Rolex Rings IPO - Should you apply?

For all bike lovers out there, we have something of your interest today! A company, which of course you may not have even heard of, but is really close to your heart, is coming up with its IPO. No, it's not exactly an automobile company, but yes, it could be supplying components to many of your dream vehicles.

Yes, we’re talking about one of the leading forging and bearing rings manufacturing companies in India, Rolex Rings Ltd, which is gonna hit the market with an IPO on 28th July 2021.

So, confused about whether to invest or not? Well, let’s dive into the company’s prospectus to get the answer!

Rolex Rings Ltd – Company Info

Gujrat-based Rolex Rings Ltd incorporated in 2003, is one of the top five Indian forging companies and a key manufacturer of bearing rings in India. The company manufactures and supplies hot rolled forged & machined bearing rings, and automotive components for segments of vehicles (including two-wheelers, passenger vehicles, commercial vehicles, off-highway vehicles, electric vehicles, etc), industrial machinery, wind turbines and railways, amongst other segments across the globe.

Rolex rings embarked on its journey in 1978 as a partnership firm. From then, with the first manufacturing plant set up, the company has come a long way to establish 3 such manufacturing units in Rajkot! Although the company was incorporated in the 2000s, it has a 4-decade long experience and expertise as a firm in precision engineering of various Forging and machining.

The company has been awarded the ‘Supplier Quality Excellence Award’ by one of their customers and a famous auto manufacturer - General Motors, in two consecutive years – 2018 & 2019. The company has also achieved the ‘Excellence in New Product Development’ award from Timken in 2018.

Rupesh Dayashankar Madeka, Manesh Dayashankar Madeka, Pinakin Dayashankar Madeka, Bhautik Dayashanka Madeka, Jiten Dayashanka Madeka are the promoters of the company and hold 58.99% stake in the company as of date.

Financials of the Company

Key Details of the Rolex Rings IPO

Application Range Details

Objects of the Issue

This IPO is going to be a mixed bag of fresh issues and offer for sale (OFS). The bifurcation of the same is as follows:

Fresh Issue: Fresh issue is the issuance of completely new shares of the company to its investors, instead of diluting promoters’/investors’ existing stake into the company. Rolex Rings is issuing fresh new shares worth Rs 56 Crores to fulfil the following objectives:

1)     Rs 45 crores to fund long-term working capital requirements.

2)     Rest, for the use of general corporate purposes.

Offer For Sale (OFS): Offer For Sale (OFS) is a way of exit for promoters/investors of the company from the existing shareholding. Through OFS, promoters can sell their stake to the public. The amount received through OFS goes to promoters and not to the company. The offer for sale in the IPO comprises Rs 675 Cr, i.e., a majority of the proceeds.

Why should you invest?

Rolex Ring’s wide range of products helps it attract new customers, improve business share amongst existing customers and limits the risk of being dependent on any single product category.

Strong investments into manufacturing infrastructure enable the company to enjoy cost efficiency and the benefits of offering a variety of products to a wide range of end-user industries. Also, three manufacturing units along with smaller machining units, all in Rajkot, have given the locational advantage to the company.

Strong global customer presence in 17 countries during the fiscal year 2020, is driving the company to earn a diversified revenue base.

“It takes months to find a customer… seconds to lose one.” – Vince Lombardi. 

Well, the company has succeeded in cherishing its relationship with its customers. Around 80% of the company's 10 largest customers have carried on their decade long relationship with the company even in the tough times of the Covid pandemic.

Experienced promoters, senior management team and technically skilled employees are the key reasons for the company’s strategic planning, business development and instrumental growth in revenue and operations.

The company is further working on strategies such as increasing business share amongst existing customers, expanding customer base, improving operational efficiency, enhancing manufacturing infrastructure & product portfolio, reducing power costs and carbon footprints, improving financial risk profile, and so on, to stand out as the best in the respective industry.

Why should you not invest?

Like other companies, Covid-19 has been a problem for Rolex Rings too. Hence, a continuation of shutdowns and slowdowns in the operating regions might create obstacles to the future growth of the company.

Rolex Rings has defaulted on the payments of certain loans in the past and has restructured the debts in the year 2013. In the current times, the company has certain loans which can be recalled at any time by the lenders.

As the company is heavily dependent on the performance of the automotive sector in India, Europe, North America, Latin America and some parts of Asia; any adversely changing market conditions in these regions along with international market conditions, regulatory risks and exchange rate fluctuations, might affect the business operations of the company.

The company’s top 10 customers account for the majority of its revenue. Such heavy reliance on a limited set of customers might trap the company in pricing pressures.

The company does not have firm commitment agreements with the customers, and relies on short term purchase orders, cancellation of which prior to finalization, might adversely affect the company’s revenue and production schedules.

Though the company’s experienced promoters are assets for the company, they sometimes need to pledge their equity shares for loan agreements, and breach of which by the company, will lead to reduced promoter shareholding in the company along with added pressure on the share price.

The absence of a registered logo or patents or any such intellectual property rights, or the inability to maintain the integrity and secrecy of the same might land the company in intellectual property rights troubles, thus affecting its reputation, and ultimately, earnings.

Conclusion

Although the company occupies a leading position in the forging and bearings industry in India, it’s not devoid of limitations. In fact, the risk factors seem to outweigh the brownie points. Moreover, what makes this IPO dicey is that a majority portion of the proceeds is basically an exit opportunity for existing investors. That only means that only a pittance goes for the company’s cause. Maybe that’s why you would be better off staying on the sidelines this time.

Having said that, investment decisions are totally a subjective matter. You should evaluate whether this opportunity is worth investing in as per your objectives and risk profile. Do thorough research before investing.

So, what do you say? A hit or a miss?

Tell us in the comments.