Rossari Biotech Limited (ROSSARI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Rossari Biotech Limited Q2 and H1 FY '27 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements do not guarantee the future performance of the company and may involve risks and uncertainties that are difficult to predict. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Edward Menezes, Promoter and Executive Chairman, Rossari Biotech Limited. Thank you, and over to you, sir.

Can you hear me now?

Yes, sir.

Hello. Yes. Yes. Thank you, and good evening, and a very warm welcome to all of you joining us for the Q2 and H1 FY '27 Earnings Call of Rossari Biotech Limited. We are pleased to have you on this call to discuss our operational and financial performance. I'm joined today by Mr. Sunil Chari, Promoter and Managing Director; and Mr. Ketan Sablok, Group Chief Financial Officer; and the SGA team, our Investor Relations adviser. I hope you had the opportunity to go through our financial results and investor presentation, which are available on the stock exchanges as well as our company's website. We concluded the first half of FY '27 on a very strong note. The Q2 FY '27, revenue grew by 19% year-on-year to INR 698 crores and EBITDA grew by 21% year-on-year to INR 87 crores marking our highest ever quarterly revenue and EBITDA. The growth was broad-based with all 3 of our business divisions contributed. The external environment during the quarter continued to remain dynamic. Raw material prices stayed volatile. The ongoing geopolitical situation in the Middle East kept pressure on freight and logistics and customers across several end user industries remain cautious in their buying behavior. Despite these headwinds, we delivered a gross margin of 31.6% and EBITDA margin of 12.5% in Q2 FY '27. Innovation remains into our long-term strategy. Our new Rossari Global Research and Innovation Center at Navi Mumbai is steadily ramping up and is helping us shorten the journey from idea to commercial scale. Having launched over 70 new products in FY '26, our pipeline continues to strengthen with a sharper focus on intelligent, sustainable and application-led chemistries such as biosurfactants, personal care ingredients, pharma excipients and formulations and solutions for the oil and gas industry. Looking ahead, our priorities for the remainder of FY '27 are clear drive optimum utilization of the capacities we have built accelerate the commercialization of new products and further improve operational efficiency, supported by strong R&D capabilities and a healthy balance sheet, we remain confident of delivering sustainable and profitable growth in medium to long term. With this, I now invite Mr. Sunil Chari to share his perspective on the business performance and our strategic priorities.

Thank you, Edward, sir, and a warm Namaste to everyone. The first half of financial year '26, '27 has been a period of steady execution for Rossari. In each of the last 2 quarters, we have delivered revenue of close to INR 700 crores compared with an average of around INR 565 crores per quarter in the first half of last year. We have achieved this scale up despite raw material volatility, geopolitical uncertainty and a cautious demand environment. And it reflects the strength of our diversified portfolio, our long-standing customer relationships, and the focused execution by [indiscernible]. We remain committed to continuing discussion and engagement with our customers to deliver tailored solutions according to business requirements. During the first half of FY '27, HPPC, Textile Specialty Chemicals and animals a recision grew by 24%, 24% and 19%, respectively. This growth has been driven by a higher share of value-added products and by increasing our wallet share with customers across end user industries. On the export front, we continue to target new customers in both new and existing geographies across Southeast Asia, Bangladesh, Turkey, Latin America and Africa and increased our wallet share with existing partners. Our new blending facility in Thailand is ramping up steadily. It is helping us serve customers in Southeast Asia with customized formulations faster turnaround times and lower exposure to trade volatility. I'm pleased to share an important update on our Saudi Arabia initiative. The Board has approved the leasing of land to Rossari International Limited Company, a wholly owned subsidiary for setting up a greenfield mandating facility in the Kingdom of Saudi Arabia. This built on the in-principle approval granted by the Board earlier and is a key stepping stone in Rossari's international growth journey. The project will improve our assets to key raw materials through a strong petrochemical ecosystem and brings us closer to regional and international demand centers, including the specialized opportunities in the Middle East oil and gas sector. From a long-term perspective, this facility will help us serve and align with emerging industrial requirements in this market. We'd like to share the key details with projects once they are unlike. As I mentioned earlier, our margins are yet to reach their full potential, and we are actually working on various cost optimization measures to improve. Our strategic initiatives like monetization of non-core assets, rationalization of lower-margin businesses and improvement in product mix are progressing in the right direction. We will continue to sharpen our focus on the core B2B business, and we expect these initiatives to start reflecting our overall performance over the medium term. Overall, we remain very confident about our prospects our scale, improving capacity utilization, a strong product pipeline and an expanding international presence are the building blocks of a more scalable and resilient Rossari. Our priorities remain centered on disciplined execution, margin improvement and stronger returns on our existing space. Thank you once again for your continued support, and I now invite Ketanji to take you through the funding highlights.

