Rossari Biotech, a specialty chemical maker, debuted with a bang on July 23 and the listing premium was much higher than analyst expectations.
The stock opened with a premium of Rs 245, or 58 percent, at Rs 670 on the BSE against issue price of Rs 425 per share, and went up to Rs 710 intraday, i.e. 67.1 percent higher.
Analysts had expected a listing premium of 35-40 percent and even the grey market premium was on similar lines.
What should investors do with the stock now?
Given the hefty premium listing, analysts advise investors to book profits now.
"If the stock lists at a premium of Rs 130-175, then investors are advised to book full profit and enjoy listing gain as 43 percent of company's revenue is from textile segment which is being hit hard by pandemic," Manali Bhatia, Senior Research Analyst at Rudra Shares and Stock Brokers told Moneycontrol.
Astha Jain, Senior Research Analyst at Hem Securities also said if the stock lists at more than 40 percent premium then investors are advised to book partial profit.
But Prashanth Tapse, AVP Research at Mehta Equities said only moderate investors, who applied only for listing gains, can book profits now, but high risk investors can continue holding the stock.
In case if one wants to buy the stock today then current price of Rs 700 is not advisable, he/she can look for buying this stock at around Rs 500, experts feel.
"For new entrants, the stock is attractive buy at around Rs 500 level," Astha Jain said.
Manali Bhatia, too, said investors who wish to buy the stock on listing day may buy below the levels of Rs 500 with a long-term view of 1-2 years as the outlook is very strong.
"Since the capacity addition of 1,32,500 MTPA with no major capex for next 3-4 years would benefit the company in terms of further margin expansions which would take at least 1-1.5 years," Bhatia said.
"We maintain positive outlook on the stock. The company has a customized business model and its demand especially from the Home and personal care segment is gaining a lot of traction. Already it is having strong balance sheet, sound debt equity ratio at 0.23 with impressive RONW at 32 percent. Further, pullback for Chinese imports would benefit the stock in long run," she added.
The company's new manufacturing unit at Dahej in Gujarat with a proposed installed capacity of 1,32,500 MTPA would significantly double its capacity by March 2021 and improve the revenue growth even further.
Currently, the company manufactures its products in its only facility in Silvassa with a capacity of 1,20,000 MTPA.
The company operates in three segments - home, personal care and performance chemicals (HPCC); textile specialty chemicals; and animal health and nutrition segments.
Its first segment HPCC has been in demand given the spike in demand for sanitizers, disinfectants and handwashes following COVID-19. Hence its plant was opened during lockdown as it comes under essential items.
"Even on sectoral front, robust growth in user industries in India will support growth while emerging opportunities in exports led by clamp down in China and outsourcing opportunity from Western countries are expected to spur growth in exports and import substitution which will benefit company," Astha Jain said.
Prashanth Tapse feels Mehta Equities is optimistic on the sector as well as company as rising "Make in India" campaign would add impetus to the emergence of India as a manufacturing hub for the specialty chemicals.
"We believe Rossari biotech is well positioned to tap the shifting global demand by having customized solutions to the apparel, animal & poultry feed and FMCG industries by offering a diversified product portfolio," he said.
Its textile specialty chemicals segment hit badly during the lockdown period, but the company reduced its dependency on the textile space to 44 percent of revenue in FY20, from nearly 71 percent in FY18.
At the same time, company increased its share of Home & Personal care division in its revenue to nearly 47 percent during FY20, which turns a big positive for Rossari Biotech and was one of big reasons for massive listing premium.
Rossari Biotech raised Rs 496 crore through public issue during July 13-15, of which Rs 50 crore was fresh issue and the balance funds went to promoters.
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