Rolex Rings IPO subscribed 82 times so far on final day, grey market premium soars; should you subscribe?
Rolex Rings’ Rs 731 crore IPO (initial public offering) has been subscribed 81.89 times so far on the day day of subscription, eliciting strong interest from investors after having been fully subscribed on day one. The automotive components manufacturer is looking to raise Rs 56 crore through a fresh issue of equity shares while the remaining Rs 675 crore is an offer for sale (OFS) by existing shareholders. Rolex Rings is one of the top five forging companies in India, according to ICICI Direct. The client base of Rolex Rings consists of leading global bearing manufacturers viz. SKF, Timken, Schaeffler, NEI & NRB Bearings. Ahead of the IPO the company managed to raise Rs 219 crore from 26 anchor investors.
Retail investors oversubscribe
So far on the final day of sale, Rolex Rings IPO has been subscribed by retail investors 22.93 times, bidding for 6.51 crore shares against 28.42 lakh on offer. Non-institutional investors (NII) have bid for the issue a massive 222 times their quota or 27.20 crore shares against the 12.18 lakh on offer for them. Qualified Institutional Buyers (QIB) have subscribed the issue 79 times. Overall the IPO has been subscribed 81.89 times with investors bidding for a total fo 46.63 crore shares against 58.85 on offer. In the grey market, Rolex Rings was trading at a premium of Rs 550 per share.
Investors can bid for the IPO till today evening in a fixed price band of Rs 880-900 per share, in a bid lot of 16 equity shares. This translates into a minimum investment of Rs 14,400. Promoter shareholding currently stands at 58.99% and will drop to 57.64% post issue. Public shareholding stands at 41.01% and is expected to rise to 42.36%. Half of the issue is reserved for QIB. 35% of the entire issue is available for retail investors and the remaining 15% is reserved for NII. Of the net proceeds from the fresh issue, Rs 45 crore will be utilized to fund the working capital requirement of the company and residual funds will be used for general corporate purposes. Rolex Rings is expected to list on the stock exchanges by August 9.
Should you buy?
Rolex Rings has been reported profits for the last four financial years. In the previous fiscal year, the company reported a net profit of Rs 87 crore, up from Rs 53 crore in the financial year 2019-20. Rolex Rings has also improved its PAT margins and EBITDA margins have held steady. However, the company had once defaulted on loan obligations in 2013. Post restructuring of the same debt, a significant portion of the promoter shareholding has been pledged and will remain so till at least March next year. ICICI Direct said that the company has 95% of its debt.
“A sticky clientele, increasing share of business amongst existing customers, improving operational efficiencies led by better utilisation and exit from CDR remain key catalyst for Rolex Rings,” analysts at ICICI Direct said while pinning a ‘Subscribe’ rating on the issue. The brokerage firm said that the issue is priced at P/E of 28.2x (post issue) FY21. Rolex Rings’ heavy dependence on the auto sector, high concentration of top 10 customer group, and any delay in exiting debt are some concerns surrounding the IPO.
Rolex Rings is demanding EV/Sales of 4.3x, which is at a premium to the peer average of 3.9x, said analysts at Choice Broking. “Coming to the valuation, at higher price band of Rs. 900, RRL is demanding a P/E valuation of 28.2x (to its restated FY21 EPS of Rs 31.9). If we normalize the FY21 earnings (i.e. apply a tax rate of around 17%), the demanded P/E valuation comes out to be 39.4x, which we feel is stretched,” they added. The brokerage firm has a “subscribe with caution” rating on the issue.