Rolex Rings IPO review (Apply)

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Review By Dilip Davda on July 26, 2021

•    RRL is one of the top five forging companies.
•    This segment is gaining grounds post revival of the economy after the pandemic.
•    The issue appears reasonably priced compared to listed peers.
•    The investment may be considered for short to long term rewards.

PREFACE:
RRL defaulted on bank finance in the year 2013 and also delayed some of its repayments till FY2019 and this caused pressure on dividend announcement by the company. For this IPO we find that DRHP was for a fresh equity issue of Rs. 70.00 cr. and an OFS was for 6500000 shares, but at per RHP now it stands as a fresh equity issue of Rs. 56.00 cr. and an OFS of 7500000 shares. According to management, since they did not want more finance, they reduced the primary offer but allowed an increase in the secondary offer to accommodate exiting stakeholder needs. The company has an ex-major force clause for all its contracts and hence do not face any issues for cost escalations. In fact, the company has now left over a small portion of borrowings and hopes to be debt-free in the near term. Though the Company suffered a setback due to pandemics, it is on its way to restoring normalcy and expects to gain momentum as the segment in which it is engaged is on a revival mode.  

ABOUT COMPANY:
Rolex Rings Ltd. (RRL) is one of the top five forging companies in India in terms of installed capacity (Source: ICRA Report) and a manufacturer and global supplier of hot rolled forged and machined bearing rings, and automotive components for segments of vehicles including two-wheelers, passenger vehicles, commercial vehicles, off-highway vehicles, electric vehicles), industrial machinery, wind turbines and railways, amongst other segments. it supplies domestically and internationally to large marquee customers including some of the leading bearing manufacturing companies, tier-I suppliers to global auto companies and some auto OEMs.

RRL is one of the key manufacturers of bearing rings in India (Source: ICRA Report) and cater to most of the leading bearing companies in India. Its product portfolio includes a wide range of bearing rings, parts of gearbox and automotive components, among others. The company's manufacturing capabilities are complemented by its tool design, engineering and product development capabilities. To date, it has offered a diverse range of hot forged and machined alloy steel bearing rings weighing from 0.01 kilograms to over 163 kilograms, and with an inner diameter of 25 millimetres to the outer diameter of 900 millimetres. This makes its products suitable for a wide range of end-user industries such as automotive, railways, industrial infrastructure, renewable energy, among others. RRL has been able to maintain long-standing relations with customers and 70% of the 10 largest customers for Fiscal 2021 have been with it for over a decade.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 45.00 cr.) and general corpus fund, the company is coming out with a maiden IPO via a book-building process. The issue comprises of fresh equity issue worth Rs. 56 cr. (approx. 622224 shares based on upper price band) and an offer for sale of 7500000 equity shares (Rs. 675.00 cr. at the upper cap). Thus the overall size of the issue is Rs. 731.00 cr. (approx. 8122224 shares). RRL has fixed the price band of Rs. 880.00 - Rs. 900.00 per share of Rs. 10 each. The issue opens for subscription on July 28, 2021, and will close on July 30, 2021. Minimum application is to be made for 16 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 29.82% of the post issue paid-up capital of the company.

Book Running Lead Managers (BRLMs) to this offer are Equirus Capital Pvt. Ltd., IDBI Capital Markets & Securities Ltd. and JM Financial Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue. Having issued initial equity at par, RRL raised further equity in the price range of Rs. 140.00 to Rs. 150.65 between April 2010 to December 2010. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 15.08, Rs. 17.05, Rs. 17.34, Rs. 18.81 and Rs. 149.16 per share.

Post issue, RRL's current paid-up equity capital of Rs. 26.61 cr. will stand enhanced to Rs. 27.23 cr. At the upper price band, RRL is looking for a market cap of Rs. 2451 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, RRL has posted turnover/net profit of Rs. 911.25 cr. / Rs. 59.04 cr. (FY19), Rs. 675.33 cr. / Rs. 52.94 cr. (FY20) and Rs. 619.76 cr. / Rs. 86.96 cr. (FY21). While the jump in bottom lines for FY21 is attributed to deferred tax provisions while the decline in top lines for the last two fiscals is due to a pandemic that disrupted industries globally.

The company derives major revenues from two sources i.e. Bearing rings and Auto components and over the past three fiscals, both these sources have posted declining trends in revenues.

For the last three fiscals, RRL has posted an average EPS of Rs. 29.44 and an average RoNW of 23.34%. The issue is priced at a P/BV of 6.05 based on its NAV of Rs. 148.76 as of March 31, 2021, and at a P/BV of 5.94 based on its post-issue NAV of Rs. 151.55 (at the upper cap).

If we attribute FY21 earnings on fully diluted post issue equity, then the asking price is at a P/E of around 28.18 (at the upper price band). Thus the issue is reasonably priced against listed peers.

COMPARISON WITH LISTED PEERS:
As per the offer documents, RRL has shown Bharat Forge, Ramkrishna Forge and MM Forgings as its listed peers. They are currently trading at a P/E of 134.47, 90.80 and 37.08 (as of July 23, 2021). However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:
The company has not declared any dividend for the last three fiscals. However, it will follow a prudent dividend policy based on financial performance and future prospects.

MERCHANT BANKER'S TRACK RECORDS:
The three BRLMs associated with this offer have handled 23 public issues in the past three years out of which 6 issues closed below the issue price on the listing date.

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