Rossari Biotech

Edelweiss Professional Investor Research
Insightful. Independent. Decisive.
Rossari Biotech Ltd
Swarnabha Mukherjee
Research Analyst
[email protected]
Date: 16th November 2020
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Long Term Recommendation
Rossari Biotech Ltd A Perfect Formulation in the Making
Rossari Biotech (Rossari) is a key specialty chemicals manufacturer operating in Swarnabha Mukherjee
Research Analyst
home and personal care, textiles, and animal health and nutrition segments in [email protected]
India. Its R&D driven product development business model addresses customer-
specific application requirements. This is a source of competitive advantage for CMP INR: 777
the company and has helped it create a sticky base of marquee customers.
Rating: BUY
Continued momentum in the higher margin home and personal care business
would aid in margin expansion going forward. We expect a Target price INR: 912
revenue/EBITDA/PAT CAGR of 22%/27%/29% over FY20-23E. We initiate Upside: 17%
coverage with a BUY rating and a target price of INR 912 per share.
Home, Personal Care and Performance Chemicals segment to foster growth

The home care segment has seen exponential growth over FY18-20 and garnered
Bloomberg: ROSSARI IN
several marquee
s customers. Large opportunity size, incremental mandates from
sticky customers and seeding of new business opportunities like personal care is 52-week range (INR): 859/664
expected to lead to robust growth (expect 34% compounded annual growth rate
Share in issue (crore): 5
in segment revenue in FY20-23E). Scale-up of institutional/industrial cleaning and
animal health and nutrition businesses will usher in additional growth. Margin will M-cap (INR crore): 4,038
also improve as contribution from higher margin products rise. Promoter holding (%) 72.69
Focus on R&D and expertise in 4 chemistries aids product development

With 2 R&D centres, the recent one being at IIT Bombay, Rossari has an R&D-
backed product development process based on 4 chemistries. This helps it
develop products, which are application oriented and address specific customer
needs, and aid in customer stickiness.
New capacity to provide headroom for all-round growth

Capacity constraints faced in FY20 are expected to be mitigated as the company is
in the process of significantly increasing its production capacities. This would be
sufficient to provide growth headroom over the next 3-4 years. This increased
capacity would now help it grow all segments as Rossari’s plants are fungible in
nature.
Robust operational metrics and technocratic management: Initiate with BUY

Rossari ticks the right boxes with a strong growth outlook, debt free balance sheet,
industry leading asset turnover, short working capital cycle and a technocratic
management team with a great execution track record. We initiate coverage with
a BUY rating and a target price of INR 912 per share (upside of 17%), valuing the
company at 33x FY23E EPS.
INR crore FY19 FY20 FY21E FY22E FY23E
Revenues (INR cr) 516 600 713 880 1,102
EBITDA (INR) cr) 78 105 134 166 213
EBITDA Margin (%) 15.0 17.4 18.7 18.8 19.3
Net Profit (INR cr) 46 65 82 105 140
EPS (INR) 9.4 13.2 15.9 20.4 27.3
EPS Growth (%) (28.2) 40.3 21.3 28.2 33.6
P/E (x) - 58.7 46.7 36.4 27.3
RoACE (%) 53.7 35.8 30.1 32.5 33.9
RoAE (%) 42.8 31.8 25.0 25.0 25.8 Date: 16th November, 2020
Edelweiss Professional Investor Research 1

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Rossari Biotech Ltd
Table of Contents
Structure ........................................................................................................................................... 3
Focus Charts ...................................................................................................................................... 4
I. A play on the domestic consumption story ................................................................................... 7
II. HPPC: Strong execution in home care; personal care to foster future growth ............................ 8
III. High margin HPPC/AHN to aid margin expansion as contribution increases ............................ 17
IV. Industry leading asset turns results in best-in class return ratios ............................................. 19
V. Doubling of capacity to ensure growth momentum continues .................................................. 21
VI. R&D driven company with focus on four chemistries ............................................................... 23
VII. Largest yet differentiated player in the Indian textile chemicals space ................................... 28
VIII. AHN: A higher margin business which can scale up ................................................................ 31
IX. Strategic focus: Exports and inorganic growth .......................................................................... 33
X. Perfect formulation of growth, balance sheet strength and cash generation ............................ 34
Outlook and Valuation .................................................................................................................... 36
Management Profile ....................................................................................................................... 39
Timeline .......................................................................................................................................... 40
Financials ........................................................................................................................................ 41