Thank you, Mr. Chari, and good evening, everyone. Let me take you through the financial highlights for the quarter and for the half year ended 30th September 2026. For the quarter ended FY '27, our revenue from operations stood at INR 697.6 crores, which was a growth of 19% Y-o-Y, over INR 586.1 crore in Q2 FY '26. These parts our highest ever quarterly revenue. Gross profit also grew by 19% Y-o-Y to INR 220.3 crores and by 6.7% on a quarter-on-quarter basis. Gross margin stood at 31.6% in line with the Q2 FY '26 and around 200 basis points higher than 29.6% we reported in quarter 1. This sequential improvement was driven by a better product mix. The EBITDA grew by 21% Y-o-Y to INR 87 crores, our highest ever quarterly EBITDA. The EBITDA margin stood at 12.5% and compared to 12.3% in Q2 FY '26 and 11.6% in Q1 FY '27, an improvement of 91 basis points sequentially. Employee costs grew by 15% Y-o-Y and other expenses by 19%, reflecting our continued investment in people, new geographies, the Thailand facility and our newly set up R&D center. Profit after tax grew by 5.5% Y-o-Y and 11% Q-on-Q to INR 38.9 crores and the diluted EPS for the quarter was at INR 7.02. Coming to the divisional performance. The HPPC revenue grew by 18% Y-o-Y to INR 541.9 crores in Q2 FY '27. And by 20% to INR 1,095.1 crore in H1 FY '27. The growth was led by value-added products in Personal Care, [indiscernible] adjuvants and other oil and gas solutions. On the other hand, constrained ethylene oxide availability continued to limit ethoxylate volume and cautious customer ordering kept HPPC revenues broadly stable on a sequential basis. In the textile chemicals side, the revenue grew by 26% Y-o-Y to INR 120.8 crores in quarter 2 FY '27 and by 24% to INR 226.9 crores in H1 FY '27. Sequentially, extra facilities grew by around 14%. This was driven by our export markets including Bangladesh, Southeast Asia, Turkey and Latin America and also contributions from our Thailand facility. The new fiber chemical division and a higher share of silicon-based and sustainable auxiliaries added to these higher revenues. The Animal Health & Nutrition revenue grew by 11% Y-o-Y to INR 34.8 crores in Q2 FY '27. For H1 FY '27, AHN grew by 19% to INR 72.8 crores. The growth was supported by the Vitamin premix plant trace minerals and our enzyme and probiotic portfolio. On the core B2B and institutional B2C business, excluding the institutional and B2C business, our core B2B business delivered a revenue of INR 619.9 crores in quarter 2 FY '27, registering a growth of 21% Y-o-Y. The core B2B EBITDA also grew by 15% Y-o-Y to INR 87.2 crores and an EBITDA margin of 14.1% compared to 14.8% in Q2 of FY '26 and 13.8% in Q1 FY '27. The Y-o-Y moderation in margin reflects the raw material and freight environment and our ongoing investment in seeding some new businesses and geographies. Our institutional and B2C business reported a revenue of INR 77.7 crores in quarter 2, a growth of 3% Y-o-Y. More importantly, profitability improved significantly. This business reported a positive EBITDA of INR 0.2 crores compared with an EBITDA loss of INR 3.7 crores in Q2 FY '26. This improvement reflects our calibrated steps on portfolio rationalization, product mix and cost discipline. We will continue to focus on improving the quality of revenues across these segments. On the balance sheet side, our balance sheet remains healthy with strong liquidity and comfortable leverage. Gross borrowings reduced by around INR 46 crores during the first half to INR 361.8 crores Net debt stood at INR 221 crores compared to INR 248 crores in June '26 and INR 281 crores in March '26. Our net debt-to-equity ratio stood at 0.16. Working capital days saw a significant improvement and reached 86 days in Q2 FY '27 from 97 days at the end of FY '26. Our priorities going forward remain optimum asset utilization, operating leverage and a better product mix, along with working capital efficiency and strong cash flows. Together with a prudent approach to capital allocation, they should further strengthen the balance sheet. That's all from my side. We can now open the floor for questions.

[Operator Instructions] The first question comes from the line of Maitri Shah with Sapphire Capital.

Yes. Hello. Good afternoon. Just a couple of questions from my side. Firstly, this quarter, we've seen exports contributing close to 31% and this proportion has been increasing quarter-on-quarter. Where do you see the contribution coming from? What are the drivers that are driving this growth coming in from the export side? And maybe 2 years from now, how do you see the proportion from this business kind of increasing and ramping up.

