Preet Shah’s analysis of Rolex Rings-
I believe Rolex Rings is available at a decent rate and may give multifold returns in coming years.
Overall Industry analysis and company’s position-
Scalability of Business-
- Size of global bearing industry is USD 50Bn. Split by segment is 38% -Automotive & rest 62%- Industrial OEM
- Looking at the Indian bearing market, 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 main hub of bearings exporters. In addition to this, EV market is a huge potential and I believe Rolex Rings will be benefited a lot as being a close proxy to emerging opportunity.
- Rolex Rings is having wide variety of product range varying 0.01 kg to 163 kg and 23mm to 900mm diameter. MOAT of a business is really good.
- Overall revenue of the company consists of 52 percentage of bearing ring and auto components 48%. Company is also expecting 20 to 25% CAGR growth in coming years
- EBITDA margin of company is also quite decent as compare to other competitors.
I foresee a great room to improve margins further as from next quarter inventory will be streamlined, commodity prices have reduced and efficiency of operation may improve utilisation of capacity. Previous quarter, company had lot of inventory on account of higher commodity prices of raw material. Company was hedging this risk by increasing the inventory. In addition, the raw material price hike is being passed on to the customers so the commodity raw material risk is manageable
Management Overview-
Management seems to be quite aggressive on the business expansion. This can be seen from past experience- In 2016/17 management took lot of risk to expand manufacturing capacity and the way they managed to get back on track on debt is phenomenal. In addition, 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 0.25. Soon company will be debt free
- Management is also keen to expand business down the line 2 years by reinvesting profits. As of date there are no immediate CAPEX plans. First priority with profits are reducing debt and rewarding stakeholders. For me, this is very important consideration.
- In view of all this, I would say its a family run professional business.
Other Information-
- PE was Rivendell (Recently they took exit by selling 12.5% stake and all taken over by MFs). Rajat Gupta ex Mckinsey CEO was running the show of Rivendell and he made fortune out of this company.
- The point to be noted here is management had such a high profile investors and their guidance during the early phase of the business. This must have helped them a lot to establish SOPs and professionalism in the company
In view of all these, I see this company as a next goldmine. It is just a view based on my research. Treat this message for healthy discussions only, it’s not a recommendation to invest on this counter. Any contrary views or what not working out for the company or any other additional considerations shall highly be appreciated.
Thanks.