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 now hand the conference over to Mr. Mitesh Jain from CDR India. Thank you, and over to you, sir.

Thank you, [indiscernible]. Good evening, everyone, and thank you for joining us on Rossari Biotech Limited's Q1 FY '27 Earnings Conference Call. We have with us Mr. Edward Menezes, 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.

Yes. 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 and to discuss our operational and financial performance for the first quarter of FY 2027. We commenced FY '27 on a strong note, delivering our highest ever quarterly revenue and EBITDA with consolidated revenue growing 28% year-on-year. The performance was supported by healthy momentum in the domestic business and the continued expansion of our international presence. Despite a dynamic operating environment, our diversified portfolio, extensive market research and disciplined execution enabled us to deliver growth across our business segments. Innovation remains central to our long-term strategy. The new R&D center commissioned in the previous quarter is progressively ramping up, bringing our research, product development and application capabilities together on an integrated platform. The facility is strengthening collaboration across teams, accelerating new product development and supporting the faster scale-up and commercialization of differentiated technologies across end-user industries. Within our core HPPC segment, we continue to broaden our presence across higher-value applications and strengthen our portfolio of specialty solutions. Our focus remains on expanding in areas such as personal care, pharmaceutical applications, agrochemicals and performance chemicals, while leveraging our formulation expertise, application capabilities and expanded manufacturing platform. The improving utilization of our [indiscernible] capacities, together with a growing pipeline of new products provides a strong foundation to scale this business further. During the quarter, we also strengthened our Textile Specialty Chemicals portfolio through the launch of a dedicated fiber chemicals division, expanding our capabilities across the fiber-to-fiber value chain. Supported by our application-driven R&D platform, deep formulation expertise and manufacturing capabilities, the division enhances our ability to offer integrated value-added solutions and expand our addressable market within the textile industry. We remain encouraged by the long-term opportunity in the agrochemical sector, supported by increasing demand for advanced formulations, sustainable agricultural solutions and productivity enhancing inputs. With established capabilities across adverse surfactants, emulsifiers and adjuvants, we are well positioned to address evolving industry requirements through innovation-led specialty chemical solutions. As we progress through FY '27, our [indiscernible] remain focused on fully leveraging the capabilities across the past few years accelerating new product development and enhancing operational efficiency, supported by a healthy balance sheet, an integrated manufacturing platform and an expanding innovation pipeline, we remain confident of delivering sustainable and profitable growth while creating long-term value for all our stakeholders. With this, I now invite Mr. Sunil Chari to share additional perspectives on our business performance and strategic priorities. Over to you, Sunil.

Thank you, [indiscernible], and a warm must to everyone. As we approach the 6th anniversary of our listing, it is encouraging to reflect on Rossari's journey from an annual revenue base of around INR 600 crores to business that has reached close to INR 700 crores in this quarter. The scale-up has been achieved through one of the most challenging periods in the company's history, encompassing this COVID-19 pandemic unprecedented supply chain disruptions raw material [indiscernible] and geopolitical uncertainty. We believe we have navigated these challenges well, even as we continue to invest in capabilities, expand our portfolio and strengthen the overall business platform. While the business has achieved significant scale, margins remain below their normalized potential. We have already initiated [indiscernible] this, including the monetization of our noncore assets. [indiscernible] of lower-margin businesses, improvement in product mix and tighter cost discipline. As these initiatives possess over the next 1 to 2 years, I look at optimal utilization across our expanded capacities, we expect a meaningful tendering in EBITDA performance. This quarter witnessed strong growth across each of our core business segments which are [indiscernible] and AHN business all growing by around 28% Y-o-Y. Notably, the HPC business cost INR 550 crore quarterly revenue milestone, reflecting the increasing scale and depth of our presence across key applications and end user industries. Our international business maintained its positive momentum with exports growing 21% year-on-year during the quarter. The performance was supported by increasing wallet share with strategic partners, the addition of new customers and wider acceptance of our specialty solutions across key overseas markets. We remain focused on deepening our presence in existing geographies while selectively expanding in the markets that offer attractive long-term potential. During the quarter, we further serve our presence in Southeast Asia through a greenfield blending plant in Thailand. This facility will enhance our ability to offer customer formulations, respond faster to local market requirements and improved supply chain efficiency. It also provides the platform to progressively expand our product offerings across the region. We are also making process on our proposed infective in Saudi Arabia. The opportunity significant supported by access to globally competitive raw materials and a well-developed petrochemical ecosystem. This remains an important strategic step towards strengthening our long-term strategic [indiscernible], enhancing supply side competitiveness and creating a scalable platform to serve regional and global markets. Despite the prevailing geographical uncertainty, our commission and the long-term potential of this initiative remains intact. Alongside these initiatives, utilizations across the abilities and capabilities created over the past few years have improved steadily and supported our performance during the quarter. Our route now is to drive optimal utilization, strengthen the product portfolio and enhance operational efficiencies, together with our robust R&D platform and a healthy pipeline of new products and applications. These reports will enable us to scale our core B2B operations, improved returns from the existing asset base and reinforce our competitive positioning. On the domestic front, the institutional and consumer business continued to operate in a relatedly subdued environment and weighed on oral operate during the quarter. As part of our broader strategy to sharpen our focus, on the core B2B business. We are evaluating the rationalization of select noncore businesses and assets. These actions are aimed at simplifying the portfolio, redeploy capital and management bandwidth towards higher return opportunities and improving the overall quality of earnings. Looking ahead, we remain confident about the opportunities before us. The scale achieved across our core businesses, improving utilization of our expanded capacities a growing pipeline of our new products and applications and continued progress across internal markets provide a strong foundation for the next phase of growth. Our priorities remain centered on disciplined execution, margin improvement and generating stronger returns on the business platform we have built. Thank you once again for your continued support. I now invite [indiscernible] to take you through the financial highlights.

