Fluctuating performance, poor capacity utilization, steep valuation, past loan defaults, CDR restrictions, non-dividend paying track, pledged promoters’ stake, family-dominated management, etc., take the gleam away.
|
ROLEX RINGS OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 56 Cr |
| Offer for Sale | 75 lakh shares (Rs 675 Cr) |
| Face Value | Rs 10 |
| Price Band | Rs 880 – 900 |
| Mkt/Bid Lot | 16 Nos. |
| Implied M-Cap | Rs 2451 cr |
| Implied Equity Cap | Rs 27.23 cr |
| Free Float | 42.36% |
| Lead Manager | Equirus Capital, IDBI Capital, JM Financial |
| Registrar | Link Intime |
| Listing At | BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
| Opening :28-Jul-2021 | Closing :30-Jul-2021 |
| Allotment :4-Aug-2021 | Refunding :5-Aug-2021 |
| Demat Credit :6-Aug-2021 | Trading :9-Aug-2021 |
The Offer
Rajkot-based Rolex Rings Ltd is going public with an IPO of Rs 731 cr. The offer consists of a fresh issue of Rs 56 cr from the company and an offer for sale of 75 lakh shares valued at Rs 675 cr from private equity fund Rivendell PE LLC (formerly, NSR-PE Mauritius LLC). The offer is being made through the book-building route with a price band of Rs 880-900 for Rs 10 paid-up share. At the cap price, the quantum of offer works out to about 81.22 lakh shares.
Applicants should bid for a minimum lot of 16 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on August 9, 2021. Equirus Capital, IDBI Capital and JM Financial are acting as managers to the offer and Link Intime has been roped in as registrar to the issue. The bidding opens on Wednesday, July 28 and closes on Friday, July 30, 2021.
The company proposes to utilize the net proceeds to the tune of Rs 45 cr towards funding long-term working capital requirements of which Rs 40 cr is to be deployed in fiscal 2022 and Rs 5 cr in fiscal 2023. The balance fresh issue amount is earmarked for general corporate purposes. However, the objects of the fresh issue have not been appraised by any bank, financial institution or independent agency.
Lineage
According to the offer document, the business was actually started in 1977 under the name of Rolex Industries. In 1978 two of the promoters viz Rupesh Dayashankar Madeka and Manesh Dayashankar Madeka formed a partnership firm under the same name. They reportedly started manufacturing of forgings and forged products in 1988, though their first Unit was commissioned three years later, in 1991. The partnership firm was converted into a joint stock company in the name of Rolex Rings P Ltd in the year 2003. The company received Private Equity investment of about Rs 151 cr from Rivendell (formerly, NSR-PE Mauritius LLC) in the year 2007 which was fully converted into equity in 2010.
Rolex is controlled by the Rajkot-based Madeka family. Five brothers namely Rupesh Madeka, Jiten Madeka, Manesh Madeka, Pinakin Madeka and Bhautik Madeka are designated as promoters. Two more brothers, Ashok Madeka and Paresh Madeka, are part of the promoter group. Most of the key managerial positions in the company are held by the Madeka family members.
Despite support from private equity, Rolex has had a troubled past in loan repayments. The company approached its lenders to restructure the debts and accordingly it was referred to the Corporate Debt Restructuring forum which reportedly approved the restructuring of debt on January 9, 2013 and advised the company to implement the CDR package within a maximum period of 120 days. As per the CDR Package, the restructured term debt amounted to Rs 487 cr out of which Rs 136 cr were to be repaid by March 31, 2020 and balance Rs 351 cr by March 31, 2022. As on March 31, 2021, the percentage of the restructured term debt still due was Rs 33.57 cr.
Key Management
Rolex has eight Directors on its Board, including four independent directors. One of the promoters, Manesh Madeka (63), is the Chairman and Managing Director of the company. He together with his brother Rupesh Madeka started the business under the partnership firm in 1978. Younger brother Bhautik Madeka (56) is a Whole Time Director. He reportedly joined the company on December 31, 2002 when it was still a partnership firm. Rupesh Madeka’s son, Mihir Madeka (44) is another Whole Time Director. He has also joined the company on December 31, 2002.
