What you must know about Rocking Deals Circular Economy IPO?

Rocking Deals Circular Economy Ltd has an 18 year track record, having been incorporated in the year 2005. The company specializes in the bulk trading of excess inventory, open boxed inventory, re-commerce products, and refurbished products. It operates its business model in such a way that other companies with excess inventory of any kind can easily dispose of their excess inventory. This enables them  to free up valuable space and resources for inventory and shelf space. Rocking Deals Circular Economy Ltd has over 18 categories of Stock Keeping Units (SKU), which include electrical appliances (catering to companies like Syska, Havells, LG, Panasonic, Usha, Crompton, Luminous, and Phillips). In the apparels and footwear, it handles excess inventory for Zara, Nike, Campus, etc. Among other products and manufactures it caters to include speakers (Boat, JBL, Gizmore), mobiles / accessories (Lenovo, Boat, Gizmore), and many more.

Rocking Deals Circular Economy Ltd  also directly interfaces with mega ecommerce players like Amazon and Flipkart to enable disposal and absorption of such excess inventory. Rocking Deals specializes in dealing with excess inventory across multiple brands in the B2B market. On the one side, it assists businesses in liquidating their surplus stock, and on the other side enables willing buyers to be able to buy at steep discounts. This turns out to be a win-win situation for all parties involved. The company is well-positioned to provide a valuable service to businesses looking to manage their excess inventory. By offering unboxed and pre-owned products, consumers can also reduce their environmental footprint by choosing to reuse rather than buying new products. Overall, the company ends up making a positive impact on the environment and the economy.

Key terms of the Rocking Deals Circular Economy IPO (SME)

Here are some of the highlights of the Rocking Deals Circular Economy IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 22nd November 2023 and closes for subscription on 24th November 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price for the fresh issue IPO has been fixed in the price band of ₹136 to ₹140 per share. Being a book built issue, the final price will be discovered via book building process.
   
• The IPO of Rocking Deals Circular Economy Ltd has only a fresh issue component with no book built portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, Rocking Deals Circular Economy Ltd will issue a total of 15,00,000 shares (15 lakh shares), which at the upper IPO band price of ₹140 per share aggregates to a total fund raising of ₹21.00 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will also comprise of 15.00 lakh shares, which at the upper price band of ₹140 per share will aggregate to ₹21.00 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 85,000 shares. The market maker for the issue is SS Corporate Services Private Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Aman Preet, Kulbir Chopra, and Avneet Chopra. The promoter holding in the company currently stands at 88.45%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 65.00%.
   
• The fresh issue funds will be used by the company for funding working capital and also for brand positioning, marketing, and advertisement. Part of the monies raised will also go towards meeting the general corporate expenses of the company.
   
• Corporate Capital Ventures Private Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is SS Corporate Services Private Ltd.

Rocking Deals IPO allocation and minimum lot size for investment

Rocking Deals Circular Economy IPO has allocated 5.67% of the issue size for the market makers to the issue, SS Corporate Services Private Ltd. The net offer (net of market maker allocation) will be divided between the qualified institutional buyers (QIBs), retail investors and the HNI / NII investors. The breakdown of the overall IPO of Rocking Deals Circular Economy Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 1,000 shares. Thus, retail investors can invest a minimum of ₹140,000 (1,000 x ₹140 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 2,000 shares and having a minimum lot value of ₹280,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Rocking Deals Circular Economy IPO (SME)

Rocking Deals Circular Economy IPO opens on Wednesday, November 22nd, 2023 and closes on Friday, November 24th, 2023. The Rocking Deals Circular Economy Ltd bid date is from November 22nd, 2023 10.00 AM to November 24th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is November 24th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Rocking Deals Circular Economy Ltd

The table below captures the key financials of Rocking Deals Circular Economy Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenues were flat in the latest year, but it comes after a sharp growth in the previous year. However, despite the flat revenues in the latest year, the net profits have growth at a sharp clip in the latest year showing much better management of costs.
   
• The net margins have been above 10% in the latest year, but previous numbers are not really comparable due to the sharp turn in profits in the latest year. Even in the case of ROE and ROA, it is only the latest year data that is compelling. A lot will depend on the latest data on margins sustaining in the coming quarters.
   
• Being a capital light business, the asset turnover ratio or the asset sweating ratio has been above 1 on a consistent basis. This may not be too representative as here the expenses ratio would matter more than the asset turnover ratio, in this sector. However, this is positive for future growth in ROE.

The company has latest year EPS of ₹4.20 which pegs the valuation of the IPO at over 30 times earnings or P/E ratio. By that benchmark, it does appear steep, even assuming that the spurt in profits in the latest year can be sustained. By latest year valuations, the company looks reasonably priced, so it is the sustainable EPS that will matter. However, the focus should be on the business model of minimizing retail wastage and that is a good model and may need valuations like a typical dotcom. We have to wait and watch, but it is a high risk call and only for investor with a longer horizon.