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Rossari Biotech Ltd

| Q3 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤23rd Jan 26

Summary : Rossari Biotech achieved healthy Q3 FY26 growth driven by exports and strategic investments, but faces domestic demand softness and long capacity ramp-up periods.

Management Perspective positive : We delivered a healthy 13% year-on-year growth... we remain confident that operating leverage, scale benefits and an improving product mix will support margin improvement over time. We believe we are well positioned to drive sustainable profitable growth going forward.

Concall Report Analysis & Insights

Business Overview

  1. Achieved healthy 13% year-on-year revenue growth in Q3 FY26 despite softer domestic demand.
  2. Diversified business model and strong customer relationships sustained growth momentum.
  3. All business segments registered year-on-year growth, supported by healthy volumes.
  4. HPPC grew 11% YoY, Textile Specialty Chemicals grew 18% YoY, Animal Health & Nutrition grew 39% YoY.
  5. Consolidated revenues reached Rs. 581.7 crore with an EBITDA margin of 11.8%.

Future Growth Prospects

  1. Newly commissioned 15,000 MTPA Ethoxylation facility at Unitop is steadily ramping up utilization.
  2. Board approved greenfield specialty chemicals manufacturing facility in Saudi Arabia for international growth.
  3. Phased capacity expansion program across verticals continues to strengthen manufacturing capabilities.
  4. New R&D product developments are expected to play out in the near future.
  5. Premix plant to come onstream by Q4 FY26/Q1 FY27, adding to Animal Health & Nutrition volumes.

Management Insights

  1. Q3 FY26 showed steady growth in a challenging environment, with continued investment for the future.
  2. Diversified portfolio and customer relationships enabled sustained growth despite muted domestic demand.
  3. International business contributed significantly, growing 26% in 9M FY26 through customer engagement and expansion.
  4. KSA facility aims to enhance supply chain resilience, improve speed-to-market, and expand global footprint.
  5. Priorities include improving capacity utilization, strengthening product portfolio, and financial discipline for profitable growth.

Signs of Skepticism

  1. B2C business is underperforming, management is re-evaluating its future to reduce losses.
  2. Optimal capacity utilization for new facilities is projected to take 2+ years, impacting immediate operating leverage.
  3. Initial $8 million KSA investment is for evaluation, not the full capex, which will be substantially higher.
  4. Domestic demand softness in textiles and HPPC is a persistent issue, relying on exports for growth.

Risk Factors

  1. Profitability impacted by ongoing investments in capacity expansion and new labor codes.
  2. Ethylene Oxide supply remains a near-term constraint, though expected to ease.
  3. Institutional and B2C businesses continue to operate in a challenging environment with muted growth.
  4. Domestic demand remains soft in certain segments, particularly textiles.
  5. Optimal utilization of new facilities will take at least 2 years-plus.

Good To Know

  1. Consolidated EBITDA for Q3 FY26 was Rs. 68.9 crore, with an 11.8% margin.
  2. Core B2B operations delivered 14% EBITDA margin, slightly below the 15%-16% normalized band.
  3. Capex investments are funded through internal accruals and debt to strengthen manufacturing.
  4. Balance sheet remains strong with healthy liquidity and conservative leverage.
  5. Working capital improved sequentially in Q3 due to better collection.

Key Drivers

  1. KSA facility to boost international growth.
  2. Bio-surfactant approval opens new market.
  3. New capacities to drive future profitability.
  4. Strong export growth in new geographies.

Key Analyst Discussions

Competitive Environment

  1. KSA facility aims to leverage raw material availability and competitive pricing against China.
  2. Company is targeting MNC customers for cross-selling and expanding global footprint.
  3. New bio-surfactants have been approved by two major global personal care companies.

Market Trends & Consumer Behavior

  1. Domestic demand softness impacted textile and HPPC divisions, especially in Europe.
  2. December saw a rebound in demand, with Q4 expected to have a better demand outlook.
  3. Animal Health & Nutrition saw good demand in Q3, driven by key accounts and export initiatives.
  4. Exports consistently grew quarter-on-quarter, now contributing 33% of total turnover in Q3.

Financial Highlights

  1. New Dahej and Unitop capacities will take 2+ years to reach optimal utilization for EBITDA margin improvement.
  2. Profitability has been stable around Rs. 300 million per quarter, with ROCE at sub-15%.
  3. Management expects profitability to return to 15% range by divesting non-profitable B2C assets.
  4. Q3 FY26 revenue growth was primarily volume-driven, approximately 10%-12%.

Product Composition

  1. New R&D products contribute over 20% to current sales.
  2. Focus on higher margin segments to improve overall profitability.
  3. New product developments are expected to show up in numbers soon.

Strategic Considerations

  1. KSA expansion driven by raw material availability, supply chain resilience, and proximity to export markets.
  2. KSA facility will focus on surfactants and non-EO products, exploring oil and gas segment.
  3. India business remains the top priority for capacity utilization and new product development.
  4. Thailand formulation facility for textiles is expected to come onstream by Q4/Q1, expanding to other products later.