Maitri, Yes. So we've been able to accelerate our export revenue now for the last few quarters. This quarter was especially a very strong quarter for us on the export side. And Primarily, the exports were driven both in the HPPC and in the textile segment. So with textiles, we've been talking for some time now of the Thailand facility coming in. I think that also played a good role this time for the textile exports to grow. And within that, we've also looked at a lot of gas especially in Southeast Asia, in the African continent, and now we've also looked at new areas in Latin American space. So that is helping the textile registered a good growth on the export side. LED, HPPC continues to show a strong export push. In fact, in this growth that we've seen of almost 34% in the export revenue Y-o-Y. It was almost 75% quarter-on-quarter. The major contributors are HPPC and the textile business. And I think going forward, as you asked, we expect this trend to continue. While we may not see -- I cannot really not tell you about this kind of growth coming every quarter. But definitely, our target is that ex should slowly become a larger portion of our overall revenue. We've already hit 27% if you see on an H1 basis. This quarter, we were 31% of our overall revenues. So our first target, I think by the end of this year should be that at least 30% of our revenue should comfort from export. And we've been working towards that. And I think now the numbers are quite visible in this quarter at least.

Okay. That's great to hear. And on the HPPC side on the business are we seeing growth coming in from more higher-value products like the oil and gas contributing more? And what sort of margin differential you are seeing on the export sales and on the sales in the domestic market, if you could Yes. Just some color on that.

This is Sunil Chari. As you see, our export and our B2B EBITDA margins are increasing every quarter now. And this quarter, our EBITDA margins for the B2B business of 14.1%. And focus has been on a very prudent product mix where higher margin products are being sold in the export, but also in the domestic market. We have had a rationalization by tail cutting, tail cutting is with the bottom 5% of the products who have the lease margins are cut off from the tail, and we stop producing or selling those products. And this is this focus on product mix optimization has helped us get product products -- get better gross margins and also EBITDA margins. I do not have the exact details of what is sold in the last quarter in terms of products. But the higher gross margins and higher EBITDA is approved for the same.

Got it. And we also mentioned we've taken a lot of portfolio rationalization on the B2C and institutional business. And currently, we had kind of EBITDA breakeven margins. So going forward to the next 2 quarters, do you expect this business to turn a bit EBITDA positive? Also what plan do we have for the B2C business, we were planning on kind of having a sale of that business. So just some color on that as well.

Yes. So at this quarter, I think after many quarters, we saw this B2C business breaking in I think we've done a lot of portfolio rationalization, a lot of the low-margin products. We've not really gone ahead in a very big way to promote -- and that's also visible in the fact that the B2C revenue has not grown to a large extent. Our aim now is to make this business profitable even if the so 2-pronged approach we are doing. One, as I said, we are looking at higher margin products in this as well as some sort of a cost restructuring cost optimization activities, which have also been started internally. So our aim is that at least in the next 2 quarters, at least H2 should also be an EBITDA positive each second half for us. And overall, on a year full year basis, we should have breakeven in this business because the first quarter, we had a loss. On our plans for this business, we still are on that plan of moving out of this B2C business. We'll do that as we had said last time also at an appropriate time and an appropriate value. So until that we reach that point, I think our aim is that we should still run this business on a positive note, and that's what we are doing. But our overall plan still remains to move out of the non-core businesses that we have.

Got it. Got it. And just lastly, on the oil and gas business that we have in the segment. Any sort of outlook you have, where are the sales coming from which regions are we targeting? Are we targeting the U.S. as well because the I think the oil as kind of segment is growing a lot over there right now. Just some color on the oil and gas business in the specialty [indiscernible].

Yes. So as we have been talking about the oil and gas business, primarily our focus is now the India market and the Middle Eastern market, but also [indiscernible] and [indiscernible] on those bills. U.S., we have distributors who sell into the oil and gas industry, but we don't matter exactly us on segment wise on what selling into. But where we sell, it is basically India, Middle East and the East European part of the world.

The next question comes from the line of Gagan Dixit with Emkay Global.

First, my question is about the [indiscernible] ramp-up. So around 50,000 tons of new oxylates -- so what utilization do you expect in FY '28 and '29? And what took revenue does that support? Or is it the same 4x asset turnover still holds?

So as we have said earlier, this -- the peak utilization that happened about 2 years post this asset coming into commissioning. So probably we'll have the peak utilization targets by end of FY '28 and we still stick to the target of 3x of the CapEx value to be the peak sales revenue.

