Buy Rossari Biotech; target of Rs 1034: KR Choksey

KR Choksey's research report on Rossari Biotech

Rossari Biotech reported lower than expected topline and bottom line Q2FY25 due to softer HPPC growth and material weakness in TSC segment. Despite these pressures , it posted 3.1%/12%/3.2%/7.2% revenue /GP/EBITDA/PAT growth on YOY basis led by heathy export growth in the HPPC segment. The strong GP growth did not percolate down to similar EBITDA growth as higher employee cost and increased other expenses led to lower cost absorption amid softer revenue growth. We believe the long term growth potential remains in place with strong export opportunity, recovery in domestic market and capacity addition alleviating the concerns on supply constraints. However, we have reduced our FY25E/FY26E EPS estimates by -10%/-6% post the Q2FY25 results given the prevalent issue on domestic HPPC and external TSC market.

Outlook

However, we believe that the capacity addition in ethoxylation and specialty chemical space in HPPC should aid to topline/PAT growth. Consequently, we maintain our BUY rating with a P/E multiple of 31x (Earlier: 29x) on FY26E EPS of INR 33.4 (25x PE on FY27 EPS) with a target price of INR 1,034 implying an upside of 31.4% from the CMP 787.

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