Thank you, Mr. [indiscernible], and good evening, everyone. Let me take you through the financial highlights for the quarter ended June 30, 2026. In Q1 FY '27, revenue from operations stood at INR 697.2 crores, registering a growth of 28% Y-o-Y. This marked our highest ever quarterly revenue, supported by healthy growth across the [ HPCC Textile Specialty Chemicals ] and the Animal Health businesses. EBITDA for the quarter stood at INR 8.6 crores, representing a growth of 18.7% Y-o-Y and making our highest ever quarterly EBITDA. The EBITDA margin stood at 11.6% compared to 12.5% in the corresponding quarter last year. The margin profile continues to reflect the impact of the institutional and consumer basis along with the pain product mix and cost environment. Excluding the institutional and consumer businesses, our core B2B operations delivered EBITDA of INR 85 crores, registering a growth of 13% Y-o-Y with an EBITDA margin of approximately 14%. This reflected the underlying strength of late of our core portfolio. PAT for the quarter stood at INR 35.1 crores, representing a growth of 4.5% Y-o-Y. In our institutional and B2C businesses, we are taking calibrated steps to optimize costs and to improve the operational efficiency. While growth in these verticals remained flat, year-on-year losses have moderated, driven by our focus on improving product mix enhancing the operational efficiency and maintaining cost discipline. As discussed earlier, we are taking steps to simplify the business portfolio and sharpen our focus on the core B2B operations. During the quarter, we completed the sale of our [indiscernible] office as part of our ongoing monetization of non-core and underutilized assets. We will continue to evaluate opportunities to monetize other such assets in a calibrated manner with the objective of releasing capital, improving balance sheet efficiency and directing resources towards high-return areas. Utilization levels across our manufacturing capacity has improved during the quarter, contributing to the growth in revenue and EBITDA. Our focus now is on driving these assets towards optimal utilization, improving the product mix and generating stronger operating leverage from the investments made in the past few years. Our balance sheet remains healthy, supporting strong liquidity and a comfortable leverage. We continue to focus on improving working capital efficiency strengthening our cash generation and maintaining discipline in capital allocation. These measures, together with the ongoing portfolio rationalization initiatives are expected to support progressive improvement in profitability and return ratios. As we progress through FY '27, our priorities remain focused on optimizing asset utilization enhancing operational efficiency, strengthening the cash flows and delivering sustainable and profitable growth. Thank you, everyone, and I will now request the [indiscernible] to open the floor for questions.

[Operator Instructions] We will take the first question from the line of [indiscernible] from [ Trinetra Asset Manager].

So my first question was regarding the EBITDA margin. It has been like from the last 4, 5 quarters, I think major growth has been there in the March in the last quarter, it has been 11.6%. So what do you expect for this [indiscernible]mix segment or like in which way it will be growing margin.

