Rossari Biotech targets margin recovery as capacity utilisation and EO availability improve

Investment View and Valuation

ICICI Securities retained its BUY recommendation on Rossari Biotech in its July 21, 2026 results update. The broker’s central thesis is that the company has completed a major Indian capex cycle and is now positioned to raise capacity utilisation, improve its product mix and generate operating leverage.

However, margins remain constrained by limited ethylene oxide (EO) availability, raw-material volatility and losses in the institutional and B2C cleaning businesses. ICICI Securities expects the focus to shift increasingly towards margin improvement as utilisation ramps up.

The broker raised its target price to Rs 605 from Rs 570, applying a revised 17 times FY28E P/E multiple versus 16 times previously. With the CMP at Rs 519, the recommendation and valuation reflect the expected improvement in utilisation and profitability.

Q1FY27 Financial Performance

Rossari Biotech reported Q1FY27 consolidated revenue of Rs 6,972 million, up 28.2 per cent year-on-year and 1.8 per cent quarter-on-quarter. Volume growth was 10 per cent, while higher raw-material prices accounted for the balance through pricing pass-through. Revenue excluding the institutional and B2C businesses, which are being rationalised, rose 32.1 per cent year-on-year.

Exports accounted for 23 per cent of Q1FY27 sales, compared with 26 per cent in FY26, and continued to grow year-on-year. The company used EO capacity for non-EO products and maintained good plant utilisation. Management expects EO availability to improve from December 2026, enabling higher EO-business volumes.

The institutional business reported an EBITDA loss of Rs 40 million, compared with a Rs 20 million loss in Q4FY26. The base business generated EBITDA of Rs 850 million with a 13.6 per cent margin, below 15.8 per cent in Q1FY26 because of raw-material volatility and inflation.

Segment Performance and Capacity Utilisation

HPPC revenue grew 30.4 per cent year-on-year to Rs 5,530 million despite weaker agrochemical demand and EO constraints. Rossari’s Thailand plant commenced operations in March 2026 and is mainly blending products for Southeast Asian customers.

Textile chemicals revenue rose 17.8 per cent year-on-year but fell 6.2 per cent quarter-on-quarter to Rs 1,060 million. Rossari launched a textile speciality chemicals portfolio and a dedicated fibre chemicals division.

Animal health and nutrition revenue increased 26.7 per cent year-on-year to Rs 380 million, supported by end-market traction and the commissioning of premix facilities in April 2026.

Management Outlook and Strategic Developments

Management guided for 15 per cent FY27 revenue growth, led by the pharma, agro, oil and gas segments and FY26 capacity additions. It expects FY27 EBITDA margin of 12-13 per cent, with eventual margin improvement to 15 per cent. Management expects FY28 growth to accelerate as EO availability eases.

India capex has been recalibrated to limited investment, while the Saudi Arabia project remains under evaluation. Discussions cover land, raw-material partnerships and government support, with commercial production expected around 18 months after project announcement.

Rossari has sold its old corporate office for Rs 240 million and the Unitop office for Rs 105 million. These transactions support non-core asset monetisation and deleveraging.

Broker Estimates and Earnings Changes

ICICI Securities cut FY27E EBITDA by 4.4 per cent and FY27E EPS by 5.6 per cent, while retaining FY28E EPS broadly unchanged. The broker’s revenue and EBITDA margin estimates are as follows:

Key Risks and Potential Upside

Key downside risks include slower HPPC volume growth, a prolonged textile-chemicals slowdown and margin contraction caused by raw-material volatility.

Potential upside factors are stronger export growth, a revival in domestic revenue and a sustainable increase in EBITDA margin.