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Our View

Rossari’s reported operating profits at Rs 636mn (+12% YoY; +10% QoQ) The Ebitda margin at 13.1% (Q1: 14.1%), lower on account of higher other costs and decision to grow volumes at minor cost of margins. The standalone earnings stood stronger with S.A. Ebitda at Rs483mn growing by 73% YoY & 38% QoQ, driven by a 14% YoY and +18% QoQ growth in revenue and improved Ebitda margin of 14.5%. HPPC segment saw strong contribution from Institutional cleaning, paints home, and personal care, reporting a growth of 21%, TSC grew by 5 %, while AHN was down by 28% QoQ which was result of prudence as difficulties were seen on payment terms leading the decision to reduce the feed business and met seasonally weak quarter due to double Shravan. To supplement its further growth, announced expansion of Dahej facility to foray into specialty chemicals and ingredients for subsidiaries. Unitop facility current capacity of 36k mtpa of ethoxylation operating at optimal levels, additional facility of 30k mtpa being added to meet future demand. Both these expansions will take place in phased manner till Q3FY25. We maintain BUY rating with revised target price of Rs 1,015/sh.

Result Highlights

? Revenue: The consolidated net-revenue stood at Rs 4.8bn (14% YoY; +18% QoQ); The growth was led by strong offtake from end users in HPPC.

? Consol. Ebitda & PAT: Consolidated Ebitda at Rs 636mn stood +12% YoY & +10% QoQ. Ebitda margin contracted by 92bps QoQ to 13.1%. PAT stood at Rs 329mn (+38% YoY; +13% QoQ). Raw material stability in prices aided the EBITDA while PAT was driven by improvement in topline.

? Standalone Earnings: S.A. Revenue for Q2FY24 stood at Rs 3.3bn (+38% YoY; +29% QoQ), with Ebitda at Rs 483mn (+73% YoY; 38% QoQ) and PAT at Rs 324mn (+110% YoY; +50% QoQ).

? HPPC Segment: Revenue stood at Rs 3.6bn (21% YoY; +22% QoQ) led by strong contribution from Institutional cleaning, paints home, and personal care; leading the growth on consolidated basis, foray into specialty chemicals with the new capex announced.

? TSC Segment: Revenue stood at Rs 959mn (+5% YoY; +19% QoQ), have made changes in management for the unit, cautiously reduced business with certain clients across major markets like Bangladesh, Mexico, Argentina, and Egypt.

? AHN Segment: Revenue for the segment stood at Rs 205mn (-32% YoY; -28% QoQ), during the quarter. The degrowth for another straight quarter was led by the decision to reduce the feed additive business which was coupled with seasonally weak quarter.

? Capex: Dahej facility expansion of Rossari of 20k mtpa capacity for specialty chemicals products and ingredients for subsidiaries at the cost of Rs 500mn. Unitop facility expansion by 30k mtpa to meet future demand on products based on ethoxylation process resulting in capital outlay of Rs 1280mn.

Valuation

We maintain BUY on Rossari, with a Mar’25 TP of Rs 1015/sh. Our TP is premised upon an operating earnings CAGR of ~9%(FY24-30e), with a RoE profile of ~17%. The stock is currently trading at 21x FY25e, vs 26x implied by our TP.

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