Yes. So Dinesh, if you see the EBITDA margins, we are currently at about 11.6%, close to what we did in the last quarter and slightly lower than last year's margins. I think now as the capacity utilizations start getting -- start improving over the next few quarters and years, I think we should be seeing a relative improvement in the margins. Also, as we talked in the opening remarks, we are working towards optimizing our product portfolio and the product mix, a lot of the low-margin businesses, we are trying to slowly exit out of -- and also the new areas that we are looking at, which include segments like pharma and [indiscernible] dAroma such as the area will go a long way in improving the EBITDA margins. So I think at least for the next couple of quarters, we should just wait and see how the margins improve because -- now we also have a lot of pressure in terms of pricing, the raw material volatility. So all these aspects have to be looked on. But on a longer-term basis, I've given you an idea how we are looking at improving the capacity utilization and the margins.

Sorry, I couldn't understand.

I'm saying that the products which are inhibited in the last 2 years, how much they are contributing in total revenue -- yes. So some of the products that we introduced in the last year, like in -- and then the -- yes. So some of them have started contributing in this quarter. Also, some of them also had sales in Q4 of last -- so I think as we have said that some of the investments that we have done, it will take us close to about 2 to 3 years for the capacity to start getting fully utilized, and the new products to come on stream. So I think the biosurfactants, the [ NMO], the [indiscernible] cool powders, the fiber finishes that we've introduced as well as the [ Vitamin premix ] plan, which has gone -- has become which is operational. All these have started contributing very handsomely at the top line.

We have the next question from the line of [ Disha ] from [ Sapa Capital].

Yes, you do this. A couple of questions. [indiscernible], on the revenue growth part. So I think last call, you had guided for around 15% sort of revenue growth -- but in one sense, I think we registered around 28%. So given the fact that now we have the capacity and now the ramp-up of utilization will begin. So how should one look at the growth for FY '27. So speaking right now or not [indiscernible].

Regarding the ramp-up, if you see our sales has grown consistently higher, and this is also due to the new capacity and new products which are -- I mean the expansion, a lot of capacities have just become operational in the last quarter and we should see a ramp up. But given also during the volatility uncertainty in the market, it is very difficult to predict anything today. Nobody can predict what can happen in the world, what is happening to the geo vertical. Now the fluid prices have gone up. We had contracts which we have already signed, and the freight prices went up and now everything looked okay. And then again, there was a in the freight price of gain have shored up now and we are taking some -- with the new freight pricing, which we came in last month, we had taken the new orders at that size is considering that rate, and that has gone up. But I think on a whole, we are looking at a good growth this year. It is very difficult to have other guests on how much we can do. But we are very confident and very bullish on our prospects. And we are also seeing in feeding in new territory, for example, the [indiscernible] plant, it took away a lot of time, energy and money to start last year. in the last quarter. And then now there's also a lot of preoperative expenses coming in from our [indiscernible], which should give us pick a couple of years to mature. But we continue to invest for the future and continue to look at areas to rationalize our not capital employed and [indiscernible].

Right. Right. Okay. Fair enough, sir. Sir, also on your margins, obviously, you've seen a lot of raw material volatility. How much of these raw material price hikes are we able to pass on to the -- are we seeing any challenges to pass that?

No. to pass on the raw material pricing is no worry at all. Otherwise, you see where the crude has grown from where and where our raw materials have gone so we have been able to pass on. But what happens is up and down, up and down, creates a lot of uncertainty in the mind of buyers and also the freight is 1 -- become one major component because of the insurance cost and of the vessels and the ability of vessels. So this is costing us some degree of margin loss for us. But now we build the recalibration of this PC portfolio also we're exiting some lower margin. So from here on, I think we should see margin improving I think below the --

Yes. Once it happens, you will see, once you see the exit of some businesses which we are working very hard, you will definitely -- you will see the margin improvement.

But is this 11.6% that you wave done in the first quarter, that should now be the base, right? We don't see a margin going below this level. Will that be fine?

Yes, yes. We are expecting the same thing also. Has -- can and [ Eddy ] joined back.

So I think these level of margins you can expect to be the base level.

Okay. Okay, fair enough. Just the next thing on the Thailand plant, what has been the contribution in the first quarter? What utilization are we currently at? And what sort of revenue can you see at peak utilization?

