Choice Equity Broking has come out with its report on Rossari Biotech. The research firm has recommended to "Subscribe'' the IPO in its research report as on July 10, 2020
Choice Equity Broking's IPO report on Rossari Biotech
Specialty chemicals manufacturer, Rossari Biotech Ltd. (Rossari) is planning to raise up to Rs. 5,000mn through an IPO, which will open on 13th Jul. and close on 15th Jul. 2020. The price band is Rs. 423 - 425 per share. • On 20th Feb. 2020, Rossari has undertaken a pre-ipo placement aggregating Rs. 1,000mn. During the process, the company has allotted 2.35mn shares at an price of Rs. 425 per share. Consequently, the fresh issue size of Rs. 1,500mn got reduced to Rs. 500mn. • Since the issue is a combination of fresh and OFS, the company will not receive any proceeds from the OFS portion. Of the net proceeds from the fresh issue, Rs. 650mn will be utilized for the repayment/prepayment of certain debt availed by the company. Rest amount i.e. Rs. 500mn will be utilized to fund working capital requirement.
Valuation and Outlook
Currently, the specialty chemicals sector is red hot mainly due to the positive sentiments prevailing among the investors as India is likely to be a global manufacturing substitute to China post Covid-19 and also the likely import ban after the recent Indo-China border skirmish. • On valuation front, based on the higher price band, Rossari is demanding a P/E multiple of 33.7x (to its restated FY20 EPS of Rs. 12.6). The demand valuation is at premium to peer average of 29.5x and thus there is little left for the retail investors. Considering the above observations and the future growth prospects, we assign a “Subscribe with Caution” rating for the issue.
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