Rossari Biotech Ltd
Structure
We expect Rossari Biotech to clock 22% CAGR in Revenue over FY20-23E driven by
a) strong growth emanating from its Home, Personal and Performance Chemicals (HPPC) segment, which caters to home
care (detergents and disinfectants), and is currently focusing on seeding personal care business
b) tailwinds in the sub-segment due to increased focus towards health and hygiene in the pandemic scenario,
c) capacity constraint faced in FY20 would not be a challenge post commercialization of its Dahej facility in Q4FY21. This
would provide growth headroom for not only the focus segment HPPC, but also its textile specialty chemicals segment,
d) a larger contribution from high margin HPPC and Animal Health and Nutrition (AHN) segment would help expand the
margins, along with better cost absorption as the new capacity gets ramped-up,
e) Exports and acquisitions can be further levers of growth in the future.
Consequently, EBITDA and PAT are expected to grow at 27% and 29% CAGR over FY20-23E.
Rossari ticks all the right boxes in our opinion with

a) expectations of robust growth over FY20-23E due to a large opportunity size with the company’s differentiated
approach of providing customers with tailor-made application-oriented products through their strong R&D,
b) Marquee customer base (like HUL, IFB, Bosch, Panasonic, Arvind among others)
c) industry leading operational parameters like fixed asset turns and top-notch working capital management leading to
strong ROCE,
d) strong balance sheet, which is debt free,
e) technocratic management and board at its helm.
We initiate coverage on Rossari Biotech with a BUY recommendation and a target price of INR 912, valuing the company at
33x its FY23E earnings.
Revenue is expected to grow at 22% CAGR Return ratios to remain strong with a We value the company at 33x its
over FY20-23E due to strong growth in debt free balance sheet FY23E earnings
segments, particularly HPPC
FY23E CMP/
(INR Cr) FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
EPS Target
33x
Revenue 600 713 880 1102 RoACE 36% 30% 33% 34% 27.3 771/912
(CMP 27x)
Net Debt-
EBITDA 105 134 166 213 to-equity -0.2 -0.2 -0.4 -0.5
ratio
EBITDA margin 17.4% 18.7% 18.8% 19.3%
PAT margin 10.9% 11.5% 11.9% 12.7%
Expect Return on Equity (RoE) of

At the current market price, the stock is   At target price, FY23E P/E is 33x
trading at an FY23E P/E of 28x ~25% over FY21-23E
Upside of 17%

Rossari Biotech Ltd
Structure
Rossari is into the manufacturing of specialty chemical ingredients and formulations that find end-
Nature of the
use in the textile, home personal care and performance chemicals, animal health and nutrition
industry
industries. The segments are largely unorganised in India.
Opportunity size remains significant in the home personal care and performance chemicals, which
Opportunity size
is a key revenue contributor (47% in FY20 revenue mix).
Prudent capital allocation undertaken in its core business, with fungibility of capacities, is helping
the management focus on high growth areas. Rossari’s ROCE has seen continuous uptrend from
Capital allocation FY17 onwards as it focused on the HPPC segment (a segment with better margins, high asset
turnover and short working capital cycle). Continued focus on this segment, along with scale-up of
new sub-segments is expected to generate incrementally higher ROCE.
Long and mature customer relationships and track record of providing solution-oriented products
Predictability
will aid revenue predictability.
Defensive and growing end-industry segment, along with focus on customer servicing and ability to
Sustainability
develop tailor-made products, will sustain revenues.
a) Providing application-oriented tailor-made products to the customers that address their