The talent plan has just gone on stream end of last quarter. slowly is getting ramped up. It is all formulation unit. So it will aim for this plant was to get us closer to our customers in Southeast Asia. So we are slowly ramping up this facility. The first quarter revenues from this plant were about INR 23 crores. But I think we will slowly start ramping up in the [indiscernible] quarters. Currently, it's only working on some of the textile products, but maybe a few quarters down the line, we also are aiming at doing some agents or at some other HPPs also normal longer term. And [indiscernible] this plant is investment in this and is just INR 10 crores, INR 15 crores. It's not a very big plan of -- we cannot expect too much out of that plan on --

Okay. And what the [indiscernible] are facility you're planning, could you just elaborate a bit lower? Or what sort of CapEx are you looking at when you need to come online, what products and segments are we looking at?

So this is just still -- we are doing a survey and trying to formalize some raw materials of allocations, some land allocation. So this is still a work in process and nothing has been finalized. As soon as we finance something we'll announce to all our investors and to public at large.

Okay. Okay. And sir, just on your net rate of Pharma business, what sort of -- how do you expect to scale up to be -- what sort of contribution are we looking at in this business this year or the next year going ahead? Because this business has higher margins, right? So the increasing contusion will help us improve our margin as well?

Yes. So this business -- the pharma business, we've started a few products in this quarter. But it's only going to start ramping up. But as you know, in Pharma, the -- in terms of the compliance, it is on profit. we have started working on that. We just have a separate team who is working on all the compliance factor be boat at the plant and at the customer end. So our target is by the end of Q2 or Q3, we should have most of the compliances done and then we see a ramp-up of the armies second half will be --

Yes. And it could be a revenue potential of close to INR 30 crores, INR 50 crores.

For this year?

Yes.

Okay. Okay. And sir, just in terms of our margins going ahead, like in terms of the steady-state margin that we're looking at, once we recalibrate the entire B2C business, and we monetize the noncore assets. And once our utilization stabilize, what sort of steady state EBITDA margins can we see going ahead, say, 2, 3 years down the line?

If you see today, one of that business also, we -- our margins are -- the base business margins are to anything between 14% to 15% depending on the year and the quarter end product that once we calibrate the whole business mix, the product mix, we should have a steady state the EBITDA margin at around 15%, at least on 2 steps that we are taking material.

So in 2 years around, can we see this margin?

Yes. That's the plan.

And just a last question on what sort of export revenue do you see for this year? And any sort of percentage of export revenue we target?

We don't target any specific number. But if you see, we've been doing -- this quarter, we've done about INR 160-odd crores, about 23%, 24% of our total revenue comes out of the export assets. This percentage has remained the same by the absolute number has gone up. So compared to the Q1 of last year, the export growth is almost 20%, 20 months perspective. So our target is to keep growing the export business is -- the domestic business is also growing. So definitely, the percentage remains around between 70%, [indiscernible].

[Operator Instructions] We have the next question from the line of [ Mani Chan ] from [ Sisal].

I might sound a bit repetitive because I joined a bit late. So we were looking to exit the B2C business. And I would like to know what are the investments we have so far in the B2C business? And what kind of debt is that business carrying? investment in the B2C businesses are institutional and the consumer business and the private label business?

Now there is no separate investment. These are all core assets, which multiple assets, especially in our filata plant, which cater to various other businesses also. But in terms of debt, if you ask, our total debt would be in this business will be close to about INR 50-odd crores.

Okay. So I'm trying to get into an understanding whether if we exit the business, where do we land up as an EBITDA margin? And what kind of debt is released out of it? That's my question to figure out.

Yes. So in terms of EBITDA margin, if you see it will release at least 2% to 3% EBITDA. So sort of this business, we are close to about 14% in some years, become one. So that's the kind of margin improvement that will happen or -- yes.

So just to be clear, we are looking to exit both the B2C as well as the institutional business, right?

No, no. We will -- out of that, we will exit the B2C business, which is now currently part of the entire portfolio. But the institutional cleaning products, that business will continue to have a more profitable business with our portfolio because that's the core cleaning chemicals business for us. So that will remain while the consumer part of that business is still move.

Yes. But even the institutional business is taking a lot of debt for us, unlike the core business.