CM RATING

46/100

Rolex Rings is one of the leading forging companies in the country engaged in manufacture and supply of hot rolled forged and machined bearing rings and automotive components. The company supplies domestically and internationally to large marquee customers including some of the leading bearing manufacturing companies, tier-I suppliers to global auto companies and some auto OEMs. It is one of the key manufacturers of bearing rings in India and cater to most of the leading bearing companies in India. In FY2021, about 58.2% of its revenue come from bearing rings and balance 41.8% from auto-components.

The company, promoted by Rupesh Dayashankar Madeka, JitenDayashankarMadeka, ManeshDayashankarMadeka, PinakinDayashankarMadeka and BhautikDayashankarMadeka, started its manufacturing operations in 1988 with its first manufacturing plant set up in Rajkot. Currently it has three manufacturing units all located in Rajkot.

Rolex Rings is one of the top five forging companies in India in terms of installed capacity.Currently, the company has 22 forging lines with a combined installed capacity of 1,44,750 MTPA; machining facilities consisting of 528 spindles with a combined installed capacity of 69 million parts per annum and other machinery including heat treatment furnaces, cold rolling machines and other infrastructure.

The company as on date operates windmills with installed capacity of 8.75 MW. The company is in the process of expanding capacity of its solar projects by an installed capacity of 16 MW and has already placed purchase orders for equipment with installed capacity of 7.35 MW.

The Initial Public Offering comprises two components: Fresh issue of equity shares aggregating upto Rs 56 crore and Offer for Sale of 7500000 equity shares by Rivendell PE LLC, the investor shareholder. Post issue the selling shareholder will have a holding of 3414423 equity share amounting about 21.75% of the post issue share capital. While the company will not get any proceeds from offer for sale, about Rs 45 crore out of the proceeds from fresh issue will be used for funding long-term working capital requirements and balance for general corporate purposes.

Strengths

Product portfolio of the company is wide and includes a various range of bearing rings, parts of gear box and automotive components, among others. Till date the company has offered a diverse range of hot forged and machined alloy steel bearing rings weighing from 0.01 kilograms to over 163 kilograms, and with inner diameter of 25 millimeters to outer diameter of 900 millimeters. This makes its products suitable for a wide range of end-user industries such as automotive, railways, industrial and renewable energy. It caters to all segments of automotive vehicles including two-wheelers, passenger vehicles, commercial vehicles, off-highway vehicles, electric vehicles), industrial machinery, wind turbines and railways, amongst other segments.

The company supply bearing rings and automotive components to customers numbering over 60 across 17 countries such as India, USA, Thailand and various European countries like Germany, France, Italy,and Czech Republic. About 56% of its operating revenue in FY2021 came from exports.

Maintains long standing relationship with customers including global bearing majors such as SKF, Timken, NRB, and Schaeffler and about 70% of its 10 largest customers for FY 2021 have been with it for over a decade.

Flexible manufacturing infrastructure to facilitate supply of large volume orders from customers backed by skills and processes to achieve operational efficiency and quality. Its manufacturing capabilities are complemented by its tool design, engineering, and product development capabilities.

Commissioning of solar power capacity will reduce dependence on grid power and provide margin comfort.

Weakness

Performance of the company is heavily dependent on the performance of the cyclical automotive sector in India, Europe, North America, Latin America, and some part of Asia. Apart from auto-components, which is supplied to automotive OEMs/suppliers, the bearing assembly, where bearing rings is key component is also majorly has end usage in automotive sector.

Capacity utilization for forging was low at 33.48%, 32.92%, and 50.01%, for FYs 2021, 2020, and 2019, respectively. Inability of the company to get volume growth will continue to impact the profitability of the company.

A few of its top 10 customers belong to the same corporate group and while the decision making for each of these customers is largely independent, any adverse action taken by any member of such group may impact the relations of the company with other members of such customer group as well.

The company have defaulted in payment of certain loans in the past and had approached CDR Cell for restructuring debt in FY 2013. As per the restructuring agreement the facilities are secured by pledge on the shareholding of its promoters and members of promoter group including requirement of creation of pledge on any new securities issued to promoters and members of promoter group, encumbrance on the entire fixed and current assets of the company, personal guarantees issued by the promoters and members of the promoter group, and corporate guarantees issued by members of the promoter group, namely, Rolex Properties and Madeka Properties.

