Corporate Development

Published: Dec 29, 2021
Updated: Dec 29, 2021

ROSSARI BIOTECH: Chem solutions for every segment

Speciality chemicals stocks have of late been ruling the roost on the Indian stock exchanges, and we have selected a unique speciality chemicals company in Rossari Biotech as the Fortune Scrip for this fortnight.

Started as a partnership firm in 2003, converted into a public limited company in 2009, and then going public in 2020, Rossari Biotech is a leading speciality chemicals manufacturer, providing customised solutions for specific industrial and production requirements of its customers primarily in the FMCG, apparel, and poultry and animal feed industries. Its diversified product portfolio comprises home, personal care and performance chemicals, textile speciality chemicals, and animal health and nutrition products. The company, which has two modern manufacturing facilities located at Silvassa in Dadara & Nagar Haveli and Dahej in Gujarat, has three main product categories: (a) home, personal care and performance chemicals, (b) textile speciality chemicals, and (c) animal health and nutrition products.

Rossari is a leading manufacturer of acrylic polymers in India and produces many products for its customers in the soaps and detergents, paints, water treatment chemicals, and pulp and paper industries. It also manufactures institutional cleaning chemical formulations for hospitality, facility management, airports, corporates, food services, commercial laundries, malls, multiplexes, the educational sector, places of worship, etc. It is in the advanced stages of expanding its home, personal care and performance products portfolio to water treatment formulation. Besides, the company provides speciality chemicals for the entire value chain of the textile industry — from the fibre and yarn stage to fabric wet processing and garment processing. In total, the company had a range of 2,030 different products at the end of the last year across the three product categories.

REVENUE BOOM

Demand for all these products is steadily on the rise and as a result Rossari’s financial performance is continuously improving. During the last five years, its sales turnover has expanded from Rs 233.46 crore in fiscal 2017 to Rs 690.41 crore during fiscal 2021, with the profit at net level shooting up more than 5 times – from Rs 14.12 crore to Rs 79.10 crore during this period. The company’s financial position is very strong, with reserves at the end of March 31, 2021 standing at Rs 394 crore against a tiny capital of Rs 10.39 crore. The company paid a dividend of 25 per cent for the last year.

If in the first 11 years, the company established itself solidly and made rapid strides, it is all set to scale new peaks in the next 11 years as prospects ahead are all the more promising.
Consider:

• The company’s products, numbering over 2,000, are getting more and more popular going ahead. As demand for Rossari’s products is on the rise, the company has been growing at a healthy pace. As the company is highly able to innovate and customise, its resourceful R&D department is steadily coming out with new products. Thus, going ahead, the company will have a wider range of products which will give a boost to the topline as well as bottomline. Again, export demand is on the rise and the management expects that exports, which accounted for 10 per cent of the company’s turnover during the last 11 years, will fetch 20 per cent in the current 11-year period. Interestingly, its exports are more remunerative than its domestic sales.
• Of late, the company has acquired three companies – Unitop, Tristar and Romakk. These acquisitions will enable Rossari to develop more products and alignment capacities not available with itself. In fact, this inorganic expansion is not intended to gain marketshare but to go for backward integration and have a wider range of products. For example, the acquisitions give the company access to new sectors like agrochemicals and oil & gas. Unitop is a leading supplier of surfactants, emulsifiers and speciality chemicals to companies in India and abroad. The Rossari management maintains that the combination of Unitop chemicals with Rossari will augment the quality and acceleration of the company’s growth going forward. Unitop, with a sales turnover of Rs 300 crore and an operating profit of Rs 45 crore, will quicken the pace of growth of Rossari.
• As the company has large and modern manufacturing capacities both at Silvassa and Dahej, it is taking up contract manufacturing too. It manufactures popular household products like Vim, Rin, Ciff and Surf for brand owners like Hindustan Unilever, Dabur, IFB, Arvind, Raymond, Reliance and other companies. It also makes homecare products for Flipkart, Presto Amazon and Purplle. It is one of the few manufacturers for Panasonic and Bosch. According to the management, nearly half of the company’s revenues come from this segment.
• The company’s financial growth is healthy and robust. Its revenues and earnings are steadily going from strength to strength. Its financial position is strong and it is a zero debt company with a zero debt/equity ratio.

WAIT FOR DECLINES

However, as investors are wildly enthusiastic over Rossari — its IPO (initial public offer) last year was oversubscribed 79 times — the share price has shot up to unbelievably high levels with the P/E ratio (price to earnings ratio) as high as 97.26, which is relatively speaking overvalued. We feel the current price of Rs 1,450 (face value of Rs 2) is on the high side. It is better to wait for a reactionary fall. The stock is worth accumulating at declines as the long-term outlook is extremely bullish.