Rossari Biotech Limited (ROSSARI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Rossari Biotech Limited earnings conference call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Mitesh Jain from CDR India for opening remarks. Thank you. And over to you, Mitesh.

Thank you, Ryan. Good evening, everyone, and thank you for joining us on Rossari Biotech Limited's Q3 FY '26 Earnings Conference Call. We have with us Mr. Edward Menezes, Promoter and Executive Chairman; Mr. Sunil Chari, Promoter and Managing Director; and Mr. Ketan Sablok, Group Chief Financial Officer of the company. We will begin the call with opening remarks from the management, following which we will have the forum open for a question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you all earlier. I would now like to invite Mr. Edward Menezes to make his opening remarks.

Thank you, Mitesh. Good evening, everyone, and thank you for joining us on our earnings conference call. It is a pleasure to have you with us today as we discuss our Q3 FY 2026 operational and financial performance. We delivered a healthy 13% year-on-year growth in Q3 FY '26 despite a softer domestic demand environment. The opening backdrop remained challenging. However, our diversified business model and strong customer relationships enabled us to sustain our growth momentum. All business segments registered year-on-year growth, supported by healthy volumes and sustained customer engagement. While profitability in the near term was impacted by ongoing investments in capacity expansion, product development and market-seeding initiatives as well as higher employee-related costs following the implementation of the new labor codes, we remain confident that operating leverage, scale benefits and an improving product mix will support margin improvement over time. On the manufacturing front, we are pleased to report that a newly commissioned 15,000 metric ton per annum ethoxylation facility at Unitop is witnessing a steady ramp-up utilization. Availability of ethylene oxide continues to be a near-term constraint. However, we are managing supplies prudently and are encouraged by indications that the situation should ease during the course of this calendar year. In the interim, we are leveraging the fungibility of our reactors to progressively scale up non-ethylene oxide product lines ensuring that the new capacity contributes meaningfully to production and throughput. This balanced approach enables us to optimize asset utilization while we prepare for a more favorable ethylene oxide supply environment ahead. In parallel, our phased capacity expansion program across verticals continues to progress well, strengthening our manufacturing capabilities. In addition, the Board has granted in principle approval for setting up a greenfield specialty chemicals manufacturing facility in the Kingdom of Saudi Arabia under Rossari International Limited Company, our wholly owned subsidiary. The proposed project aims to enhance supply chain resilience, improve speed to market and support the company's international growth strategy. With this, I now invite Mr. Sunil Chari to hear additional perspectives on our business performance and strategic priorities.

Thank you, Edward sir, and a warm [Foreign Language] to everyone. Q1 FY '26 was a relatively softer quarter compared to Q2, yet we delivered healthy year-on-year growth, supported by our diversified portfolio while domestic demand remained muted in certain segments exports continue to provide support to all performance through deeper engagement with key customers and expansion in a few geographies. HPPC segment delivered 11% year-on-year growth, reflecting stable demand amidst muted business domestic environment. The Textile Specialty Chemicals segment delivered a healthy growth of 18% year-on-year, while the Animal Health and Nutrition business reported a strong growth of 39% year-on-year, driven by improved traction across key end user markets. This broad-based segmental performance helped support overall growth during the quarter. On the institutional and B2C front, performance remains subdued in quarter 3. However, we are making steady progress on cost and portfolio optimization and remain focused on selectively scaling this vertical with a long-term perspective on profitability. On the export front, our international business continued to contribute meaningfully, supported growing by 26% in 9 months FY '26 driven by focus efforts to deepen relationships in key geographies, expand our customer base and increase wallet share with strategic partners. Our growing global footprint and ability to offer customized solutions-led chemistries continue to strengthen our positioning across international markets. Further to what Edwardji outlined earlier, we view the Board's in-principle approval to set up a greenfield specialty chemicals manufacturing facilities in KSA as an important strategic step for the company. The initiative is aligned with our focus on strengthening supply chain resilience in improving speed to market, expand global footprint, enabling flexible and scalable production. KSA also offers strategic proximity to key export markets, for example, Europe and MENA including Africa, and deepening presence in segments like oil and gas, enabling faster delivery and improved customer responsiveness across the region. Subject to customary evaluation of and receipt of necessary regulatory and statutory approvals, we will move towards implementation of the project, which is intended to be funded through a prudent mix of equity, debt and internal accruals while also exploring available regional incentives. Once commissioned, the facilities are expected to cater to strong regional demand for value-added specialty products and support export opportunities. We believe this platform will play a pivotal role in accelerating our international growth and strengthening Rossari's positioning as a leading global player in specialty chemicals. To summarize, Q3 FY '26 reflects our ability to deliver steady growth in a challenging environment while continuing to invest for the future. With our expanding capacities, strengthening product portfolios and strategic steps to build a more resilient and globally competitive manufacturing platform, we believe we are well positioned to drive sustainable profitable growth going forward. With that, I now request Ketanji to take you through the financial highlights for the quarter. Thank you once again for your continued support. I now invite Ketanji to share the financial highlights for the quarter.

