sound company with low leverage in balance sheet. In past 3 years (FY17-

FY20), company has delivered stupendous growth on revenue, EBITDA and net profit level, which grew at a CAGR of

42%, 57% and 60% respectively. Its robust growth was reflected in its return ratios with RoCE and RoNW of 25%

and 32% in FY20. The company is currently setting up another manufacturing facility at Dahej in Gujarat with a

proposed installed capacity of 132,500 MTPA which will enjoy proximity to the deepwater, multi-cargo port of

Dahej. The proposed state-of-the-art facility will be well-equipped with advanced technologies and will be

commissioned in FY21. This will further enhance the revenue visibility of the company. The business carries a moat

of leading the manufacturing of specialty chemicals for the textile space and caters to other categories such as

home, personal care, animal health etc. with a list of a top-notch client base. Increase in capacity, robust

management and sound corporate governance policy will drive growth going forward. However, the IPO is valued

slightly at higher premium at P/E 33.8x as compared to average industry P/E of 30x. But given its strong business

model, healthy balance sheet, consistent growth in topline and bottomline, strong return ratios justify the valuation

and we recommend our investors to SUBSCRIBE the IPO for the listing gain as well as for long term investment

perspective.

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Source: RHP

Product Categories

Product categories FY18 FY19 FY20 Applications

Home, personal care and performance chemicals 55.7 195.5 280.9 Specialty chemicals for detergents, surface cleaners, water treatment, paints, coatings, ceramics etc.Percentage of total revenue from operations 18.6% 37.9% 46.8%

Textile specialty chemicals 214.0 269.1 262.3 Specialty chemicals catering to the entire value chain including pre-treatment, processing, dyeing, finishing etc.Percentage of total revenue from operations 71.5% 52.1% 43.7%

Animal health and nutrition 29.4 51.6 56.9 Poultry feed supplements, pet grooming and pet treats including for weaning, infants and adult petsPercentage of total revenue from operations 9.8% 10.0% 9.5%

Total 299.1 516.2 600.1

Manufacturing Facility

FY18 FY19 FY20 FY21

Silvassa Manufacturing Facility

Installed capacity (MTPA) 60,000 80,000 120,000 120,000

Production volume (MTPA) 44,513 73,584 86,581 N.A.

Capacity utilization 74.2% 93.9% 82.5% N.A.

Dahej Manufacturing Facility

Installed capacity (MTPA) N.A. N.A. N.A. 132,500

Capacity utilization N.A. N.A. N.A. N.A.

Total Installed Capacity (MTPA) 60,000 80,000 120,000 252,500

Major Customers

FMCG Companies Apparel and Textile CompaniesPoultry Feed, Animal Feed or Food-Service Companies

➢ RSPL Ltd (Ghadi detergent);

➢ IFB Industries Ltd;

➢ Hindustan Unilever Ltd;

➢ BSH Household Appliances Manufacturing Pvt Ltd;

➢ CICO Technologies Ltd;

➢ Rentokil Initial Hygiene India Pvt Ltd;

➢ Millennium Papers Pvt Ltd.

➢ Arvind Ltd;

➢ Raymond Ltd;

➢ Ashnoor Textile Mills Ltd;

➢ Bhaskar Industries Pvt Ltd;

➢ European Textile Chemical

Corporation;

➢ Shahi Exports Pvt Ltd.

➢ Hitech Hatch Fresh Pvt Ltd;

➢ Gokul Poultry Industries;

➢ Sarvottam Poultry Feed Supply

Centre Pvt Ltd;

➢ Sneha Farms Pvt Ltd.

Source: RHP

Source: RHP

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(In Rs. Cr) FY18 FY19 FY20

Cash flow from Operations Activities 25.6 71.2 54.8

Cash flow from Investing Activities (20.4) (36.4) (190.3)

Cash flow from Financing Activities (6.5) (29.2) 156.9

Net increase/(decrease) in cash and cash equivalents (1.4) 5.6 21.5

Cash and cash equivalents at the beginning of the year 2.1 0.6 5.7

Cash and cash equivalents at the end of the year 0.6 5.7 29.2

Source: RHP

Comparison with listed industry peers

Financial Statement

Cash Flow Statement

(In Rs. Cr) FY18 FY19 FY20

Share Capital 4.4 4.4 10.2

Net Worth 87.1 123.8 286.7

Long Term Borrowings 1.3 0.7 34.0

Other Long Term Liabilities 3.3 3.6 2.2

Short-term borrowings 18.8 3.3 27.1

Other Current Liabilities 54.5 118.5 121.7

Fixed Assets 53.3 83.9 115.3

Non Current Assets 1.7 6.2 29.9

Current Assets 109.9 159.8 326.3

Total Assets 165.0 249.8 471.5

Revenue from Operations 299.1 516.2 600.1

Revenue Growth (%) 72.6 16.2

EBITDA 42.6 77.6 104.7

EBITDA Margin (%) 14.3 15.0 17.5

Net Profit 25.4 45.7 65.3

Net Profit Margin (%) 8.5 8.8 10.9

Earnings Per Share (Rs.) 5.3 9.4 13.4

Return on Networth (%) 34.1 43.3 31.8

Net Asset Value per Share (Rs.) 17.99 25.6 56.5

Source: RHP, Ashika Research

Co Name D/E(x)

RONW(%)

P/E(x)

P/BV(x)

EV/EBIDTA(x)

Market Cap(Rs. Cr.)

Rossari Biotech 0.0 31.8 33.8 6.6 20.9 2207.0

Aarti Industries 0.9 18.9 30.5 5.3 18.2 16331.0

Atul Ltd. 0.0 22.7 20.6 4.3 14.1 13731.5

Fine Organic Ind 0.3 29.5 37.0 9.9 23.5 6100.7

Vinati Organics 0.0 28.7 30.9 8.1 22.5 10330.6

Galaxy Surfactants 0.3 23.7 24.6 5.2 15.7 5538.6

Source: RHP

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Documents

Rossari Biotech Ltd