Update on the Indian Equity Market:
On Monday, NIFTY closed up at 16,258 (+0.1%). Top gainers in NIFTY50 were M&M (+2.2%), Tech M (+1.9%), and Axis Bank (+1.9%). The top losers were Tata consumer (-1.9%), Coal India (-1.8%), and Adani Ports (-1.7%). The top sectoral gainers were MEDIA (+1.1%), PVT BANK (+0.7%) and BANK (+0.6%) and sectoral losers were METAL (-1.9%), PSU BANK (-1.6%), and REALTY (-0.7%).
Excerpts of an interview with Mr. Edward Menezes, Executive Chairman, Rossari Biotech (ROSSARI) with CNBC TV18 dated 9th August 2021:
- The specialty chemicals company reported a strong set of earnings for the June-ended quarter with good growth both on a year-on-year (YoY) and quarter-on-quarter (QoQ) basis.
- They have done almost three acquisitions in the last two months – Unitop Chemicals, Tristar Intermediates, and Romakk Chemicals.
- In FY22, they expect 50 percent growth in their revenues over FY21 as they will be able to consolidate the revenues from these acquisitions. In FY23, they expect their revenues will double over FY22 revenues.
- The coming quarter looks challenging. The price increase pass on is inevitable as the entire pipeline of old raw material stock is almost dry for all the players. The trend continues to be upwards. Therefore, they are focusing more on asset turnover.
- Their R&D has been working continuously to find alternatives to raw materials to fight a huge raw material price increase.
- The highest gross margin vertical is animal health and nutrition. The second being the home, personal care, and performance chemicals (HPPC) followed by textile specialty chemicals and it’s their cash cow.
- Textile specialty is shaping very well due to pent-up demand. They don’t have to make substantial investments in animal nutrition as well, so good growth opportunities there too.
- The company might have to take more price hikes to ensure stability in margins.
- He shared that the logistics and freight costs have gone up substantially and the raw material price volatility has been unprecedented as well.
- He believes that there is a high growth possibility in the animal nutrition business. He also mentioned that the company has plans to enter the aqua and cattle market as well.
- They have a small business in pet care that has suffered due to pandemic but has a very high growth prospect.
Asset Multiplier comments:
- The demand environment for specialty chemicals will be favorable, with volume uptick across industries led by rising domestic consumption.
- The challenge will be to manage raw materials cost-efficiently to protect margins.
- China +1 strategy will be a beneficial factor to drive growth for these companies as the China+1 strategy is the key catalyst for global firms to turn towards India.
Consensus Estimate: (Source: market screener and investing.com websites)
- The closing price of ROSSARI was ₹ 1,371/- as of 9-August-2021. It traded at 70x/ 57x the consensus earnings estimate of ₹ 19.7/ 24.0 for FY22E/23E respectively.
- The consensus price target is ₹ 1,270/- which trades at 53x the earnings estimate for FY23E of ₹ 24.0/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”