Rolex Rings IPO: Information analysis

Rolex Rings is one of India's top five forging companies involved in producing and exporting bearing rings, gearbox parts, and other automotive components. The company, promoted by Rupesh Madeka and Manesh Madeka, began its manufacturing operations in 1988, with a single plant in Rajkot. Today it has a capacity of 1,44,750 MTPA comprising 22 forging lines in three manufacturing plants. The company also operates windmills with an installed capacity of 8.75 MW. It is in the process of expanding its renewable energy capacity by another 16 MW to reduce both its energy costs and carbon footprint. For FY21, bearing rings constituted nearly 54 per cent of the company's revenue from operations - 44 per cent from domestic and 56 per cent from exports. The company's IPO is mainly an offer for sale for one institutional shareholder (Rivendell PE LLC), with only Rs 56 crore out of Rs 731 crore raised being a fresh issue. Strengths Geographically diversified revenue base: The company sold bearing rings and automotive components to customers in 17 countries such as the USA, Germany, France, Thailand, etc. The strength of the long-standing relationships can be gauged by the fact that 70 per cent of the largest 10 customers have been purchasing from the company for over a decade. Comprehensive portfolio: The company's products are suitable for a wide range of end-use applications such as industrial infrastructure, renewable energy, railways, etc. Apart from this, its products are also used in electric vehicles. Debt reduction: The company has been able to strengthen its balance sheet, and its debt-to-equity ratio has reduced from 1.8 times in FY19 to 0.6 times as of FY21. Risks/weaknesses Margins: Being an auto-ancillary player, the company does not have strong margins, and this is reflected in its low EBITDA margin of 18.12 per cent in FY21. Besides, it has a high dependence on raw material prices, constituting 51.4 per cent of its FY21 revenue from operations. The raw material (steel) prices are cyclical and are therefore not predictable. Also, it has a high degree of supplier concentration, with its top 10 clients accounting for 72 per cent