Thank you, Mr. Chari, and good evening, everyone. Let me take you through the financial highlights for the quarter ended December 31, 2025. In Q3 FY '26, consolidated revenues grew by 13% Y-o-Y to INR 581.7 crores supported by steady performance across our core businesses and continued contribution from international markets. Consolidated EBITDA for the quarter stood at INR 68.9 crores with an EBITDA margin of 11.8%. Profitability during the quarter was impacted by ongoing investment in capacity expansion, new product development, market seeding initiatives as well as the impact of implementation of new labor codes. Excluding the institutional and B2C business, our core B2B operations delivered an EBITDA of INR 72 crores with a margin of approximately 14%, which is marginally lower than our normalized margin band of 15% to 16%. Our institutional and B2C businesses continued to operate in a challenging environment during the quarter. With growth of these verticals remaining muted, losses have continued to moderate driven by our focus on improved product mix, enhancing operational efficiency and maintaining cost discipline. We are also closely evaluating our plans for nonprofitable products in this portfolio and assessing their contribution to the growth relative to their impact on profitability. On the CapEx front, our phased expansion program across Rossari and Unitop continues to progress. These investments are being funded through a mix of internal accruals and debt and are aimed to strengthen manufacturing capabilities and improving supply reliability and supporting the future growth. With respect to the proposed greenfield specialty chemicals manufacturing facilities in KSA, for almost a year we have been exploring a few geographies for setting up potential specialty chemical manufacturing facility. We now see the possibility to be able to do this in KSA, and hence, board has granted us an in-principle approval for this. And now we will be evaluating this further towards setting up of a manufacturing facility. The project progress will be subject to all customary evaluations and the necessary statutory and regulatory approvals. We will keep updating the progress to the investors going forward. Our balance sheet remains strong with healthy liquidity and conservative leverage, providing us sufficient flexibility to pursue our growth initiatives. On working capital, the position improved sequentially in Q3 with better collection during this quarter. While we continue to hold selective strategic inventory for key raw materials, overall, the working capital is moving back towards the normalized levels. As we look ahead, our priorities remain focused on improving capacity utilization, strengthening our product portfolio and remaining financially disciplined to drive sustainable and profitable growth. With a clear investment road map, we are well placed to execute our growth initiatives in a calibrated manner. With this, I conclude my remarks. Thank you, everyone, and I would now request the moderator to open the floor for questions. Thank you so much.

[Operator Instructions] We take the first question from the line of Rehan Saiyyed from Trinetra Asset Managers.

[indiscernible] So I just have a little concerns, first on...

Rehan, I do apologize to interrupt you, but your audio is not coming in clear. Could you please pick your handset?

Now it's clear?

Yes, please go ahead.

Yes. My first question is on Dahej and Unitop [indiscernible] capacity addition site. So with the successful commissioning of 20,000 tonnes per annum in Dahej and 15,000 [indiscernible]. When do you expect operating leverage to fully kick in into the [indiscernible] consolidated EBITDA margins to the 13% level in FY '25? This is my first question.

Yes. So Rehan, I was not very clear but I think I've got the gist of what you were asking. So the part of the ethoxylation capacity came up in the last quarter. And the balance second phase is expected to come onstream in this quarter, which is Q4. The ramp-up will then happen. The first phase is not slowly getting ramped up. We would have done about utilization slowly of about 10% to 50% during this quarter. And the optimal utilization of these facilities will take at least 2 years-plus for us to reach the optimal capacity utilization. So that's what the plan is. And most of -- as the capacity utilizations go up, we will see some of the operating leverage playing out.

