ICICI Securities has increased its target price for Rossari Biotech to ₹605, citing potential for long-term growth despite current margin challenges. The company is working to improve profitability by focusing on higher capacity utilization and reducing debt following recent capital spending.
Detailed Coverage
ICICI Securities has updated its outlook on Rossari Biotech, maintaining a positive view while revising the target price to ₹605 from the previous ₹570. This change follows the company’s Q1FY27 performance, where it reported an 18.8% year-on-year increase in operating profit, or EBITDA. While the brokerage slightly lowered its earnings per share forecast for the current fiscal year by 5.6%, it kept its outlook for the following year unchanged, signaling confidence in the company's long-term business strategy.
Navigating Margin Challenges
Although the company has seen growth in its core operations, profit margins remain a key area of focus for investors. These margins have been under pressure due to the limited availability of Ethylene Oxide, a key raw material, alongside fluctuating costs for other inputs. Additionally, the company’s institutional and direct-to-consumer business segments have been recording losses. Management is currently addressing these issues by moving toward higher capacity utilization at its recently completed production facilities in India, aiming to drive better efficiency and offset the impact of volatile input costs.
Strategic Shift and International Plans
Rossari Biotech is making several adjustments to its business model to strengthen its financial position. The company has moved to divest non-core assets, such as surplus properties, as part of a broader plan to lower its debt levels. This strategy is supported by the completion of a major capital spending program in India, which is expected to reduce the need for further heavy investment in the near term.
Looking ahead, the company is actively pursuing expansion plans in Saudi Arabia, with multiple consultancy firms engaged to guide the project. This international move is a significant part of the company's long-term growth roadmap. The brokerage’s revised target price is based on a higher valuation multiple of 17 times the projected earnings for FY28, compared with 16 times previously, reflecting expectations for improved financial health.
Investor Monitorables
For investors, the next important updates to follow include the trend in profit margins as capacity utilization improves, the timeline for the Saudi Arabian expansion project, and the pace at which the company can successfully reduce its debt load. The ability of the company to secure consistent raw material supplies will also be a critical factor in stabilizing profitability in the coming quarters.