Pursuant to the Restructuring Agreements (CDR), the Promoters and members of the Promoter Group of the company entered into a supplemental pledge agreement dated March 28, 2013, with Consortium Lenders, pursuant to which Promoters and members of Promoter Group have pledged 13,066,667 Equity Shares in favour of the Consortium Lenders. Further, through a pledge agreement dated September 24, 2018, between Promoters and certain members of the Promoter Group and the Consortium Lenders, 13,605,863 NCRPS held by Promoters and certain members of Promoter Group had pledged in favour of the Consortium Lenders. To facilitate this offer, pursuant to the waiver letters, the Consortium Lenders have removed pledge on certain number of Equity Shares to ensure compliance with minimum promoter contributions as per SEBI ICDR Regulations. Further, the Consortium Lender have released the physical certificates of the residual pledged Equity Shares (i.e., other than the Equity Shares earmarked towards minimum promoter contribution) and NCRPS to facilitate the process of dematerialization of the Equity Shares and NCRPS. Pursuant to dematerialisation of the Equity Shares and NCRPS and in compliance with CDR Package, the Promoters and members of the Promoter Group have created lock-in on the residual Equity Shares (i.e. other than the Equity Shares earmarked towards minimum promoter contribution) to comply with the requirement of Regulation 17 of SEBI ICDR Regulations and are in the process of creating pledge on the NCRPS and the Residual Equity Shares in terms of Regulation 21(b) of SEBI ICDR Regulations. Further 2630000 Equity Shares issued pursuant to conversion of OCRPS will also be pledged in accordance with the provision of pledge agreement. The exact number of Equity Shares to be pledged with the Consortium Lenders will be finalized post determination of the number of Equity Shares to be issued pursuant to the Fresh Offer.

The requirements of CDR group lenders also adversely impact the flexibility available to the management in running the business. As on March 31, 2021, the restructured term debt due is Rs 33.574 crore, translating into 6.89% of total debt restructured.

Have in the past not complied with the corporate social responsibility requirements under the Companies Act, 2013.

Valuation

Sales for FY 2021 were down 7% to Rs 7844.13 crore. Fall in revenues was largely due to weakness in automotive industry as well as impact of the covid-19 pandemic induced national lockdown at the start of the fiscal. With the operating profit margin contract by 50 bps to 17.7%, the operating profit was down by 10% to Rs 108.87 crore. The other income was down63% to Rs 3.43 crore and the PBIDT was down 14% to Rs 112.29 crore. With interest cost down 64% to RS 11.70 crore and the depreciation was down by 4% to Rs 25.41 crore, the PBT was up by 4% to Rs 75.19 crore. With taxation being a write-back of Rs 11.77 crore (a swing of Rs 30.91 crore from provision of Rs 19.14 crore) the PAT jumped up by 64% to Rs 86.96 crore.

The EPS for FY2021 was Rs 31.9 and thus on FY2021 EPS the PE works out to about 28.2 times. There is no listed bearing ring manufacturing company and thus the company must be compared with other forging companies. In comparison the Bharat Forge quotes at 113.2 times of its standalone FY2021 EPS. The MM forging and Ramkrishna Forging quotes at a PE of 39.3 times and 127.3 times, respectively, on their consolidated FY2021 EPS.

Rolex Rings: Issue Highlights
Sector	Auto Components
Fresh Issue (in Rs. Crore)	56.00
Offer for sale (in equity share nos.)	7500000
Price band (Rs.)
Upper	900
Lower	880
Post-issue equity (Rs crore)
in Upper price band	27.23
in Lower Price Band	27.25
Post-issue promoter (including promoter group) stake (%)
in Upper price band	57.64
in Lower Price Band	57.61
Minimum Bid (in nos.)	16
Issue Open Date	28-07-2021
Issue Close Date	30-07-2021
Listing	BSE, NSE
Rating	46/100

 

Rolex Rings: Financials
	1903 (12)	2003 (12)	2103 (12)
Sales	904.32	665.99	616.33
OPM (%)	22.2	18.2	17.7
OP	201.09	121.44	108.87
Other income	6.93	9.34	3.43
PBIDT	208.02	130.78	112.29
Interest	42.02	32.17	11.70
PBDT	166.00	98.61	100.59
Depreciation	25.44	26.52	25.41
PBT	140.56	72.08	75.19
EO Exp	0.00	0.00	0.00
PBT after EO	140.56	72.08	75.19
Tax	81.52	19.14	-11.77
PAT	59.04	52.94	86.96
EPS (Rs)*	21.7	19.4	31.9
* on post IPO equity (on upper price band) equity of Rs 27.23 crore. Face Value: Rs 10 EPS is calculated after excluding EO and relevant tax # EPS can not be annualised due to seasonality in operations Figures in Rs crore Source: Capitaline Corporate database

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