So I just want to wrap up that you are saying that until late end of '27, wee see operating leverage will be the same, right?

Yes. Yes. So the ramp-up the utilization will take, as I said, 2 years, so yes, around '27. By '27, we should see these capacities getting fully utilized.

Okay. Fair enough. And my second question is on your MNC customer side. So you have mentioned targeting MNC customers for cross-selling. So does that move toward in overseas manufacturing setup implied that [indiscernible] export model from India is...

Rehan, you are not very clear at all.

Yes, I'll repeat my question again, sir. Yes. Am I clear, right?

Yes.

Yes. So you have mentioned targeting MNC customers for cross-selling. So does the move toward an overseas manufacturing setup imply that your current export model from India is getting logistical or cost advantage that are [ lean ] manufactured in principle at Dahej can no longer mitigate risk?

No, I think from what I understood, see the -- our plans of exploring overseas expansion is not really got to do much with the tariffs because the tariff thing came out now while we have been working on this almost a year now on our future strategy and plans. So it's not really linked to the tariff. And we've been able to grow our exports pretty well in the last 1.5, 2 years. And I think that is one of the reasons what not drive us to set up a facility outside because now our export market is pretty strong. We have a good customer network. And I think we can -- based on that, we would be able to really service these customers pretty well from a facility which is outside India. So that was the overall thinking.

[Operator Instructions] We take the next question from the line of Sanjesh Jain from ICICI Securities.

I got a few questions. First, on the expansion into the KSA, can you help us understand what kind of investment are we looking there from a setup perspective? Because it's a greenfield, we have to buy the land and put the CapExes, build an admin office here. What kind of investment are we looking there? [Technical Difficulty].

Ladies and gentlemen, we have lost the line of the management. Please stay connected while I reconnect the management. Thank you. Ladies and gentlemen, we have the management line reconnected. Sir, you could please proceed.

Sanjesh here.

No, I got your question, Sanjesh, but I think [indiscernible]. So yes, so as I was saying, after looking at a few geographies over the past few months, we zeroed down on KSA. And now the Board has given us an in principle go ahead to start evaluating this further, and that's what we are going to do now. [indiscernible] So we've already formed a company in KSA, as we had disclosed a few quarters back. And this project, as and when it comes up, it will come up under this entity. So now we'll all start working on the evaluation process, the project cost, the land availability. We're already speaking currently to a few authorities in KSA in terms of availability of land, raw materials and other things. So as these things get more rectified and we have a more clear understanding of the project, I think that would be the right time for us to come back and give a little more details about the project. But we -- to go ahead, we've talked to the Board, and the Board told us that in principally we can go ahead and start exploring this opportunity. And KSA kind of suited us well in terms of supply chain, expanded global footprint, more flexibility, scalable production opportunities. And it also had the close proximity to a lot of our export markets, Europe, Africa, MENA region. And also the fact that we are also now exploring to get a little deeper on the oil and gas side of the business. So yes, so that is basically what this KSA initiative is as of now.

But just to understand what advantage are we looking at that's not offering -- which India doesn't offer? Because I haven't seen many of the Indian chemicals company not going outside of India, if somebody has explored purely either for the technology now or there are some kind of a restriction from India to export. But really from a chemical manufacturing perspective, at least the larger setup in India has always been in India. Now why does the change of thought as far as Rossari goes? And we don't have a real established export business. We are new baby in the export market, and we are trying to invest so much ahead of the time without any anchor customer or a very large contract. Now what is giving that confidence or what is driving this all expansion through a KSA?

So the primary advantage that's flowing in KSA is the availability of raw material. So we are already speaking to a few suppliers with whom we plan to get into a long-term contract at a specific pricing formula, which will give us a substantial advantage in terms of both availability and price. Secondly, in terms of the technology and the product profile, we've just set up a project here in India. And the current plan is that the facility will be on similar lines as what we have done here in India. We already are aware of the technology, the product dynamics. Thirdly, on the customer front, we have done a complete mapping of the requirements of customers both in the GCC region and in Europe, so Europe and in Latin America, in which way we have we are already working from here. But within the GCC region and specifically locally in KSA, we have also talked to a lot of customers. And as this project moves ahead, we have our understanding with at least 2 customers currently to for supply of products. So much of these actual agreements and documentation will happen as the project going forward. So we are currently also not signing up too much because we want to first evaluate the project, the cost, the returns, et cetera, and then go ahead. But both on the raw material side as well as on the end customer side, we have pretty much a very good level of discussions with both suppliers and potential customers.