And sir, in the -- this EO, is this a constraint in the us supply or consumer demand for that currently? And -- how much is the additional oxide that we secured from the reliance expansion, sir?

This is Sumit Chari. Last quarter, we had the constraint on U.S. supply from our supplier. -- which is land. We are hoping that this quarter, we should not have the EO costings. The new expansion will come up in 2, 3 quarters. And as soon it comes, we should get a higher allocation than the current ones. We do not have any confirmation for Reliance on how much quantity will be alerted to us.

And sir, about the margin mix, sir. So if you over the next 1 or 2 years, sir, what is the share of the revenue do you expect from the value-added business lines like pharma, oil, gas, personal engage gains? versus the commodity oxilate and what is the to margin premium these carries in these new businesses?

See, as you would have seen the earnings presentation, which we uploaded we have got the EXCiPACT certification for our unit of plant. And this allows our subpartner CPMs in the pharma industry to be exported without any audits from the customers. This also reduces a lot of audits and cost for the customers, but also for us. And -- but the pharma approvals take close to 6 months to 2 years depending on the customer geography, and we are gradually ramping up the pharma exports last quarter. Last year, it was about INR 50 crores. We had pharma exports. And this year, we are confident that we'll have a very good growth in the Pharma segment. Our exports in pharma also is picking up every quarter. And we see pharma food aroma as new lines where we want to focus on higher-margin products. So going forward, we would continue to focus on higher gross margin products than lower margins for all new products which we are launching.

And sir, my final question is about the cash allocation, sir. So over the next 2 to 3 years, how much will the free cash will be split between the debt reduction in Saudi Arabia? Because I think that fee also revoice amount of annual interest. So that's something how you want to go with it, sir?

Yes. So then our first priority now with the cash flows would be to reduce the debt. That's what we've been doing in the last 2 quarters. And I think now with most of the CapEx spend done, we'll have some more spend in this year, but not to the extent that we've already done. And then going forward, our capital in India will be significantly low. And most of it will be in KSA once the project, et cetera, is finalized but -- and we also hope that by that time, we will have some of these noncore businesses also sold. So we expect that a lot of these cash flows, which will come in both from exiting the noncore business and the cash elated from the current operations. Firstly, will go into debt reduction and fairly depending on how the Saudi project time lines come in, we will also put in money there. Of course, Saudi project will have equity and a mix of debt also, but that we will work that out once we have more understanding of the kind of the size of the CapEx and the time lines. But yes, currently, all cash flows will go into debt reduction.

The next question comes from the line of Nitesh Dhoot with Anand Rathi Institutional Equity.

So my first question is on the core B2B EBITDA margin that was at about 14.1% versus 14.8% year-on-year and next season on a 21% revenue growth. 20 bps consol margin improvement entirely from the institutional or the B2C swing. So without that in the console margin would have been about 11.9%, if I'm not wrong. Could you please give some color on what compressed the core margin year-on-year and how to get back above 15% there.

I have not understood your arithmetic on Nitesh. Can you just repeat your question?

Year-on-year, sir, if we look at the core EBITDA margin, that's at about 14.1% versus 14.8% right? And in the concern 20 bps improvement that is coming through is largely because of the B2C swing when that came out where you ended positive on your B2C on the institutional business. So without that swing, the console margin would have been 11.9%. Am I clear, sir. Hello?

Without the B2C business, our EBITDA margins are at 14.1%. Right.

Now I'm talking about the consol margin would have been lower. In any case, I mean, the question is that what has compressed the core margin year-on-year despite the revenue growth that we see. And what steps are we taking? Or what is our outlook on how to get it back above the 15% indicated numbers?

So see, I really have not understood working. So maybe we can connect later. But on the EBITDA margin, which you see Y-o-Y, we are down from 14.8% to 14.1%. Seen the expenses on freight has significantly impacted in the current year. Even though our exports has grown significantly, the freight costs have almost doubled, tripled what they were in the first half of last year or Q2 of last year, that has significantly impacted our EBITDA margins. I think as we start -- had also, apart from this raw material prices, especially prices of some of our core raw materials like Phenol and on have gone up significantly over what they were last year, while we have been able to pass on most of these increases. The freight element still remains a challenge for us. And not all customers are really ready to absorb the entire freight increase. So there is an understanding how much we'll absorb how much we'll be able to pass out Overall, we are, I think, still working on this freight element. But otherwise, I think the business in terms of growth, in terms of volumes, has shown a significant improvement over what we had done last year.

Does that answer your question, Nitesh?

Okay. So sir, can you also help us with the volume growth for Q2 segment wise.

