Reduce Rossari Biotech; target of Rs 725: ICICI Securities

ICICI Securities research report on Rossari Biotech

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.

Outlook

We have cut our FY24E / FY25E EPS by ~3-4% but increased our target price to Rs725 (from Rs680) as we upgrade the multiple to 22x FY25E EPS from 20x. We downgrade the stock to REDUCE (from Hold).