Specialty chemical stock may rally over 50% as Yes Securities sees more upside

Rossari Biotech’s reported operating profits (+49 YoY) stood marginally ahead of street estimates on better than estimated margins. Rossari selectively revised prices to pass on the increase in raw material costs to consumers, thereby leading to an improvement in Ebitda margin.

Domestic brokerage and research firm Yes Securities has maintained Buy rating on the specialty chemical stock, with a revised March 2023 target price of ₹1,355 per share, implying a potential upside of more than 50% from current stock level. Rossari Biotech shares are down over 32% in 2022 (YTD) so far.

The consolidated net-revenue was up 101% YoY, while the strong YoY growth was led by the commissioning of additional capacity at Dahej and additional sales from the acquisition of Unitop, Tristar and Romakk, the modest QoQ growth was on account of elimination of lower profitability products from the portfolio.

“The gradual pass-through is likely to continue over 1Q-2QFY23, with margins stabilizing by 2QFY23. Leveraging the additional capacity at Dahej and synergy from the acquisition of Unitop, Tristar and Romakk, Rossari, introduced new products across segments, leading to a volume growth of ~ 40% YoY during the FY22. Going ahead as well the growth momentum is likely to continued, along with improvement in margins,” the note stated.

The company has successfully passed on price increases within its ingredients segment however has been cautious (undertaken minimal price hike) in increasing prices within its trademark formulation segment as frequent price revision are challenging in the segment.

Rossari Biotech expects to generate Revenue of ₹20bn in FY23 and EBITDA of around ₹2.5 bn, on backs of 15% growth in volume and EBITDA margin of 14-15%, Yes Securities added.

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