specific needs, resulting in a sticky customer base and providing competitive advantage over
peers selling base ingredients,
b) Manufacturing green chemicals, particularly for the textile specialty chemicals, where
traditional products are polluting in nature,
Business strategy
c) Sticking to four chemistries where they have developed significant knowledge and R&D
and planned
capabilities – acrylic, silicone, enzymes and surfactants. Company has a strong focus on R&D
initiatives
with two R&D centers, the recent one at IIT Bombay,
d) Replicating success in personal care as it has done in the home care segment,
e) Increasing growth headroom through doubling of capex, along with seeding in other business
areas -- water treatment, construction, dairies and breweries -- and in overseas markets in TSC
and AHN segments
Near-term visibility remains strong due to heightened focus on health and hygiene, a segment
Near-term visibility where Rossari has significant exposure, aided by new capacity slated to be commissioned in
Q4FY21.
In the long-term, growth will accrue from business development in new segments, particularly
Long-term visibility
personal care, and will be aided by ramp-up in the expanded capacities.

Rossari Biotech Ltd
Focus Charts
Story in a nutshell
Exhibit 1: Expect revenue to grow at 22% Exhibit 2: …driven by robust growth in the HPPC segment…
CAGR over FY20-23E…
In INR cr In INR cr
1102
682
880
524
713
600 411
516
281
299 195
258
38 55
FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Exhibit 3: Expect rise in the contribution of HPPC,… Exhibit 4: …which is a high gross margin business…
7% 10% 10% 10% 8% 8% 9% 50%
34% 32% 29%

44% 45%
52%
78% 72%
40%
58% 60% 62%
38% 47%
15% 18% 35%
FY17 FY18 FY19 FY20 FY21E FY22E FY23E

30%
HPPC TSC AHN TSC HPPC AHN Rossari FY20
Note: Company indicates highest margin for AHN followed by HPPC and then TSC
Exhibit 5: …to result in stable and improving gross

Exhibit 6: …and aid in expansion in EBITDA margin…
margin profile…
250 25%
38.4% 38.6% 18.7% 18.8% 19.3%
38.1% 38.2% 200 17.4% 20%
15.3% 15%
34.3%
32.7% 150 15%
10.5%
29.2% 100 10%
50 5%
0 0%
EBITDA (INR cr) - LHS EBITDA Margin - RHS
Source: Edelweiss Professional Investor Research

Rossari Biotech Ltd
Focus Charts
Exhibit 8: …aided by commissioning of capex in Dahej in

Exhibit 7: …and 29% PAT (INR cr) CAGR over FY20-23E, …
FY21 (in ‘000 MTPA)
150 12% 13% 14.0% 253 253 253
11% 12%
10% 12.0%
9%
10.0% 133 133 133
100
7% 8.0%
6.0% 120
50 3% 2% 80
2% 4.0% 60 60
2.0% 120 120 120 120
0 0.0% 60 60 80
FY21E
FY22E
FY23E
FY14
FY15
FY16
FY17
FY18
FY19
FY20

PAT - LHS PAT Margin - RHS
Silvasa Dahej Total
Exhibit 9: Working capital management remains

Exhibit 10: …which along with high fixed asset turnover…
top notch …
in days
65
59
6.1 6.3
5.8
4.8 5.0
35 35 35 4.3
3.7
27
19

Exhibit 11: … would lead to strong return ratios… Exhibit 12: … and benefit cash generation
(ROACE in %) 140 2.0
120
53.7 1.5
100
40.5 80
35.8 1.0
32.5 33.9 60
30.1
26.7 40 0.5
20
0 0.0
Operating cash flow (INR cr) - LHS
OCF/EBITDA - RHS
FY17 FY18 FY19 FY20 FY21E FY22E FY23E OCF/PAT - RHS

