ICICI Securities has lowered its target price for Rossari Biotech to Rs 520 while maintaining a buy rating. The brokerage reduced earnings estimates citing rising freight costs and raw material volatility. Despite these near-term pressures, the company is focusing on reducing debt and shifting its product portfolio toward higher-margin chemicals.
ICICI Securities has revised its outlook on Rossari Biotech, lowering its target price from Rs 605 to Rs 520. While the brokerage maintains a positive stance, it has adjusted its earnings expectations for the company for the financial years 2027 and 2028. This adjustment follows a 3% to 6% cut in projected earnings per share, reflecting a more conservative view on valuations in the current market environment.
Challenges Impacting Margins
The brokerage action stems from persistent operational hurdles that have impacted the company's profitability. In the recent second quarter, Rossari Biotech reported an EBITDA margin of 12.5%. While this marked a 20.9% increase in operating profit compared to the previous year, the company continues to face pressure from external factors. Specifically, high freight costs and volatility in raw material prices have made it difficult to expand profit margins. Additionally, the company has faced supply constraints regarding Ethylene Oxide, a key chemical used in production, which has limited its ability to improve margins as quickly as previously expected.
Strategic Portfolio Shift
To navigate these challenges, Rossari Biotech is actively changing its business strategy. The company is reducing its focus on institutional and business-to-consumer (B2C) segments, which typically offer lower profit margins. Instead, management is prioritizing growth in the pharmaceutical and aroma chemical divisions, which generally command better pricing and profitability. This strategic move is intended to improve the overall quality of earnings in the long term, even though the transition phase presents short-term hurdles.
Debt Reduction and Future Growth
On the financial front, the company appears to have moved past its peak cycle of heavy investment in India. With the major capital spending projects now largely concluded, Rossari Biotech is shifting its financial focus toward reducing its debt levels. This shift is expected to improve the balance sheet strength in the coming periods.
Looking ahead, the company is also exploring potential international growth. Management is currently conducting a feasibility study for a new manufacturing facility in Saudi Arabia. This potential greenfield project is viewed as a strategy to enhance global production capacity, although it remains at an early evaluation stage. For the current financial year, management continues to guide for mid-to-high teens revenue growth, with operating margins expected to stabilize around 12%.
Investors may monitor whether the company can successfully navigate raw material and freight cost pressures to protect its margins. The progress on debt reduction and the outcome of the feasibility study for the Saudi Arabia project will also be important areas for shareholders to track.