Mandatory Disclaimer: All the information is from the DRHP and RHP of Rossari Biotech. This post is for research purposes and is not a stock recommendation. I am neither entitled to any profits, nor liable to any losses that you make by taking investment decisions based on what you read here.
Founded in 2003, Rossari Biotech manufactures chemicals for the following major product lines:
- Home, Personal Care and Performance Chemicals (HPPC).
- Textile Specialty Chemicals (TSC).
- Animal Health and Nutrition (AHN) sector.
Their customers are companies in the Apparel, FMCG, and Poultry and Animal Feed Industries respectively. They have a range of about 1,950 different products sold across the above three mentioned categories.
Rossari currently has one manufacturing facility in Silvassa (Dadar and Nagar Haveli). The Silvassa facility is undergoing capacity expansion, it’s in the process of adding 20,000 MTPA over the already installed capacity of 100,000 MTPA. [MTPA is Million Tonnes Per Annum].
They are working on establishing a second manufacturing facility in Dahej (Gujrat) which has a proposed installed capacity of 132,500 MTPA. The estimate is that the Dahej facility will achieve commercial operation by Fiscal 2021.
Hence, by the end of expansion of the old and establishment of the new facility, Rossari’s capacity would increase to 2.5x its current capacity (from 100,000 MTPA to 250,000 MTPA).
Rossari currently has two R&D facilities, one within the Silvassa facility, and the other in Mumbai (Maharashtra).
The R&D teams focus on:
- Development of new products and formulations.
- Customizing products to customer expectations and end-user preferences.
- Making manufacturing process more efficient by focusing on shorter lead-times and cost competitiveness.
Rossari Biotech has:
- 204 distributors spread across pan-India.
- 27 overseas distributors spread over 17 foreign countries.
- 2 international offices (Vietnam and Bangladesh) as these two are two primary overseas market for TSC products.
- 4 regional offices (Delhi, Ludhiana, Ahmadabad, and Surat) for marketing their products.
TSC and HPPC are sold in a B2B model, while the AHN products are sold either in businesses (B2B) or directly to retailers (B2B2C).
The following are the financials of Rossari Biotech for Fiscals 2017, 2018, 2019, and H1–2020, (all the values are in ₹ crore):
From F17 to F20,
- Revenue has grown by 32.33% CAGR.
- PAT has grown by 65.82% CAGR.
- Profit Margin (PAT/Revenue) is consistently increasing.
Objectives of the IPO
The issue is open for subscription between 13 July 2020 and 15 July 2020.
The IPO is estimated to be of ₹500 crore OFS (Offer for Sale), where existing shareholders will offload 1.05 crore shares. The proceeds from this OFS will not go to the company.
The IPO will also consist of about ₹150 crore Fresh Issue. The proceeds from this will go to the company, and Rossari plans to deploy these funds for the following:
Repayment/prepayment of debt: Rossari had a debt of ₹66.6 crore (as of December 2019) at an approximate 8.5% interest rate.
Funding working capital requirements: Rossari proposes to utilize ₹50 crore of the Net Proceeds in Fiscal 2021 towards working capital requirements.
General corporate purposes: Balance left out from Net Proceeds (about ₹35 crore) after using the funds for the above two mentioned purposes will be deployed here.
I would have talked about the major risks in this section, which, in Rossari’s case, was the fall in TSC sales induced by covid. At that time, the fall in revenues in the TSC segment was being compensated by the rise in revenue in the HPPC segment (which was caused by the increased demand of sanitation products because of covid).
However, as time has passed, this risk has been substantially mitigated. As of Q3F21, TSC revenues have normalized and are back at pre-covid levels, while HPPC revenues are still witnessing substantial growth. Following is from the Q3F21 result:
Between Q3F20 and Q3F21, notice that:
- HPPC revenues have grown from ₹76 crores to ₹120 crores.
- TSC revenues have normalized (mildly increasing from ₹70 crores to ₹78 crores).
Another update is that the Phase — I of the new Dahej facility is operational now (as of Jan 2021), and Rossari has a strong pipeline of new product launches to sustainably ramp-up utilization levels over the next 3–4 years.
I have made this post for archival purposes. The original analysis was done at the time of IPO in July 2020 (and hence is a little old), which is why I appended the Addendum section.
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