Rossari Biotech Ltd
Investment Hypothesis
I. A play on the domestic consumption story

Rossari operates in the specialty chemicals space in India, with a focus on development of
application oriented tailor-made solutions for its customers through research and development
(R&D). Essentially a business-to-business (B2B) player, it caters to customers in the fast-moving
consumer goods (FMCG), apparel, poultry and animal feed industry, banking on its expertise in
acrylic chemistry, silicone chemistry, enzymes and surfactants. The company operates in 3 business
segments as we have summarised below.
Exhibit 13: Business segments of Rossari Biotech

Home, personal care and Textile specialty chemicals Animal health and nutrition
Segment
performance chemicals (HPPC) (TSC) (AHN)
Manufactures products from
acrylic polymers, which are used
Diversified range of products
in soaps and detergents, paints,
in this segment caters to the Manufactures and sells
ceramics and tiles, water
Business entire textile value chain right poultry feed supplements
treatment chemicals, and pulp
description from fibre, yarn to fabric, wet and additives, pet grooming
and paper industries. It also
processing and garment and pet treats
produces institutional cleaning
processing
chemicals used at hospitals,
airports and other facilities
No. of products
(approx.) 300 1,500 100
Revenue: FY20
(INR cr) 281 262 57
Revenue mix:
FY20 47% 44% 10%
FY23E
62% 29% 9%
General gross
margin trends TSC < HPPC < AHN
No of Customers
(approx.) 284 335 150
RSPL (Ghadi Detergent), IFB Hitech Hatch Fresh Pvt, Gokul

Arvind, Ashnoor Textile Mills,
Industries, HUL, BSH Household Poultry Industries, Sarvottam
Bhaskar Industries Pvt,
Appliances Manufacturing Pvt, Poultry Feed Supply Centre
Key customers European Textile Chemical
CICO Technologies, Rentokil Pvt and Sneha Farms Pvt
Corporation and Shahi
Initial Hygiene India Pvt and
Exports Pvt
Millennium Papers Pvt
Present capacity 1,20,000 MTPA fungible capacity at Silvassa

Expanded 2,52,500 MTPA total capacity including 1,32,500 MTPA fungible to be commissioned at Dahej at
Capacity Q4FY21. Around 30,000 MTPA out of this has been commissioned in Q1FY21.
FY17-20
95% 9% 46%
Revenue CAGR
FY20-23E
34% 7% 19%
Revenue CAGR
Source: Company, Edelweiss Professional Investor Research

Rossari Biotech Ltd
II. HPPC: Strong execution in home care; personal care to foster future growth
The HPPC segment has been one of the strongest growth drivers for Rossari over FY17-20,
particularly in FY19 where it recorded tremendous growth (we highlight this in Exhibit 14). Revenue
growth clocked 95% CAGR over FY17-20, coming in at INR 281 cr in FY20 versus INR 38 cr in FY17.
Being a high margin segment, larger share in the revenue mix is expected to provide further fillip
to the earnings growth. We expect this segment to continue its growth momentum driven by:
 Rossari’s proposition to provide customers with application-oriented tailor-made products

 Large and sticky customer base with few of marquee FMCG players in the domestic market
 Substantial opportunity in home care segment, particularly detergents and disinfectants where
Rossari operates, further aided by increased awareness in the pandemic situation
 Seeding of business in new areas (personal care, breweries, dairies, construction and water
treatment chemicals) further increases the opportunity size to tap into
Revenue from this segment is expected to grow by 34% CAGR over FY20-23E as shown in Exhibit 14.
Exhibit 14: Expect HPPC's momentum to continue during FY21-23E (INR cr)
682
34%
524
411
95% 281
195
38 55

HPPC has 300 products that finds application in soaps, detergents, paints, inks and coatings,
ceramics and tiles, water treatment chemicals, and pulp and paper industries, and are based on
acrylic chemistry.
Exhibit 15: Various application areas for Rossari’s HPPC products

