IPO update: Rolex Rings

Rolex Rings came out with its IPO about two months ago. Value Research's analysis of the IPO can be found here. This follow-up article focuses on the IPO's performance, post-IPO events, and changes in its valuation since then.

Our analysis of the IPO
We gave a score of 16 out of 28 to this bearing rings manufacturer when it came out with its IPO. Over the last four decades, Rolex Rings has developed expertise in the precision engineering of various forged and machined components. It has garnered a wealth of knowledge in manufacturing transmission components, engine components, chassis components, exhaust system components, and bearing rings. Other than forging, the company offers value-added processes until the level of final machining and grinding equipment.

In the Indian bearing industry, there are five main players (bearing manufacturers) who make up for about 80 per cent of the domestic market. These five manufacturers have been customers of Rolex for the last 10-15 years. Being situated in Gujarat, the company enjoys a locational advantage. The infrastructure facility is good, electricity and labour are uninterruptible, and the company has good access to Mudra and Kurla port (these account for most of its exports).

The company has identified new growth areas in the domestic market in non-automotive bearings and generation three bearings (combo of bearing and wheel hub). Revenues from these two segments have increased, and the management expects this trend to continue. Moreover, as the penetration of EVs increases, the company expects to get good business from both overseas and domestic markets.

Our rating of the company was based on the following:

• Out of the 11 business metrics, the company did well on four.
• It scored five out of six on management-quality-related metrics.
• It did well on financial metrics with a score of six out of eight.
• Out of the three valuation-related metrics, it cleared one.

Stock performance since listing
The company saw a good response to its IPO, which was oversubscribed by more than 130 times. The qualified institutional buyers' (QIB) portion was oversubscribed by 144 times, while the non-institutional investors' portion was oversubscribed by 360 times and the retail portion by 24 times.

Rolex Rings made an impressive debut on the stock exchanges, with the shares listing at a premium of 39 per cent over its issue price, opening at Rs 1,249 and ending the day at Rs 1,167. However, post listing, the stock has drifted downwards and reached its lowest price of Rs 1,023 on September 28, 2021. At its lowest price, the stock was still 14 per cent higher than its issue price of Rs 900.

Business performance
The company has reported its quarterly results for the June quarter, with a 210.9 per cent YoY growth in revenues at Rs 227.4 crore. As compared to the previous quarter, revenues were up by about 9 per cent. The net profit for the June quarter was up by 1,117 per cent YoY and stood at Rs 30.3 crore, which represented a decrease of 22 per cent compared to the previous quarter.

In Q1, the company's EBITDA margin stood at 23.6 per cent, and the management expects the margin to stay in the range of 22-24 per cent. Moreover, as the company has a 100 per cent pass-through mechanism with all its customers, it is immune to commodity price fluctuations.

The company's capacity utilisation was at 53-54 per cent in Q1, and it can achieve 75-80 per cent capacity utilisation at best, owing to its product mix and the range of product offerings. The company does not foresee a significant amount of capital expenditure for the next three-four years.

What to do now?
The management is confident about achieving a 7 per cent QoQ incremental revenue for the next three quarters and reaching the Rs 1,000 crore revenue mark, for the first time, in this fiscal year. Moreover, even though the company is currently in a corporate debt restructuring (CDR), it plans to exit CDR by either December-end or latest by fiscal year-end. This will leave the company with only Rs 28 crore in long-term debt. Also, recently CARE Ratings upgraded the company's short-term and long-term bank facilities from A4 and BB to A3 and BBB-, respectively.

Since its listing in August, the company has traded at a P/E between 32-37 times. It currently trades at a P/E of just over 33 times compared to its peer group's median P/E of about 51 times. Thus, it seems to be cheaper compared to its peers at its current valuation.

Disclaimer: This analysis is not meant to serve as a recommendation. Do your research before investing in the company. If you are interested in our stock recommendations, please visit www.valueresearchstocks.com