Promoters Rupesh Madeka (75) and Jiten Madeka (71) are the Joint Heads of Plant & Maintenance, and Jiten Madeka’s son, Bharat Madeka, is President – Operations & Human Resources. Bharat’s cousin Hemal Paresh Madeka is President – Supply Chain & Quality Assurance and Promoter Pinakin Madeka (59) is Head of Forgings.
The private equity Rivendell is represented by Vivek Sett (66) as Nominee Director. He was previously associated with Ispat Industries as its director (commercial) and Tata Realty & Infrastructure, Tata Teleservices Limited and Hughes Telecom (India) Limited as their chief financial officer. He is currently a Partner at New Silk Route Advisors.
Stakeholders
Of the present equity of Rs 26.61 cr, the promoter group collectively holds 59% and private equity fund Rivendell is having 41%. Post public offer, promoter group will have 57.64% and public will hold 42.36% of the enlarged equity of Rs 27.23 cr. Whereas, the promoters’ average cost of holding would be between Rs 15 and Rs 19, Rivendell’s cost would be negative as it would be collecting more than four times of its investment value by offloading only a part its holdings.
Business Track
Rolex is claimed to be one of the top five forging companies in India in terms of installed capacity. It is a leading manufacturer and global supplier of hot rolled forged and machined bearing rings and automotive components. It supplies to large marquee customers including some of the leading bearing manufacturers and auto OEMs. As per ICRA Report, SKF, Schaeffler, Timken, NEI and NRB collectively account for 81% of the market share of Indian bearing industry. Rolex is said to be one of the key manufacturers of bearing rings in India, catering to most of the leading bearing companies.
Currently, the company has three manufacturing units in Rajkot. A large part of its existing machining lines reportedly consist of spindles from DMG, FUJI, ACE, TSUGAMI, Hyundai, Mazak, Muratec and domestic CNC Turning centres as well. It claims to have 22 forging lines with a combined installed capacity of 1,44,750 MTPA, machining facilities consisting of 528 spindles with a combined installed capacity of 69 million parts per annum and other machinery including heat treatment furnaces, cold rolling machines and other infrastructure.
Rolex’s product portfolio includes a wide range of bearing rings, parts of gear box and automotive components, among others. The manufacturing capabilities are complemented by in-house tool design, engineering and product development capabilities. Rolex offers a diverse range of hot forged and machined alloy steel bearing rings weighing from 0.01 kilograms (10 grams) to over 163 kilograms, and with inner diameter of 25 millimeters to outer diameter of 900 millimeters. This makes its products suitable for a wide range of end-user industries such as automotive, railways, industrial infrastructure and renewable energy, among others.
In fiscal 2021, Rolex reportedly supplied bearing rings and automotive components to over 60 customers in 17 countries, primarily located in India, United States and European countries such as Germany, France, Italy, and Czech Republic, and Thailand. The company claims to have developed long standing relations with its customers and 70% of its largest customers in fiscal 2021 have been with the company for over a decade.
Rolex has diversified into renewable energy too. The company has windmills with an installed capacity of 8.75 MW. It is also in the process of adding solar projects for 16 MW. It claims to have already placed orders for equipment with installed capacity of 7.35 MW. The proposed expansion in renewable energy is expected to help the company in reducing carbon footprint and expanding profit margins.
Financial Track
Rolex has had a fluctuating past. From Rs 784 cr in fiscal 2018, the company’s top line climbed to Rs 904 cr in next fiscal. However, it dropped to Rs 666 cr in fiscal 2020 and further dipped to Rs 616 cr in last fiscal. EBITDA margin was at 21.3% in 2018 which improved to 22.8% in 2019. The margin contracted to 19.4% in fiscal 2020 and slipped further to 18.1% in 2021.
More than a half of the company’s revenue has been derived from overseas in recent years. In terms of product mix, nearly 60% of the revenue comes from bearing rings while auto components contributed about 40%. The company’s capacity utilization has been very low at about 33% in last two years.
Compared to its present equity base (Rs 24 cr), even at a low capacity utilization, the company’s bottom line is very attractive at Rs 87 cr. Rolex has not issued any bonus equity till date yet, its retained earnings amounted to only Rs 160 cr. In fact, the share premium (Rs 162 cr) collected by the company is more than its earned surplus!