Industry Product application
 Anti re-deposition agent
 Water softener
Soaps and detergents
 Stain busters
 Detergent cake and others
 Different types of acrylic emulsions
Paints and coatings  Different types of additives
 E.g. Dispersing agent thickeners, defoamer and wetting agents, etc.
 Body binder
 Deflocculant
Ceramics and tiles
 Polishing agent
 CMC
 Acrylic emulsions
Pulp and paper  Additives
Sanitizers for electronic  Mobile-antibacterial sanitizers for screens

gadgets  Non-alcohol sanitizers

Rossari Biotech Ltd
Exhibit 16: Rossari’s business sub-segments in HPPC business
HPPC
Home care Institutional

business business
Private Label
Ingredients Contract
ODM* Buzil Rossari
Manufacturing
Note: * ODM: Original Design Manufacturing; Source: Company, Edelweiss Professional Investor Research
a. Ingredients business: Differentiated offering compared to peers

In this segment, the company manufactures ingredients and performance chemicals, using largely
enzymes and acrylic chemistries (we deep dive into these chemistries in the section – R&D driven
company with focus on four chemistries). These ingredients constitute a very small component of
a customer’s raw material cost (~2-10%).
These products include

 polymers that are used in detergent and cleaning industry;
 look, feel and performance enhancing polymers for paints and paper industries; and
 chemicals that improve strength and processability of ceramics.
The company follows a B2B model. It does not sell these ingredients directly but undertakes value
addition by focussing on specific application requirements of customers. This helps it differentiate
from other ingredient manufacturers in the domestic market like BASF, The Dow Chemical
Company, SNF Group, etc.
Apart from operating in the B2B space, Rossari has also entered the e-commerce marketplace via
Amazon India. The management plans to further strengthen its position in this area through tie ups
other e-commerce websites.

Rossari Biotech Ltd
b. Private labels: A testament of product development abilities

Apart from B2B sales of these ingredients, Rossari is also involved in the manufacturing of private
labels through 2 divisions, where products are formulated as per customer’s application
requirements. Rossari undertakes this under two models as shown below:
Original Design Manufacturing (ODM) Contract Manufacturing (CM)

Manufactures products from scratch for its Manufactures product as per the
customers, including formulation development, customer’s requirement, where the
Description
final packaging, and making it ready for retail formulation requirements are
sales or other forms of deployment. specified by the customer.
Better margin profile than CM as the formulation
Margins is developed by Rossari.
Marquee clients: IFB Industries, Bosch and

Customers Panasonic and online retailers for their private FMCG customers
level (e.g. Amazon Presto).
In Exhibit 17, we highlight a few products that Rossari manufactures through ODM and contract
manufacturing, for several large clients and well-known brands in the domestic market.
Exhibit 17: Rossari’s products in the private label business
Source: Company

Rossari Biotech Ltd
c. Home care segment: Growth momentum to continue

The domestic home care ingredients market is expected to grow ~10% CAGR between 2018 and
2023 after seeing ~11% annual growth of between 2015 and 2018. Increased awareness on health
and hygiene, heightened by the pandemic, would be a key driving factor, which could further aid
the growth rate.
Exhibit 18: Expect double-digit growth in the domestic home care ingredients
market (USDbn)
2.6
10%
11% 1.6
1.2
2015 2018 2023F
Note: Growth rates are on an annual basis. Source: Company, Edelweiss Professional Investor Research
Within this, contributions from household and industrial and institutional segments stands at 81%
and 19%, respectively. The household segment is expected to grow at 11% p.a. over 2018-23 (refer
Exhibit 19), constituting ~85% of the industry by 2023. Rossari has tasted considerable success in
this segment, though production of ingredients, ODM and contract manufacturing for key FMCG
players.
Exhibit 19: Segmentation in the domestic home care market by value
19% 15%
81% 85%
2018 2023F
Household Industrial and Institutional
Additionally, the institutional and industrial segment will grow by mid to high single-digits during
the same period and will constitute around 15% of the industry by 2023. Rossari’s subsidiary Buzil
Rossari Pvt Ltd is expected to take advantage of growth in this segment (Refer Buzil-Rossari: The
industrial and institutional cleaning business section in the report). Despite mid single digit growth
rate, we believe that the increase in market size over the next few years will create substantial
opportunity for players of Buzil Rossari’s size.

