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. Company anticipates margins to stabilise in Q2FY23 aided by price increase, rationalisation of low-margin portfolios and softening RM costs.

Rossari has guided for revenues at Rs20bn and EBITDA of Rs2.5bn for FY23, which implies 15% volume growth in the standalone business. Unitop and Tristar performance post acquisition has been steady, and Rossari has started launching new products taking advantage of acquired companies across HPPC, textiles and AHN segments. The integration of acquired companies moving on right direction though too early to conclude, but start is good.

Majority growth from acquisitions and price increase in standalone. Home personal care and performance chemicals (HPPC) segment revenues grew 180% YoY to Rs3bn (including revenues from the merged companies, Unitop and Tristar). Standalone HPPC revenues grew 38% YoY (benefited new greenfield plant commissioned in Dahej), but dipped 13.1% QoQ to Rs1.3bn. Standalone HPPC revenues were impacted from lower sales to white label products due to challenge in pricing from RM inflation; ingredient business continues to grow healthy. Subsidiaries were more able to pass on prices, and their revenues grew 11% QoQ to Rs1.8bn. Textile chemical segment revenues grew 25% YoY (+6.8% QoQ) to Rs1.1bn, and AHN revenues rose 17% YoY (+25% QoQ) to Rs255mn. Rossari standalone volumes grew 40% in FY22, which is healthy.

Efforts to normalise margins by Q2FY23. Rossari’s (standalone) revenues grew 30% YoY (down 2.6% QoQ) and benefited from the commissioning of Dahej plant, and price hike due to RM inflation. Gross profit margin up 140bps QoQ (dip 790bps YoY) to 23.6% due to price increases, and rationalisation of low-margin products. Gross profit declined 2.8% YoY to Rs618mn. EBITDA fell 20% YoY (+5.2% QoQ) to Rs275mn, and EBITDA margin was at 10.5%. Company remains confident of achieving 14-15% EBITDA margin again by Q2FY23. Consolidated revenues and EBITDA rose 101% and 49% YoY to Rs4.4bn and Rs523mn, respectively. Unitop and Tristar revenues and EBITDA were Rs1.24bn and Rs190mn, and Rs495mn and Rs59mn, respectively.

Other highlights. 1) Margin improvement will come from a combination of factors including: a) price increase, which started from Mar’22 and some more is anticipated in Q1FY23; b) rationalisation of product portfolio; c) softening of RM prices. Company anticipates 14-15% EBITDA margin to be achieved in Q2FY23. 2) Rossari has guided for FY23 revenues of Rs20bn (+35% YoY) and EBITDA of Rs2.5bn (margin of 12.5% vs 12.1% in FY22). This implies standalone volume growth of 15%. Company expects textile chemical revenues to grow 15% supported by exports. 3) tax rate was 25%.