Got it. Got it. My next question is on the profitability. I was just looking at the numbers. Starting 4Q '23, we are at 3Q '26, our numbers at the PAT level has been broadly at around INR 300 million per quarter. It has barely changed. And our ROCE now stands at sub-15% versus 13%. Now how are we looking at scaling the profitability? Now it's been 3 years. ROCEs are at a level post tax close to that. How do we -- are looking this financial metrics changing in next 2 years? And what will drive this?

Yes. So I think profitability has been around the same level now for last many quarters. So we are strategically now looking at bringing out a little more of higher margin segments. One is that the B2C segment offers is really pulling us down. We had certain plans and strategy to grow that business, but it seems that the things in the B2C vertical are not really playing out the way we had -- were expecting it to do. So yes, we're relooking at that business all over again to reduce losses -- hello?

Yes, yes.

And on a longer-term basis, also, we are assessing this piece of business of ours, and maybe in the next few quarters we may take some decisions on how we really plan to -- or what we plan to do with this B2C vertical. But apart from that, I think some of these capacity additions which we've done, which partly have come up in the last quarter, some of them will come up in this quarter. We are quite hopeful that the margin profile going forward should start seeing some upside. The EO challenge, currently, because of the overall subdued market, we are not facing any issues in terms of availability. But as the ramp-up starts happening in the next year, there could be a few months where EO could be an issue. We really don't know how it's going to pan out. But the expansion on the side of the supplier is going onstream. And we've been told that the additional volumes could come up -- should come up by quarter 3 of FY '26. So hopefully, post that, then there should not be any issues on EO visibility. So that's how, at least for the next year or 2, we are looking at the India part of the business to grow.

Ketan, just one question here. I thought we had a lot of opportunity locally, but Edward sir has talked about extensively the new product development we have done, your category development we have done through vertical development, feeding that we have done in last 3 years. I thought there was a heavy lifting done in India, and I thought that would be more focused on -- on encashing efforts that have gone in last 3, 4 years. We are stretching the management bandwidth by expanding into KSA and all. So just wanted to understand for next 2 years what remains the priority both on the revenue category growth, investment and on the profitability.

No. So Sanjesh, I think we've been very focused on product development. We've now kind of enhanced our entire R&D capabilities. Last 6 months, we've bought in certain senior people in the R&D function. So some of these product developments that are going on currently, we should see some of these playing out in the near future. And in terms of priority, I think both the India business remains the topmost priority for us, and that is the reason why we've done so much of investments in the last 1 year. And the priority will remain to ensure the capacities get utilized ASAP, and these new product developments that currently are happening, they start showing up in the numbers. And in terms of the KSA, the KSA team, we are slowly setting up. As I said, it's currently just work in progress. It's now we will start -- now that the Board has given us, we will start a little more deeper on the project side. But that team is going to be completely different. We've already identified two senior project professionals who are going to join us once we internally give a greenlight to this project. And both of them will be based out of KSA. And I don't think the current management will really have -- the current teams will not get stressed. It will be a completely separate team with an overall view from the senior management here and the senior project team here. But these are some of the initial planning. So I don't think there is priority one and priority two. Priority continues to be the India business. And then the KSA business, as and when it pans out, we will have separate people looking at that.

I thought we had developed a team in Vietnam and Bangladesh to develop the export market. I think...

Those -- the team in Vietnam, Bangladesh were primarily focused for the textile business to start with. So the fact that you are seeing the textile numbers showing an improvement has got a lot to do with the textile export seeing a significant growth in this quarter. We are very much aligned on both these geographies. And also to add to that, we are also in the process of doing that small formulation facility in Thailand. So that should also come upstream maybe by end of Q4 or early Q1. And there also, to start with, we will see textile formulations and textile products manufacturing. And then probably, once that gets set up, we can add other products of AHN and maybe some products of HPPC. So if you see textile, all these Vietnam and Southeast Asia initiatives were primarily for textile. And if you see in 9 months, the entire growth of textile that has happened is all out of exports. Exports have grown almost 30% year-on-year. So yes, so that's what the report was for.