Rossari Biotech Ltd
Exhibit 20: Growth potential remains solid for both household and industrial
and institutional business, could be further aided by the pandemic scenario
(USD bn)
2.2
11%
1.3
6%
0.3 0.4
Household Industrial and Institutional

2018 2023F
Laundry care constitutes around 72% of this segment (as shown in Exhibit 21), followed by
ingredients for dish washing and surface cleaners. Rossari has a significant exposure to the laundry
care segment. Some products manufactured for well-known domestic brands include Love & Care
of HUL, IFB essentials and Amazon Presto. It also manufactures dish care and surface cleaning
products, like Vim and Cif.
Exhibit 21: Home care ingredients - share of end-user segments (2018)

Others, 5%
Surface cleaners, 10%
Dish care application,

13%
Laundry care, 72%
d. Buzil-Rossari: The industrial and institutional cleaning business

The company operates in the institutional cleaning chemical formulations segment through its
subsidiary Buzil-Rossari Pvt (BRPL). BRPL has clocked robust growth in FY20 in terms of revenue (up
73% to INR 21 cr), albeit on a small base.
BRPL was earlier a JV with Germany’s BUZIL-WERK Wagner GmbH & Co (Buzil), whose stake has
been acquired by Rossari in Q2FY21, along with ten-year exclusivity in India and SAARC countries.
The management has inked a technology licence agreement for manufacturing these products.
Management remains bullish on the opportunity in India and SAARC countries, which led to the
acquisition of the stake, to capture the growth opportunity faster.
These industrial products are used by customers in hospitality and allied areas, commercial laundry,
facility management services, hotels, airports, corporates, malls, hospitals and educational
institutions etc. Product demonstrations of BRPL: Link 1, Link 2 and Link 3.

Rossari Biotech Ltd
e. Extending ODM model in personal care segment

The company has ventured into the personal care and cosmetics segment through its recently
formed subsidiary Rossari Personal Care Pvt (RPCPL), which will be headed by Rupesh Agarwal (ex-
Unilever). Rossari holds 60% interest in this venture. Details of the segment is shown in Exhibit 22.
Though the contribution of personal care products remains small at present, Rossari expects this
business to be a future growth driver. Given the large opportunity size for personal care in India,
driven by rising disposable income levels, we concur with this growth possibility.
Exhibit 22: Details of the Personal Care business of Rossari
Products Products are used in cosmetics, hair care, fragrance, skin care and wellness.
Rossari will manufacture the products at its Silvassa facility and supply to the subsidiary
Manufacturing at an arm’s length basis.
 Walmart – recently launched a handwash

 Godrej
 Personal care/beauty products portal Purplle (https://www.purplle.com/) – anchor
supplier with over 100 formulations every month
 Niine (hygiene and personal care company which has recently launched a range of
Customers
hand hygiene products like handwashes and hand sanitizers -
https://www.niine.com/)
 Faces Canada (makeup and skincare products company -
https://www.facescanada.com/),
 Firstcry (https://www.firstcry.com/).
Given the opportunity size (highlighted next), we believe that this segment can clock similar growth
rates post the seeding phase, as seen in the home care segment over the last few years.
Long runway for growth in the personal care segment

Personal care products comprise ~70% of bulk chemicals (like waxes, solvents) and ~30% of specialty
chemicals, which can be further classified as active and inactive ingredients. Rossari operates in the
inactive ingredients market, with a focus on silicone ingredients (we deep dive into these
chemistries in the section - R&D driven company with focus on four chemistries).
Active ingredients provide key properties to products like anti-aging, exfoliation and sun protection
as shown in Exhibit 23. Inactive ingredients provide physical and processable properties to a
formulation to be a carrier of active ingredients to the skin, besides adding shelf life and look and
feel to the product.

