Rolex Rings is one of the top five forging companies in India (Source: ICRA Report) and a manufacturer and global supplier of hot rolled forged and machined bearing rings, and automotive components for segments of vehicles including passenger vehicles, commercial vehicles, two-wheeler vehicles, and off-highway vehicles and electric vehicles.

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They supply domestic and internationally to large marquee customers including some of the leading bearing manufacturing companies, tier-I suppliers to global auto companies, and auto OEMs. They are one of the key manufacturers of bearing rings in India (Source: ICRA Report) and cater to most of the leading bearing companies in India.

After raw materials, power is an important cost component in this business. They have 8.75MW wind capacity and 1.58MW solar capacity. They want to scale up solar capacity to 12MW.

Location advantage: Their plants are located at Rajkot, which is ~250km from Mundra and Pipavav ports and 700km from Mumbai port. This helps them to easily supply their products to domestic and international clients. The location also helps them to get cheap labor for their plants.

Capex plan: All major CAPEX has been done in the past. The company is not planning any major CAPEX in till FY25. They would increase revenue by increasing capacity utilization. They are planning to increase forging utilization to 60% and machining capacity to 85%

Growth outlook: Revenue and EBITDA margin was impacted due to unfavorable demand scenario due to COVID 19.  In the next five years, till FY25, they expect to grow 10-12% YoY.

Product Portfolio

Issue Details

Date – July 28 to July 30, 2021
Size – 56 cr Fresh issue + 675 cr (7.5 mn shares) OFS
Price – ₹880-900
Mcap Post Listing – 2449 Cr
Issue Reservations – QIB 50%, NII 15%, RII 35%

A bit of history on the IPO

  • After a loss-making period, Rolex Rings turned profitable in 2014-15 (Rolex Rings planned IPO to setup partial exit for PE firm in 2014-2015 also tried to plan an IPO)
  • Shareholders had decided to wait for two years for the company’s financials to improve before attempting another IPO
  • July-2017 with 400-450 Cr issue size they decided but not filed DRHP with SEBI
  • Finally, in March-2021 they come up with IPO and submit DRHP to SEBI with approx IPO size 700-750 Cr

About Their Manufacturing

Geographically diversified revenue base

Management

Selling Shareholder

The Selling Shareholder is Rivendell PE LLC who is offering for sale up to 7,500,000 Equity Shares in the Offer. Below is the pre-Offer and post-Offer shareholding of Rivendell PE LLC, the Selling Shareholder.

40.84 mn shares post issue, 40.22 cr pre-issue. So 27.1% of pre-issue holding to 8.3% holding post issue is the change of shareholding for the above PE.

Some Numbers

Risks

  • We have, in the past, defaulted in payment of certain loan facilities and restructured term debt amounted to ₹ 4,870.20 million and availed from Corporation Bank, Oriental Bank of Commerce, Union Bank of India, Bank of Baroda, Bank of India, and Indian Overseas Bank. Our Company approached the lenders to restructure the debts and the CDR forum approved the restructuring of debt on January 9, 2013.
  • Update on CDR: After the company did a major CAPEX of Rs350 crore in 2009 (from which they expected a turnover of Rs600 crore), the automotive Industry crisis started.  Their capacities were utilized less than 20%, due to which they defaulted in payment of certain loan facilities. CDR forum approved the restructuring of debts. The company would exit from the CDR scheme in March 2022, which would offer the company flexibility in managing borrowings and taking other business-related decisions.
  • Also delayed in repayment of loans to financial institutions and banks with respect to our borrowings for certain periods including up to Fiscal 2019 and as a consequence of the same, we may be restricted in taking some actions including buy-back of securities.
  • Our Promoters and certain members of our Promoter Group are required to pledge their entire shareholding of Equity Shares and NCRPS as security for the loans availed by our Company. As of the date of this RHP, the aggregate shareholding of the Promoters and Promoter Group is 58.99% comprising of the total shareholding of the Promoters being 48.80% of our existing paid-up equity capital and the total shareholding of the promoter group being 10.18% of our existing paid-up equity capital. The entire NCRPS holding of the promoters (i.e. 13,605,863 NCRPS) will be pledged with the Consortium Lenders in accordance with the terms of the pledge agreement.
  • Delayed repayment of loans and interest in Fiscals 2018 and 2019 to financial institutions and banks to the extent of ₹1,032 million and ₹ 373.74 million, respectively, and the delay in such repayments being for less than 110 days and 62 days, respectively, in each individual case.
  • We typically do not have a firm commitment to long-term supply agreements with most of our customers and instead rely on short-term purchase orders to govern the volume and other terms of our sales of products, from our customers.
  • In the past not complied with the corporate social responsibility requirements under the Companies Act, 2013

Pledge

Strategies going forward

Financials

Balance Sheet

  • Debt to equity has reduced as debt has reduced and equity has been raised
  • Balance sheet size more or less same in 3 years

Profit & Loss

  • Revenue has decreased, EBITDA has decreased (forging industry overall experienced the same) but Net profit shows growth however that was because of tax credit and an inventory entry. If we adjust the 54 cr of inventory and tax credit, then the net profit in FY21 would have been 33 Cr, a fall of 38%!
  • Revenue 2-year CAGR is -17.5% and EBITDA 2-year CAGR is -26.7%

Cash Flows

  • CFO and FCF reducing and still the firm is not raising a big amount of a fresh issue (IPO to give an exit on a big part of the PE holding)

More

Valuations & Conclusion

At the upper price band of Rs 900, the issue is priced at 25x P/E (FY21 35.96 EPS) and 6x P/BV (FY21 148.76 BV). The price to sales is at 4x (2449Cr Mcap post listing, 620 CR FY21 Sales). The valuations are stretched given how many ancillaries are available at 1x price to sales or below.

Bearings Industry

Summary of Industry

The Indian bearing market is estimated at ₹ 12,000 crores and it constitutes less than 4% of the global bearing demand. In terms of consumption, about 60% requirement is met through domestic production while the remaining is met through imports. Bearing Rings form one of the most critical and largest raw material costs for the bearings sector and at ~₹ 2,200 crores, the industry contributes ~18.3% of the size of the domestic bearing market. (Source: ICRA Report)

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