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Our View

Rossari’s reported operating profits at Rs 542mn (+16%YoY; -4% QoQ) missed our and street estimates on weaker earnings traction in subsidiaries and weaker demand sentiment in the HPPC segment. The Ebitda margin at 13.9% (2Q: 13.3%) nevertheless improved QoQ as raw material price environment improved. The standalone earnings were steady with SA. Ebitda at 319mn growing by 22% YoY & 15% QoQ, primarily on expansion in SA operating margin to 13.5% (2Q: 11.6%), even as revenue at 2.4bn (- 12% YoY; -2% QoQ) stood weaker. Demand environment remains challenging in TSC segment, plus HPPC faced headwinds during the quarter due to a particular customer, which the company is trying tide over by onboarding of new customers. In the longer run, under normalized operating conditions, we expect the operating margins to restore to 14-15% levels. In addition, Rossari continues to innovate, within the its four core chemistries, developing products for new applications, across product segments. Maintain BUY.

Result Highlights

* Revenue: The consolidated net-revenue stood at Rs 3.9bn (-9% YoY; -9% QoQ); on weaker HPPC segment demand and weaker sales in subsidiaries. While weaker Agro demand impacted Unitop, Tristar was impacted by weaker exports to Europe and Russia.

* Consol. Ebitda & PAT: Consolidated Ebitda at Rs 542mn stood higher by 16% YoY but 4% lower QoQ. Consol. PAT stood at Rs 257mn (+14% YoY; +7% QoQ). Ebitda margin improved QoQ to 13.9% (2QFY23: 13.3%) on moderation in raw material prices. 43% QoQ lower interest cost further aided earnings in the 3QFY23. The 9M Ebitda & PAT stood at Rs 1.7bn (+32% YoY) & Rs 775mn (+6.1% YoY)

* Standalone Earnings: S.A. Revenue for 3QFY23 stood at Rs 2.369bn (-12% YoY; - -2% QoQ), with Ebitda at Rs 319mn (+22% YoY; +15% QoQ) and PAT at Rs 175mn (-4% YoY; +13% QoQ). As the standalone business had a relatively stable quarter vis-à-vis subsidiaries. The 9M Ebitda & PAT stood at Rs 868mn (-7.6% YoY) & Rs 482mn (-22% YoY).

* HPPC Segment: Revenue stood at Rs 2.71bn (-7.8% YoY; -10.7% QoQ) as the segment experienced weaker demand sentiment during the quarter.

* TSC Segment: Revenue stood at Rs 895mn (-19.1% YoY; -2.1% QoQ), challenges in textile exports impacted sales for textile chemicals during the quarter.

* AHN Segment: Revenue for the segment stood at Rs 286mn (+20.3% YoY; -5.2% QoQ), during the quarter.

Valuation

Maintain BUY on Rossari, with a Mar’24 TP of Rs 1095/sh. Our TP is premised upon an operating earnings CAGR of ~16%(FY22-30e), with a RoE profile of ~16%.

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