Performance acceleration may take some time for Rossari Biotech: ICICI Securities

Home, personal care and performance chemicals (HPPC) revenue declined 10.6% YoY to Rs2.8bn (including revenue from Unitop and Tristar)

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. The risk to the margin is from raw material prices which have started rising again in the past two weeks. The company expects HPPC category to benefit from strong performance in home care and performance chemicals with the seeding of new products including pharma intermediates. Textile chemicals division has stabilised, but demand continues to be weak, and exports are hurt from forex availability in Bangladesh and Egypt.

Revenue dips on lower realisation due to fall in input prices

Home, personal care and performance chemicals (HPPC) revenue declined 10.6% YoY to Rs2.8bn (including revenue from Unitop and Tristar). Standalone HPPC revenue rose 13% YoY to Rs1.3bn as the company starts integrating business. Revenue from subsidiaries dipped 24.2% YoY to Rs1.5bn, impacted by the servicing of new customers by parent. Revenue from textile chemicals grew 5.8% YoY to Rs1bn, as the industry is beset with demand headwinds. AHN revenue rose 17% YoY to Rs285mn and had seasonal weakness, but company remains optimistic for FY24.

EBITDA margin improves to 14%, but company expects it to remain stable

Rossari’s revenue was down 5.5% YoY to Rs4.1bn, but volumes have grown ~20% YoY. Gross profit margin contracted 10bps QoQ to 29.5% despite softening raw material prices. The immediate focus for the company is to push more volumes driving higher plant utilisation and operating leverage. EBITDA was flattish YoY to Rs577mn and EBITDA margin was 14.1% (up 70bps QoQ). Net profit was Rs293mn, up 2.2% YoY. The company expects consolidated revenue to grow 12-14% and EBITDA margin at 14% for FY24.

Other highlights

1) Unitop’s performance was not much impacted by slowdown in agrochemicals business as the company has scaled non-agro chemicals surfactants business; 2) Tristar has undergone pain due to weakness in Europe; however, it expects steady performance in FY24; 3) Rossari remains hopeful of revival in HPPC segment on the back of new product launches and addition of customers. Rossari’s focus is to drive volume growth to fill plant, and it would remain competitive on pricing; 4) it has developed morpholine-based derivatives which will provide entry into pharma intermediate space; 5) company is developing novel products in Buzil Rossari for Indian Railways. Buzil revenue was up, to Rs1bn in FY23 vs Rs0.85bn in FY22; and 6) Rossari has completed the  remaining 16% acquisition in Tristar, and is working to complete its 100% stake acquisition in Unitop.