Rossari Biotech Ltd
f. Personal care ingredients market to clock faster growth than home care
The domestic personal care ingredients market is expected to clock 12.9% CAGR between 2018 and
2023 as against 14.5% CAGR over 2015-18. Growth in future is expected to be driven by various
product types like cosmetics, skincare, shampoo and hair care, and body and hand wash (refer
Exhibit 25).
Exhibit 23: Active and inactive ingredients in the personal care space
Exhibit 24: Indian personal care ingredients market forecast, value (USD bn)
12.9% 2.2
14.5%
1.2
0.8
2015 2018 2023 F

Rossari Biotech Ltd
Exhibit 25: Expect high single digit growth in domestic personal care industry
over 2018-2023F (USD bn)
21.2
8.2%
3.6
7.8% 14.3
4.6
11.4 2.4
1.9 3.1 6.0
2.5
4.0
3.2 4.2
2.3 2.9
1.5 1.9 2.8
2015 2018 2023F

Body/Hand wash Shampoo/Hair Care Skincare Cosmetics Others Total
The original design manufacturing/contract manufacturing space is gaining prominence in the

personal care segment and is expected to be a bright spot going forward.
Exhibit 26: Historical and expected growth rates of various personal care
categories
8.4% 8.4%
8.2% 8.2%
8.1% 8.1%
8%
7.7% 7.7%
7.4%
Body/Hand wash Shampoo/Hair Care Skincare Cosmetics Others
2015-18 CAGR 2018-23 CAGR

Rossari Biotech Ltd
g. Rossari to foray into other segments also

Apart from personal care, Rossari is planning to enter into other industry segments like dairies,
breweries and water treatment chemicals as highlighted in Exhibit 27. Additional focus areas are
products for the cement, ceramic and tile industries. Water treatment chemicals has already been
seeded and will see some small contribution this year as economic conditions improve. These
segments are expected to see strong growth over the medium term as seen in industry estimates
(refer Exhibit 28).
Exhibit 27: New segments that the management is focusing on

Industry Product application
Cement and construction chemicals  Specialty additive for cement processing
 Boiler chemicals
 Cooling tower chemicals
Water treatment formulations
 RO chemical
 Waste water treatment
 Hinder bacterial growth
Specialty formulation for breweries as
 Break molasses
well as dairies
 Cleaning sugar syrup
Exhibit 28: Expect new entry segments to clock strong growth over 2019-25
after growing at 15% CAGR over the last 5 years (USD bn)
3.1
14%
16% 1.9
15%
1.4
15%
0.8 0.7
0.4
Water Chemiicals 2014 2019 2025F Construction Chemicals
Note: Growth rates are on an annual basis. Source: Industry Reports, Edelweiss Professional Investor Research

Rossari Biotech Ltd
III. High margin HPPC/AHN to aid margin expansion as contribution increases

Rossari’s profitability will be driven by changes in its product mix. Given that businesses in the HPPC
and AHN segments are in investment stage, these categories command an earnings before interest,
taxes, depreciation and amortisation (EBITDA) margin, which is similar to that of the mature
business of TSC, i.e. ~ 17%. However, the management has guided that excluding the impact of
seeding, AHN is the most profitable segment, followed by HPPC and TSC. Company expects to
maintain EBITDA margins in the range of 16-18% going forward.
Exhibit 29: AHN is highest margin business followed by HPPC and then TSC
(Gross margin)
50%
45%
40% 38%
35%
30%
TSC HPPC AHN Rossari FY20
Note: Company indicates highest margin for AHN followed by HPPC and then TSC.
We believe gross profit margins will mirror the product mix going forward. As share of the HPPC
segment improves over FY21-23E, gross margin levels seen in FY20 will sustain and possibly
improve. Exhibits 30 and 31 highlights that over FY17 to FY20, increasing contribution from the HPPC
segment was a key driver of Rossari’s gross margin expanding to 38% from 29%.
Exhibit 30: With a further increase in share, HPPC segment will continue to be
the largest revenue contributor
7% 10% 10% 10% 9% 8% 9%
35% 33% 31%

