Understanding the Business of Chemicals Industry

• The chemicals industry can be classified into two broad segments - basic and specialty.
• In general, basic chemicals are high-volume and low-value products that are sold to other industries for processing further.
• However, specialty chemicals are low-volume and high-value products which are sold on the basis of their quality or utility, rather than composition.
• Thus, they may be used primarily as additives or to provide a specific attribute to the end product. The focus is on value addition to the end-product and the properties or technical specifications of the chemical.

Rossari Biotech Business

Our Customers

Company History

• Founded in 2003 as a partnership firm in the name of Rossari Labtech by Mr. Edward Walter Menezes and Mr. Sunil Srinivasan Chari
• It was further renamed to Rossari Biotech Limited and converted into a company in 2009

Revenue Drivers

Geographical Revenue Distribution

Opportunities

• The company is continuously investing in the purchase of PPE for Silva’s plant (1,20,000 MTPA capacity).
• The company is setting up a plant in Dahej (1,32,500 MTPA capacity) which is expected to be operational by Fiscal 2021.
• Growing awareness in masses on the backdrop of Covid-19 shall increase the demand for Anti-microbial, Anti-bacterial, Anti-sweating, Anti-pilling (to avoid entrapping of microbes) garments in the near future.
• With an existing and successful product, line-up company can look up for a good opportunity in this space

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Objects of Offer

The Net Proceeds and the proceeds from the Pre-IPO Placement are proposed to be used in accordance with the details provided in the following table:

It is to be noted that only 115 Crores amount has been specified for utilization and the balance amount is yet to be specified by the company.

Business Risk

• A majority of our revenue from operations is from sales to our institutional customers in the TSC and HPPC product categories. Revenue from the sale of HPPC and TSC products cumulatively constituted 90.52%,90.00%, and 90.17% of our revenue from operations for Fiscals 2020, 2019 and 2018, respectively, within which we depend on a limited number of customers for a significant portion of our revenues.
• Revenue from our top five customers across product categories constituted 43.95% of our revenue from operations for Fiscal 2020.
• Revenue from our top 10 customers across product categories constituted 53.72% of our revenue from operations for Fiscal 2020.
• Our largest expense is our cost of raw materials.
• Our primary raw materials are acrylic acid, surfactants and silicone oil. Our cost of materials consumed represented 61.53%, 68.81% and 65.73% of our revenue from operations for Fiscals 2020, 2019 and 2018, respectively.

Profit and Loss Comparison with Peers

Rossari BiotechGrowth in Net Profit is 60.27%

Vinati Organics: Profit growth of 29.06 %

Aarti Industries: Profit growth of 24.12%

Atul Ltd: Profit growth of 16.20%

Atul Ltd Sales Growth: 18.02 %

Vinati Organics Ltd Sales Growth: 20.65%

Aarti Industries Ltd Sales Growth:16.10 %

Comparison of PE with Peers

PE of Rossari Biotech comes out in the range of 31.97 - 32.12

Industry average PE - 27.72

Basis for Offer Price

PE Valuation

Basic EPS 13.42

IPO Price Band: Rs. 423 - Rs. 425

PE of Rossari Biotech: At Low Price - 31.97

                                        At High Price - 32.1

Map/revenue multiple

Rossari Biotech = 3.59

Vinati organics = 10.14

Atul industries = 3.4

Aarti industries = 3.4

Note: As per the latest update this IPO has been subscribed 2.97 times as of 14th July 5 pm. 

Conclusion

• On the basis of revenue multiple (Price to Sales) the company seems to be fairly valued and on the basis of P/E multiple, this company seems to be expensive
• Demanding such high P/E multiple in the current scenario, where earnings are not secured seems to be questionable.

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