Rolex Rings IPO opens tomorrow, should you subscribe?

The Rs 731-crore initial public offer (IPO) of auto ancillary major Rolex Rings is set to hit the street tomorrow (July 28). The price band for the Gujarat-based company has been fixed at Rs 880-900 per share.

The issue comprises fresh issuance of equity shares of Rs 56 crore, and an offer for sale of Rs 675 crore by Rivendell PE LLC. The forging company will utilise the net proceeds from fresh issue for funding long-term working capital requirements and general corporate purposes.

An investor can bid for a minimum of 16 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,400 at the higher end of the price band. A retail investor can at maximum apply for 13 lots or 208 shares for Rs 1,87,200.

Grey market chatter

A day before the IPO, shares of Rolex Rings were trading at Rs 1,310 per share in the grey market marking a premium of Rs 410 or 45.55% on the upper price band of Rs 900.

“Glaring at the performance of the company the growth seems to be missing as revenue from operations remained at Rs 616.33 crore in FY 2020-21 from Rs 904.3 crore in FY 2019. As per RHP the company had defaulted in payment of certain loans in the past, and had approached CDR Cell for restructuring debt in FY 2013,” said the founder of Unlisted Arena, Abhay Doshi.

The raw materials used by the company pre-dominantly include carbon steel, alloy steel and stainless steel, the price of which has been volatile in the past which could affect their operating margins.

At the price of Rs 900, the asking PE comes at 24x. High sentiment in primary markets may emanate in listing gains but for the long term, it would be worthy to watch for future performance and take any decision, added Doshi.

Should you subscribe?

Here is what brokerages have to say about the issue.

Marwadi Shares and Finance | Rating: Subscribe (With Caution)

Considering the FY-21 adjusted EPS (earnings per share) of Rs 31.93 on a post-issue basis, the company is going to list at a P/E of 28.19 with a market cap of Rs 245 crore, while its peers namely Ramkrishna Forgings and MM Forgings are trading at a P/E of 123.30 and 37.14, respectively.

Marwadi Shares and Finance has assigned a “Subscribe (With Caution)” rating to the issue as the company is one of the leading forging manufacturers with geographically diversified revenue base and is available at reasonable valuation as compared to its peers. However, the client concentration risk and corporate debt restructuring in the past keeps us cautious at the same time from a longer-term perspective.

GEPL Capital | Rating: Subscribe

The Indian bearing industry accounts for less than 4% of the global bearing market, though its share is expected to grow over the medium to long term, supported by increasing industrialisation as well as a healthy growth expected in the automotive market.

While, the entry barrier is relatively lower for smaller bearing rings with high tolerances, the
technological know-how, as well as manufacturing capabilities, becomes a differentiating factor as complexity/size of bearing increases

Dilip Davda | Rating: Subscribe

Though Rolex Rings’ top line has shown declining trends, its higher earnings following deferred tax and other provisions and reasonable pricing make it is a worthy bet for short to long-term rewards. The company will be a debt-free company in the near term and will pose for bright prospects ahead once normalcy is restored. Off late, we are also witnessing fancy for forging companies. Investment may be considered.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)