Rolex Rings Limited (RRL)'s total issue size is Rs. 731 crore constituting (i) Offer For Sale of up to 0.75 crore equity shares aggregating to Rs. 675 core by Rivendell PE; and (ii) fresh issue of up to 0.06 crore equity shares aggregating to Rs. 56 crore. The offer shall constitute 29.8 percent of the post-offer paid-up equity capital of the company.
Rolex Rings initial public offer was fully subscribed within hours of opening. The Rs 731-crore IPO received bids for 74,16,00,096 shares against 56,85,556 shares on offer in July, as per data available with NSE.
The qualified institutional buyers (QIBs) category was subscribed 143.58 times, non-institutional investors 360.11 times, and retail individual investors (RIIs) 24.49 times. The initial public offer (IPO) comprised a fresh issue of up to Rs 56 crore and an offer for the sale of up to 75 lakh equity shares. The offer was in a price range of Rs 880-900 a share.
Equirus Capital Private Limited, IDBI Capital Markets and Securities Limited, and JM Financial Limited were the managers of the offer.
The equity shares of the company will be listed on BSE and NSE today.
Objectives
Rolex plans to utilise the proceeds from the fresh issue for funding working capital requirements.
Investment rational
The Company has a strong growth outlook for the bearings industry to act as a tailwind; import substitution together with development of India as a manufacturing hub for exports at the bearings industry level shall propel higher growth in the bearings rings industry. It has a comprehensive product portfolio makes the company a preferred supplier; long-standing customer relationships; geographically diversified revenue base; manufacturing capabilities offering scale, flexibility and locational advantage; and a strong improvement in balance sheet strength and credit rating.
Company background
The company started its business under the partnership firm by the name of ‘Rolex Industries’ by two of their promoters, Rupesh Dayashankar Madeka and Manesh Dayashankar Madeka in 1977-1978. The partnership firm was, thereafter, converted into a joint stock company in the name of ‘Rolex Rings Private Limited’, as per the certificate of incorporation dated February 13, 2003.
The promoters of the company are Rupesh Dayashankar Madeka, Jiten Dayashankar Madeka, Manesh Dayashankar Madeka, Pinakin Dayashankar Madeka, and Bhautik Dayashankar Madeka. Currently, the promoters hold an aggregate of 12,987,407 equity shares and 10,711,856 NCRPS, comprising 48.80 percent of the pre-Offer issued, subscribed and paid-up equity share capital and 78.73 percent of the issued, subscribed and paid-up NCRPS, respectively, of the company.
Rolex Rings (RRL), one of the top five forging companies in India, commenced operations in 1988 with their first manufacturing plant in Rajkot. The company manufactures and supplies hot rolled forged bearing rings, automotive components (including EVs) for segments of vehicles including 2-W, PV, CV, industrial machinery, wind turbines & railway among other segments.
The client base of RRL consists of leading global bearing manufacturers viz. SKF, Timken, Schaeffler, NEI & NRB Bearings. RRL has three manufacturing units in Rajkot consisting of 22 forging lines with a combined capacity of 144750 MTPA and machining facilities consisting of 528 spindles with combined installed capacity of 69 million parts per annum.
RRL serves 60 customers across 17 countries and is one of the key suppliers for leading bearing manufacturers. The company’s comprehensive product portfolio catering to auto, industrial, infra and renewable segments and long-standing customer relationship gives credence to the quality and sustainability of RRL’s products.
As the industrial segment picks up led by increased capex spend by public and private sector coupled with a recovery in auto sector, RRL should see strong traction from bearing manufacturers.
The bearing clientele of RRL constitutes 80 percent of the total market, hence, ensuring strong traction for RRL once the tide turns.
For Fiscal 2021, Rolex Rings 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, and Czech Republic, and Thailand. They have been able to maintain long standing relations with their customers and 70 percent of their 10 largest customers for fiscal 2021 have been with them for over a decade.
The company intends to de-risk their business’ dependence on changes in power tariffs and reduce their carbon footprint through investment in renewable energy. Currently, they have windmills with installed capacity of 8.75 MW. They are in the process of expanding capacity of their solar projects by an installed capacity of 16 MW and have already placed purchase orders for equipment with installed capacity of 7.35 MW. The proposed expansion will help them in reducing their carbon footprint and expanding their profit margins.
