Will Rolex Rings rule the Indian bearings market? A primer on the stock

“I would also like to mention that for the first time in the history of  the Company, we have recorded dispatches of INR 3000 millions in Q4 FY2022 with a monthly run rate of INR 1000 Millions. We expect the momentum to continue with the same kind of margin and growth in the overall top line as well as operations.”

– Manesh Dayashankar Madeka, Chairman and Managing Director

Stock Data:

Ticker	ROLEXRINGS
Exchange	NSE and BSE
Industry	Auto Ancillaries

Price Performance:

Last 5 days	+0.31%
YTD	+11.51%
Last 1 year	+61.98%

Company Description:

Rolex Rings Ltd. is one of India’s leading manufacturers of forged and machined components. It is among the top 5 forging companies of India. It manufactures and supplies hot rolled forged, machined bearing rings, and automotive components. Its customers include leading bearing manufacturers. Company is also a Tier-I supplier to global auto companies. Rolex Rings supplies bearing rings and automotive components to over 60+ customers in 17 countries primarily located in India, USA, Thailand and European countries.

Products:

Rolex Rings has a diversified product line that includes 

1. Forged bearing rings (hot forged and machined alloy steel bearing rings weighing from 0.01 kg to over 163 kg and with inner diameter of 25 mm to outer diameter of 900 mm.)
2.  Parts of gear box & automotive components.

The company caters to different industries including automotive, industrial infrastructure, railways and renewable energy.

Clientele:

The company supplies to automotive companies and leading bearing manufacturers such as SRF India, Schaeffler India, Timken India, etc. Top 10 customers accounted for 80% revenue of the company

Manufacturing Facilities:

The company has three manufacturing units that are all in Rajkot with an rated capacity of 144,750 MTPA in forging and 69 million parts p.a. machining. A wide variety of forging machines gives flexibility to manufacture high volume parts in a cost effective manner. Furthermore, proximity to major ports like Kandla, Mundra and Pipavav also benefits exports.

IPO details:

The company raised INR 731 Crs through the IPO of which INR 675 Crs is an Offer for sale and the remaining INR 56 Crs will be a fresh Issue. The company will be utilizing the money raised through fresh issue for meeting their Long term Working capital requirements and other general corporate purposes.

Financials:

What we like:

1. Impeccable management efforts:

Management is quite aggressive on the business expansion and its top line growth which is essential for the growth of any company. This can further be witnessed from the past as in FY16-18,  management took a lot of risk to expand manufacturing capacity and the way they managed to get back on track on debt is phenomenal. In addition, the company’s management is always considering existing debt reduction as a top most priority. They have already reduced a lot and bring debt to equity ratio 0.27. Soon we can expect the company to be debt free 

2. International Presence:

The company exports its products bearing rings and automotive components to 17 different countries including France, Italy, Germany, Thailand, Czech Republic, USA, and others. Exports contributed 46% of the revenue of the company.

3. Long standing customer relationships enables business stability:

Company has been doing business with 70% of its top 10 customers for more than a decade. Forged rings being a technologically intensive product and one of the highest RM contributors to bearing has high entry barriers thus leading to high customer stickiness. The Bearings industry is dominated by few organized player’s customer stickiness assures good business stability. 

Factors to consider:

1. No major CAPEX plans by the company:

The company is not planning any major CAPEX till FY25. They will be focusing on enhancing their revenue by increasing capacity utilization. The company will increase its forging utilization to 60% (current utilization 33% in FY20) and machining capacity to 85% in the near future. But nevertheless, this plan to focus only on the current capacity utilization will boost the top line growth of the company.

2. Utilization of the forging capacity remains at ~33%, any further slowdown in the automotive segment in India or abroad may further reduce the utilization and thereby impact return ratios.

3. The company has defaulted on payment of certain loans in the past, and has undergone corporate debt restructuring in Jan ’13. The delay with respect to loan repayment to financial institutions and banks for borrowings of certain periods up to FY19. As a consequence of the same, the company may be restricted in taking some actions including buyback of securities.

Industry Analysis:

Size of the global bearing industry is USD 50 Bn. Upon splitting it on the segment basis it comes to be around 38% -Automotive & rest 62%- Industrial OEM. Looking at the Indian bearing market, the overall industry is expected to grow at 10-11% CAGR. Make in India initiative, China plus 1 and in near future Euro plus 1 theme may add fuel to overall Indian bearing industry. 

Schaeffler and other leading players are expanding manufacturing capacity in India. Coming years, India may be seen as the main hub of bearings exporters. In addition to this, the EV market has a huge potential and being among the market leaders, Rolex Rings will be benefited a lot as being a close proxy to emerging opportunity.