Despite the private equity’s presence and impressive earnings in recent years, the 18-year-old company, whose business history virtually dates back more than 40 years, is not in the dividend list. Dividends for immediate future will depend on the restrictive covenants of its financing arrangements, including the CDR Package.
|
Rolex Rings Standalone Financials (in Cr) |
||||
| Period Ended | Mar-21 | Mar-20 | Mar-19 | Mar-18 |
| Revenue | 616.33 | 665.99 | 904.32 | 784.31 |
| Operating Profit | 108.87 | 121.44 | 201.09 | 161.05 |
| OPM% | 17.7 | 18.2 | 22.2 | 20.5 |
| Other Income | 3.43 | 9.34 | 6.93 | 7.23 |
| EBIDTA | 112.29 | 130.78 | 208.02 | 168.29 |
| EBIDTA % | 18.1 | 19.4 | 22.8 | 21.3 |
| Interest | 11.70 | 32.17 | 42.02 | 50.84 |
| Depreciation | 25.41 | 26.52 | 25.44 | 23.39 |
| Net Profit | 86.96 | 52.94 | 59.04 | 72.88 |
| Equity (Implied) | 27.23 | 23.98 | 23.98 | 23.98 |
| Reserves (Implied) | 388.13 | 244.12 | 244.12 | 132.35 |
| Borrowing | 215.92 | 238.17 | 325.67 | 438.78 |
| Fixed Assets | 372.50 | 373.00 | 381.80 | 374.80 |
Valuation
Whereas the average cost of acquisition for the five promoters, who collectively hold 48.8%, is between Rs 15 and Rs 19, and the cost of acquisition for Rivendell, who holds 41%, is Rs 149.16, the IPO has been priced Rs 880-900. The cap price discounts the latest EPS about 28 times which compares well with listed forgings peers. Nonetheless, in terms of Price to Cash EPS, Book Value, EBIDTA, Revenue and Net Block, Rolex’s pricing appears to be very steep.
|
HOW ROLEX COMPARES WITH LISTED PEERS |
|||
|
Financials |
|||
| (Amount in Cr) | Rolex Rings | Ramkris Forgings | MM Forgings |
| Market Cap | 2451 | 2534 | 1729 |
| Borrowing | 216 | 1135 | 532 |
| Fixed Assets | 373 | 1500 | 693 |
| Revenue | 616 | 1289 | 730 |
| Other Income | 3 | 6 | 18 |
| EBIDTA | 112 | 228 | 147 |
| Interest | 12 | 80 | 31 |
| Net Profit | 87 | 21 | 47 |
| Equity Cap | 27 | 32 | 24 |
| Reserves | 388 | 851 | 463 |
|
Stock Features |
|||
| Current Price (Rs) | 900 | 794 | 716 |
| Face Value (Rs) | 10 | 10 | 10 |
| Book Value | 152.52 | 276.39 | 201.8 |
| Promoter Stake % | 57.6 | 45.9 | 56.3 |
| Debt/Equity | 0.5 | 1.3 | 1.1 |
|
Profitability |
|||
| OPM % | 17.7 | 17.3 | 17.7 |
| Net Margin % | 14.0 | 1.6 | 6.2 |
| Cash EPS | 41.26 | 43.11 | 45.59 |
| Earnings Per Share | 31.93 | 6.56 | 19.35 |
|
Return |
|||
| RONW % | 24.4 | 2.4 | 9.6 |
| ROCE % | 15.2 | 5.5 | 8.2 |
|
Discounting |
|||
| Price/Earnings | 28.2 | 121.0 | 37.0 |
| Price/Cash EPS | 21.8 | 18.4 | 15.7 |
| Price/Book Value | 5.9 | 2.9 | 3.6 |
| Price/EBIDTA | 21.8 | 11.1 | 11.8 |
| Price/Revenue | 4.0 | 2.0 | 2.4 |
| Price/Fixed Assets | 6.6 | 1.7 | 2.5 |
|
Distribution |
|||
| Dividend % | 0 | 0 | 50 |
| Yield % | 0 | 0.0 | 0.7 |
| Pay-out % | 0.0 | 0.0 | 25.8 |
Concern
The company has, in the past, defaulted in payment of loans and restructured term debt. As on March 31, 2021, the restructured term debt still due was Rs 33.57 cr. This outstanding amount has to be repaid in quarterly installments. In the event of a default of the payment obligations under the Restructuring Agreements, the CDR Group Lenders have the right to enter upon and take possession of assets, transfer the assets by way of lease or leave and license.