Rolex Rings targets higher growth in FY23 after strong FY22 results

Rolex Rings is among the leading manufacturers of forged and machined components in India, with a customer base spread across the globe. It provides world-class, high-quality customized automotive components along with bearing rings and was listed on the stock exchange in August last year. 

 

Highest ever monthly operations & dispatches of 300 crores in March 2022

 

Two weeks ago, Rolex announced its results for Q4FY22, where it reported a 21.51% jump in revenue from 242.69 crores in Q3FY22 to 294.89 crores in Q4FY22. The net profit increased by 31.05% on a QoQ basis to Rs 39.1 crore. On a YoY basis, total revenue and net profit went up 37.48% and 0.48% in Q4FY22, respectively. 

 

The numbers of FY22 compared with FY21 indicate a robust growth of 65.89% in total sales and 51.66% in consolidated net profit. One reason for such high growth numbers can also be attributed to a low base effect as sales were badly affected in FY21 due to the second wave of COVID-19 and movement restrictions due to lockdown.

 

A more realistic and more recent comparison would be to compare QoQ numbers. Rolex Rings in Q4FY22 has recorded its highest ever operations and dispatches of almost 300 crores, with a monthly run-rate of 100 crores for the very first time, indicating robust growth momentum and increasing demand for Rolex products.

 

 

Highest ever revenue from operations and Profit after tax (PAT) in last 5 years in FY22

 

Capex and Customer acquisition plans to fuel growth in FY23

Quoting the CFO of Rolex Rings “It is the target of Rolex Rings to achieve annual revenue figure of Rs 1250 crore by FY23” in a conference call with analysts on Q4FY22 results.

Having achieved healthy growth momentum in FY22, the company plans to aim to achieve 1250 crores of annual revenue in FY23. For which the share of exports is around 60% as compared to a 40% share of domestic customers in total revenue. 

Rolex plans to expand its business at a global level by acquiring customers in Europe and USA. Rolex Rings was already in talks with some of them and had successfully onboarded 2-3 new customers who would add revenues to Rolex Rings in the second and third quarters of FY23. 

The additional orders will allow them to fully utilize their capacity, which is now functioning at 60–62% of its capacity. Apart from increasing its customer portfolio, it also plans to reduce its costs through the capital expenditure of Rs 30 crores on solar plants. Under this capexplan, Rolex is going to set up solar power plants of 16 MGW, 4 MGW of which will be operational before September 2022, and the rest of it by March 2023 after getting approval from the government. 

 

Rolex plans to invest Rs 30 crores Capex in FY23 for setting up 16 MGW solar power plants

 

Growing Share of EV components and EBITDA margins

Over the last five years, Rolex has recorded robust growth in cash flows and revenue. Earlier, it was the PV (passenger vehicle) components that had the highest share of revenues. Over the last five years, this has reduced from 45% to just 40%. The same is the case with the industrial and CV segments.

The EV component share has seen the biggest gain, from nearly 0% in FY19 to 7% in FY22. This is a positive development, and with the adoption of electric vehicles, it can grow even faster in the coming years. The growing share of EV components is an indication of Rolex adopting faster to newer technologies and making its mark in the segment at an early stage. In the conference call with analysts, the management said that  Rolex expects the share of EV components in total revenue to reach 12-14% in FY23.

 

Share of EV component in total revenues is expected to reach 12-14% mark by FY23

 

The EBITDA margin of Rolex has gone up to 23.4% in FY22 from just 18.1% in FY21, which is highest in the last five years. The management if is optimistic about the margins. In the Q4FY22 con call, the Managing Director said “We will try to maintain the same level of EBITDA margin in coming years”. However, Debt-Equity ratio of company has reduced significantly and is now below 0.5 which is a sign of prudent financial management. 

 

Rolex Rings made a new high on the charts as it went 13.42% up in Last week with 2.1X Volumes

 

Technical Analysis: Rolex Rings surges up by 21.83% in May 2022 

In the last week, while the indices were falling, few stock have gone up by more than 10%, one of which was Rolex Rings. With rising interest from market participants, the stock went up by more than 12% intraday on 1^st June and was up 13.42 % up in last week when it formed a breakout candle on the charts with 2.1X volumes.

Moreover, it is currently trading above its short-, medium- and long-term moving averages highlighting high levels of bullishness. It made a bullish crossover on 19th may and MACD line is still above signal line with RSI at 75. Therefore, this strong technical momentum is indicating high investor enthusiasm as it shows signs of the uptrend likely to continue further and touch 1800 levels over the medium term.

Our take:

The only key concern for Rolex is increasing steel prices and ocean freight hikes which can significantly increase their costs given their high dependence on exports. The Company aims to tackle this with its price pass-through mechanism and forex fluctuations on monthly basis. So, investors should keep a good check on commodity prices as any further increase can affect their top as well bottom line. 

The company have strong financials at the end of FY22 and ambitious plans for FY23. The technical charts also indicate a likely continuation of the up move. Investors with a long-term perspective can consider this stock as potential investment in the auto ancillary industry.