Sanjeshji and Ketanji, the Bangladesh team also has been able to ramp up the Animal Health and Nutrition exports. We have now good exports of AHN to the Bangladesh market. And our new trace mineral and the vitamin premix, the plant which is there is already now the enzyme [indiscernible] premix plant, which is now ready to start hopefully in this quarter. This will add good volumes to this. Sanjesh, you also want to add here that it was a Trump's tariff, which saw this muted. But we are seeing December has been very, very strong for us. And in fact, we are very bullish now, in these times now, that inside of all the problems, global specialty chemical industries especially from China, we have continued to grow quarter-on-quarter. Third quarter is normally a little weaker quarters because first and second quarter [ are our growth ]. So we hope to do much better in this quarter. In terms of export and to add for the Saudi Arabia, the plants, what we realized in the last couple of years after ramping up for exports is that there are a range of products which have a good potential in surfactants and also non-EO products. And where we saw that there is a potential possibility for us to get raw materials in Saudi Arabia at close to 35% lesser cost than India, and this is something where different raw materials because Saudi Arabia is a hub for the petrochemical industry. And the products which are competitive compared to China in Saudi Arabia the products we are focusing. So we're still fine-tuning, and we expect a very healthy IRR and ROCE for the projects. And the Board was convinced on this possibility. Sorry, Sanjesh, I interpreted. Please continue.

No, no, no. That was very helpful, Chariji. Just one last question on the profitability. We were at 18% odd when we did the IPO. It came down to 14%. Now we are at sub-12%. How should we see this profitability? And this is on the fact that raw material prices have significantly dropped from where we were today. I think per kg basis, it would have deteriorated further. How do we see profitability from here? I think that is very critical from the return ratio perspective.

Yes. So Sanjesh, at least for the balance part of this year and the next year, until the EO supply situation comes through by Q3, we would hazard that our margins would be in this similar range about between 12% to 13% unless we take what I talked about on the B2C business. If something happens on that side, then maybe there could be some improvement. The way that overall company level, it should be between this 12%, 13%, at least for the next year, while we are working on improving the product mix. As I said, some of these products which we are developing now should see the production coming up in next year. But [ shorn ] off the B2C, I think we should be in that 15% -- odd range.

Sanjeshji, I want to add here, the new R&D products which are developed, if you see our sales of new products now is 20%-plus, especially because of the part where we are planning to sell part of our consumer businesses. And this part of the consumer businesses, we are expecting even about INR 150 crores coming into the company for sale of this. We are expecting a good valuation for the same. So consumer businesses require money investment, some amount of cash burn, investment in marketing promotions, free sampling, which we are not doing now. So we think the Board will feel better. So this -- selling the consumer business would automatically bring our profits back to 15%. And the new plants, which are there, all the new -- for the fermentation, the bio-surfactants, we have the best -- in fact, today, we have news that the best personal care company in the world has approved our bio-surfactants. Two big multinationals of the world have approved this globally now. So we are hoping that we will do, whatever, 300 tonnes of bio-surfactant next month, next year in the production would all get sold up. So we are expecting a much better percentage of EBITDA in the coming financial year besides growth in terms of amount. So this year, what we do, we'll see a healthy growth both in percentage and also an amount definitely.

Got it sir, and congratulations for your successful approval of bio-surfactant. I hope that turns out to be a big churn for us, at least from a margin perspective. Great to see it.

Yes, sir, definitely. Thank you, sir.

[Operator Instructions] We take the next question from the line of [ Ranvir Singh ] from Nuvama Wealth Management.

So basically, I wanted to understand the capacity expansion, what we are talking about. Can you quantify the kind of capacity utilization currently at the new facility at Dahej under Unitop as well as in Rossari also?

So the new facility at Unitop hasn't got capitalized in the last quarter. So the runs are happening. It will take some time for the plant to stabilize. So currently, if you ask me in this quarter, the utilization would be at a low of between 10% to 15%. But as the plant gets stabilized and as the product continuous process starts going through, I think the capacities will slowly see a ramp-up. So we expect an optimal utilization happening over the next 2 years.