Rossari Biotech Ltd. share price target

We expect it is likely to deliver 18%/22%/25% revenue/EBITDA/PAT CAGRs over FY25-27 due to swelling demand, capacity expansion and mounting exports.

HPPC business and capex to drive growth

Rossari Biotech’s (Rossari) Q2FY25 HPPC revenue growth (+6.2% YoY) was hurt from softer demand and restricted ethylene oxide (EO) capacity.

Rossari Biotech is a leading specialty chemicals manufacturing company, focusing on four core chemistries of enzymes, silicones, acrylics and surfactants. It caters to industries such as home and personal care, and performance chemicals (HPPC), textile specialty chemicals (TSC) and animal health and nutrition (AHN) products

HPPC and capex to drive growth

HPPC business and capex to drive growth

Signs of a recovery in sight

Rossari Biotech’s (Rossari) Q2FY24 HPPC revenue (+21% YoY) was led by a volume push which has hurt prices and margins. Despite rise in utilisation from 50-55% to >75%, EBITDA margin dipped 100bp QoQ to 13.1%. It has chosen to play volume game for FY24 to drive utilisation, and expects to improve margins as plant utilisations stabilise at higher levels, which in our view can cap return ratio in near term.

Rossari Biotech’s (Rossari) Q1FY24 revenue dipped 5.5% YoY to Rs4.1bn due to drop in raw material prices, while volume grew ~20% YoY. Gross profit margin dipped 10bps QoQ despite softening raw material prices as the company focused on growing volumes and driving operating leverage. EBITDA margin has improved 70bps QoQ to 14.1%. Rossari expects revenue growth of 12-14% and EBITDA margin at 14% for FY24 despite a weak Q1FY24.

Rossari Biotech’s Q4FY23 revenue dipped 7.4% YoY (rose 4.4% QoQ) to Rs4.1bn due to drop in raw material prices. However, we were disappointed by a 40bps QoQ contraction in gross profit margin to 29.6%. EBITDA growth therefore was just 4.3% YoY.

Signs of a recovery in sight

Rossari Biotech’s Q3FY23 performance disappointed with 9.1% YoY / 8.5% QoQ dip in revenues to Rs3.9bn. However, EBITDA margins showed recovery, up 60bps QoQ to 13.9%. Revenues were hurt due to multiple reasons: 1) lower realisation as a result of softening raw material prices; 2) complete exit of a large customer; 3) underlying headwinds for textile industry; and 4) muted performance by acquired companies.

Synergies and product introductions to drive long-term growth

Rossari Biotech’s Q2FY23 result disappointed on margins despite raw material price
correction, and now company is cautious on revenue growth. We are disappointed at
revenue growth performance across segments of standalone business.

Margins inching up, 2H expected to be stronger

Rossari Biotech’s Q1FY23 result was a mixed print with weak revenue (standalone revenue dipped 11% QoQ / up 15% YoY), while margin displayed sharp recovery (gross profit margin up 300bps QoQ).

Acquired businesses outperform, Outlook Positive

Rossari Biotech’s Q4FY22 standalone EBITDA dipped 20% YoY to Rs275mn, and standalone HPPC revenues fell 13% QoQ – which were unimpressive. However, the performance of acquired companies was steady, and this helped consolidated EBITDA growth of 49% YoY to Rs523mn.

Input cost inflation continues to weigh on margins