Reduce Rossari Biotech; target of Rs 720: ICICI Securities

ICICI Securities recommended reduce rating on Rossari Biotech with a target price of Rs 720 in its research report dated October 24, 2023.

Broker Research

October 26, 2023 / 13:02 IST

Reduce

ICICI Securities research report on Rossari Biotech

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. The new strategy also requires investments in capex; and business mix change is driving higher working capital. We would wait to see the fruits of rising market share and margin trajectory.

Outlook

We have cut our EPS estimates by 4-10% over FY24-25E. However, our target price fell only to INR 720 (vs INR 725) as we raise PE multiple to 24x FY25E (vs 22x). Maintain REDUCE. Risks: Better than expected HPPC revenue take off and margin jump in FY25.

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