Brokerages verdict
Saurabh Joshi, Research Analyst, at Marwadi Shares and Finance Limited, said the firm has given given a subscribe (with caution) rating to Rolex Rings IPO and the listing was in line with their expectations. "We have recommended investors to book profit on listing as client concentration risk and CDR debt restructuring in the past keeps us cautious from a longer-term perspective. Long term investors are advised to avoid entering the stock at any correction due to the greater risk associated with the investment. The company listed at P/E of 38.90 which when compared with MM Forgings (P/E 38.02) and Ramkrishna Forgings (P/E 39.77) caps the upside potential of the stock in the short term as well."
Priced at P/E of 28.2x (post issue) FY21 on upper band RRL has been priced at 28.2x FY21EPS on a post issue upper band basis. A sticky clientele, increasing share of business amongst existing customers, improving operational efficiencies led by better utilisation and exit from CDR remain key catalyst for RRL, ICICI Securities recommends 'Subscribe' to the issue.
For the valuation, at higher price band of Rs. 900, RRL is demanding a P/E valuation of 28.2x (to its restated FY21 EPS of Rs. 31.9). If we normalize the FY21 earnings (i.e. apply a tax rate of around 17 percent), the demanded P/E valuation comes out to be 39.4x, which we feel is stretched, said Choice Broking. Moreover, it is demanding EV/Sales of 4.3x, which is at premium to the peer average of 3.9x. The overall outlook for bearing rings and auto components industries remains positive. However, despite its presence in the lucrative industrials segment, the higher demanded valuation is a concern for investors. Thus we assign a “Subscribe with Caution” rating for the issue, said Choice Broking.
Rolex is a proxy play on global growth in the industries of bearings and auto components. With global as well as domestic industrial investment cycle having troughed out last year, Nirmal Bang expects a gradual recovery to have a positive rub-off on auto ancillary plays such as Rolex. Although there is no direct comparable peer to Rolex, the brokerage compares it with prominent forgings and auto component players. It observes that Rolex’s financial metrics as well as valuations are broadly in line with that of other players. The historical growth is lagging others which is compensated by the company’s higher return ratios. Considering these metrics, Nirmal Bang recommends subscribing to the issue from a long-term perspective.
The IPO is valued at 28.2x of FY21 earnings, which appears to be attractive considering peers’ valuations and strong return ratios. Its peers like Bharat Forge and RK Forgings command premium valuations despite generating subpar return ratio compared to RRL. Reliance Securities believes the strong outlook for auto ancillary companies, especially the forging companies, with visible pick-up in demand around the globe should aid RRL to record healthy growth in the ensuing years. Further, possibility of further improvement in balance sheet, industry-leading return ratio and healthy clientele base augur well for the company. Hence, Reliance Securities recommends 'Subscribe' to the IPO.
Angel Broking said Rolex Rings was progressing well before the auto slowdown and COVID impacted its business in FY20 and FY21. The company is almost out of CDR and had shown good operational performance prior to FY20 with good cash generation helping it reduce debt levels. It orders from customers are high volume orders and are not very critical in nature as far as application is concerned. Given that the MAT credit of Rs 25 crores has boosted the bottom line in FY21, the brokerage believes that valuations are capturing all positives. Moreover, we believe that promoters picking up Rs 25 lakh shares at Rs 10 per share prior to issue via right issue of OCRPS and subsequent conversion is detrimental to other shareholders. Hence, Angel Broking assigns “Neutral” to the issue.
Ventura initiates coverage with a 'Subscribe' for long-term investing. Ventura's target price of Rs 1,177 (15X FY24 earnings) represents a potential upside of 31 percent from the offer price of Rs 900 over a period of 18-24 months. Better than expected recovery in the global economy, a rebound of the domestic automotive industry and the management’s guidance on higher capacity utilization in the coming years bolster their confidence in improving revenue growth and profitability, the brokerage said.
Industry overview
The forging industry is an essential part of the manufacturing value chain and one of the key drivers for the auto component markets in India. Over the years, Indian forging companies have gained technical knowhow in making critical components as well as improved share of machined content, which has helped margin expansion for some of the larger players. As per the Association of Indian Forging Industry (AIFI), the country’s forging industry had an installed capacity of 4.7 million MTPA capacity and a turnover of | 34,000 crore in FY20 (compared to | 45,000 crore in FY19). The automotive sector accounts for 60% of forging production whereas the rest is catered to by the non-automotive segments like oil & gas, locomotive, defence and other applications.
Based in Rajkot, Gujarat, Rolex Rings is among the leading manufacturers of forged and machined components in the country.