Yes. So we don't -- it will split specifically, but most of the growth that we have seen has all come out of volume because a lot of the prices have kind of softened with the raw material prices in the early part of Q2 has come down, so we had to also reduce prices of some of our products. So this growth that we have seen in the first -- in the second quarter, most of it is a volume-driven growth.

All right. And sir, just 1 last small on the AHN, where the growth rates have come off -- so is it like a seasonal customer specific? Or people just self clarify that.

Yes, that is true. Generally, the second quarter is the weakest for the AHN division. The third and fourth quarters will peak. So even with the low season we have done pretty well, clocking about INR 27-odd crores. The next 2 quarters are going to be the peak season for animal it.

Okay. Okay. Sir, just 1 last, if I may, sorry. Sir, can you help us with the blended utilization numbers on the total capacity? And specifically for the range for and unit Phase I etoxilation?

Yes. So on a blended level, the capacity utilizations are at about close to 60%. The new ethoxylation facility that has come up earlier this year or late last year, I would say, is currently at about a 30% utilization. And we are slowly ramping that up. So hopefully, we expect by the next year, with the lane capacity also coming in and the flows of EO also increasing by probably Q2 or Q3 of next year, we should have a healthy utilization of the new toxins.

All right, sir. Thank you as you the best for the coming quarters.

The next question comes from the line of Himkesh Qatar with Green Portfolio.

So my first question was regarding the new plant upcoming plant in Saudi Arabia. Is there any time that the management is targeting that by this particular financial year, we are targeting to start commercial operations? Or they are still in the like outline phase. So there's no a time line for this?

Yes. So for the KSA project, if you see, we are doing -- taking a step-by-step approach. We've first taken an approval from the Board to start exploring the initiatives of Saudi. So we did that for last 8, 12 months and the 0 down on the strategy for Saudi in terms of the plan, the area, the potential feedstock suppliers, et cetera. and we've been talking to all the relevant authorities there in terms of the process approval and how we can take the project forward. And now in this quarter, we have taken again an in-principle approval from the Board for leasing out land at in for the project. So there currently, we -- a piece of parcel of land was offered to us, and we've decided to go at and leave it probably we'll do some initial activities like fencing, bound river, et cetera, in the next few months. And finally, we are, as I said, in discussions with potential suppliers of feedstock and finally internally working also on the overall product, the CapEx, the market size both domestic market in KSA and the export markets in GCC, Europe, et cetera. So those activities are finally going on. So once we have the entire blueprint on paper and the financial for the project done, we will go back to the board to seek approval for the next step to go ahead, and that's when we'll be able to give you a little more color and light in terms of the time lines, the cost and what exactly we are going to do in any case. So as of now, what we've done, we've talked about it, the land, et cetera. The next steps, once they get firmed up, we'll come back and talk about that. Hopefully, some of these elements will happen over the next 8 to 12 months.

Understood, sir. And sir, next question was regarding the core B2B business. We have seen steady margins of like around 14% for this business for last, I would say, 2, 2.5 years now. And in the earlier call also, you mentioned that the Aroma business and Pharma business, you are targeting and ramping up as they offer higher gross margins for you? So in the core B2B business, what kind of margins are you expecting going forward like in FY '27 FY '28 and '29.

So yes. So I think as we have talked about in this quarter, the initiatives of pharma, we are now taking that up, taking it forward, we had this audit, which we have cleared. These things, especially these businesses in pharma, et cetera, as Mr. Chari a little time in terms of approval and on. So we are in that process. Hopefully, we will get the approvals now going over the next couple of quarters. And then, yes, as I said, ASPs segments like pharma, Aroma start becoming a significant part of the overall business, we should see steady gross margin improvement going forward. I think we are still a couple of quarters away from seeing some significant contributions from these businesses. But yes, we are already online to expand the scope that we have in both pharma and the aromas business.

And sir, you talked about audits were these orders customer-related or certifications from regulatory bodies Regulatory body?

We explained that pack, we already have the approval, the registration, which does not require frequent customer audits. But customers do stability studies in pharma and in overseas customers, the time taken is more also in MNC customers in India at the time been more for stability studies. For example, if it is a cough syrup where posting like all 400 will go on a laxative where Polytron glycol 335 will go. So they will make samples, do stability studies do some trials and then go slowly. So ramp-up in pharma is always slow, but it's steady and it doesn't go back. So once we get it to the customer, the customer does not throw you out fast. Price and all are not the key idea for the changeover in pharma kind of excipient.

Understood, sir. So safe to assume that pharma and basically the capacity exploitoxilate, are the 2 growth drivers until the KSA plant comes, right?

Yes.