Rossari Biotech a big hit, subscribed over 79 times on Day 3

NEW DELHI: The Rs 496-crore IPO by Rossari Biotech on Wednesday attracted 79.37 times bids on Day 3 of the bidding process.

By 6:30 pm, the issue by the specialty chemicals company had attracted bids for 64,87,33,645 shares, which was 79.37 times the issue size of 81,73,530 shares.

At the higher end of the Rs 423-425 price band, the specialty chemicals manufacturer is seeking a valuation that is 19.9 times FY20’s EV/Ebitda and 33.1 times earnings per share on a FY20 basis. The asking valuation multiple is higher than 27 times of what the peers are commanding. Analysts largely have 'subscribe' ratings on the issue.

"The company is expected to see strong growth in coming years following the full commencement of the Dahej facility . Even on the sectoral front, robust growth in user industries in India will support growth while emerging opportunities in exports led by clamp down in China and outsourcing opportunities from Western countries are expected to benefit companies," said Astha Jain of HEM Securities.

On Friday, the company raised Rs 148.87 crore from anchor investors, which included top three fund houses: SBI Mutual Fund, HDFC Mutual Fund and ICICI Prudential Mutual Fund.

“Rossari may command a premium over most of its chemical peers as it is net-debt free and has better asset turnover, working capital days return on equity,” said Angel Broking. This brokerage has a ‘subscribe’ rating on the issue.

The company deals in three segments. The home care segment accounted for 46.81 per cent of FY20 revenues (against just 18.63 per cent in FY18), textile specialty 43.71 per cent (from 71.54 per cent in FY18) and animal healthcare 9.48 per cent (9.83 per cent in FY18).

However, a few brokerages raised concerns over near-term demand from the textile industry and noted that Rossari’s Silvassa facility is critical to its business and any disturbance may have an adverse impact on its business.

Other brokerages, however, are not overly worried about it and noted that demand from home and personal care segments has been on the rise.

"Despite the lockdown and the pandemic, the company did not suffer any major losses in revenue in the last four months. The company has added over 20 private label customers during the lockdown. The soaps & detergent and pulp & paper products segments have gained a lot of traction during this period," said Ventura Securities.

"The company has delivered robust growth. The new capacity expansion at Dahej should strengthen its portfolio in the high-growth HPPC segment to serve its wide customer base. Customized product offering, fungible capacities and rapid finished product conversion rate remain the key differentiators for the company," said Emkay Global.

HPPC refers to the company's home and personal care segment.