Buy Rossari Biotech Ltd For Target Rs.1,030 - Yes Securities
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Weak raw material prices led to tepid earnings growth
Our View
Rossari’s reported operating profits at Rs 577mn (flat YoY; +6% QoQ) The Ebitda margin at 14.1% (4Q: 13.4%) improved marginally due to lower employee cost. The standalone earnings stood stronger with S.A. Ebitda at Rs 351mn growing by 30% YoY & -2% QoQ, driven by a 11% YoY and -2% QoQ growth in revenue and a constant Ebitda margin of 13.6%. Revenue was supported form new product introduction in HPPC, while there was impact of global destocking in TSC and AHN having a seasonally weak quarter. Rossari acquired 16% of remaining stake in Tristar Intermediates for a consideration of Rs 169mn. R&D team working towards providing sustainable aquaculture solutions for farmers. For FY24 target revenue growth of 12- 14% & Ebitda margin of 12%. Rossari has its R&D at core and customization through which it aims to deliver growth in volatile macro scenario. We maintain BUY rating with revised target price of Rs 1,030/sh.
Result Highlights
? Revenue: The consolidated net-revenue stood at Rs 4.1bn (-6% YoY; +1% QoQ); The YoY weakness was on account of soft domestic demand in key industries for HPPC & TSC was impacted by global destocking.
? Consol. Ebitda & PAT: Consolidated Ebitda at Rs 577mn stood flat YoY & +6% QoQ. Ebitda margin expanded by 64bps QoQ to 14.1% (4QFY23: 13.4%). PAT stood at Rs 292mn (+2% YoY; +1% QoQ). Raw material volatility management and focus on high-margin products helped improve margin performance.
? Standalone Earnings: S.A. Revenue for 4QFY23 stood at Rs 2.6bn (+11% YoY; -2% QoQ), with Ebitda at Rs 351mn (+30% YoY; -2% QoQ) and PAT at Rs 216mn (+41% YoY; +7% QoQ).
? HPPC Segment: Revenue stood at Rs 2.8bn (-11% YoY; +7% QoQ) on soft demand from key domestic industries & introduction of morpholine based derivative which is one of key ingredient for pharma API.
? TSC Segment: Revenue stood at Rs 993mn (+6% YoY; +1% QoQ), impacted by inventory destocking in global markets.
? AHN Segment: Revenue for the segment stood at Rs 285mn (+17% YoY; -33% QoQ), during the quarter.
Valuation
We maintain BUY on Rossari, with a Mar’24 TP of Rs 1030/sh. Our TP is premised upon an operating earnings CAGR of ~12%(FY23-30e), with a RoE profile of ~16%. The stock is currently trading at 18x FY25e, vs 26.5x implied by our TP
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