Rolex Rings IPO fully subscribed on Day 1, grey market premium at 50%; should you subscribe?

So far on day one, Rolex Rings IPO has been subscribed by retail investors 3 times.

Rolex Rings’ Rs 731 crore initial public offering (IPO) opened for subscription today amid weak market sentiment but strong investor interest saw the issue get oversubscribed on the first day of sale. 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 has managed to raise Rs 219 crore from 26 anchor investors.

Retail investors oversubscribe

So far on day one, Rolex Rings IPO has been subscribed by retail investors 3 times, bidding for 85 lakh shares against 28.42 lakh on offer. Non-institutional investors (NII) have bid for 0.26 times their quota or 3.16 lakh shares against the 12.18 lakh on offer for them. Qualified Institutional Buyers (QIB) are yet to bid for the issue. Overall the IPO has been subscribed 1.55 times with investors bidding for a total fo 88.26 lakh shares against 58.85 on offer. In the grey market, Rolex Rings was trading at a premium of Rs 460 per share, or 50% from the higher end of the price band. Rolex Rings was earlier trading at a premium of Rs 500 per share at the beginning of the week but has now slipped marginally, people dealing the unlisted space said.

Investors can bid for the IPO from today 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. 

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