44%
52%
78% 72%
56% 58% 61%

47%
38%
15% 18%

HPPC TSC AHN
The management seemed confident of maintaining margins at this level and had highlighted that
the Q1FY21 gross margin of ~42% was on the higher side, considering the large share of HPPC (~76%)
in the mix in the lockdown and ensuing period, where health and hygiene related products saw
strong demand.

Rossari Biotech Ltd
Exhibit 31: Expect gross margin to stabilise going forward
38.1% 38.2% 38.4% 38.6%
34.3%
32.7%
29.2%
We expect Rossari’s gross profit margin to expand to around 38.6% by FY23E.
As profitability improves and operating leverage kicks in with the commissioning of new capacities,
we expect Rossari’s EBITDA to clock 27% CAGR over FY20-23E. Expansion of EBITDA margin to 19.3%
is expected in FY23E, with further benefits arising from better fixed cost absorption.
Exhibit 32: Expect EBITDA to grow by 27% over FY20-23E, margin to expand
over this period
250 25%
19.3%
18.7% 18.8%
200 17.4% 20%
15.3% 15%
150 15%
10.5%
100 10%
50 5%
45 78 105 134 166 213
0 25 0%
EBITDA (INR cr) - LHS EBITDA Margin - RHS

Rossari Biotech Ltd
IV. Industry leading asset turns results in best-in class return ratios
Requirement of working capital has also been low for the company, particularly with higher
contribution from the high-asset-turnover HPPC business. As seen in Exhibit 33, the working capital
cycle reduced to under 30 days in FY19-20 from ~60 days during FY17-18 as inventory days
improved. For FY21E-23E, we expect that working capital cycle to be around 35 days.
Exhibit 33: Working capital management remains top notch (in days)
65
59
35 35 35
27
19
Rossari’s products are not manufacturing intensive and generally have a short reaction time
(mostly under 24 hours). The same for formulations is even lower. This is primarily the reason why
Rossari’s fixed asset turnover ratios are high, and we highlight this in Exhibit 34.
Exhibit 34: Given the increasing share of formulation type businesses, fixed
asset turns (in times) improved considerably
6.1 6.3
5.8
4.8 5.0
4.3
3.7
A similar product mix over FY21-23E will help maintain the working capital cycle and fixed asset
turns. As capacity utilisation improves at new facilities, we expect Return on Average Capital
Employed (ROACE) and Return on Average Equity (ROAE) profiles to remain robust over this period
(refer Exhibit 35 and 36), with high returns on incremental capital employed.

Rossari Biotech Ltd
Exhibit 35: Strong ROACE (%) profile should normalise with improving
capacity utilisation
53.7
40.5
35.8 33.9
32.5
30.1
26.7
Exhibit 36: Robust RoAE (%) is expected to be maintained over FY21-23E

42.8
38.5
31.8
29.5
25.0 25.0 25.8

Rossari Biotech Ltd
V. Doubling of capacity to ensure growth momentum continues

Rossari’s existing capacity at Silvassa has been operating at almost full capacity in recent past
(Exhibit 37 shows the capacity utilization). High utilisation levels were a constraint on growth in FY20
as it utilised fungible capacities for the HPPC segment. To support growth, the company is
undertaking capex, which will more than double its capacity.
Exhibit 37: Capacities were running at optimal utilization
93.9%
82.5%
74.2%
61.9%
FY17 FY18 FY19 FY20
Silvassa capacity was augmented by 20,000 MTPA in FY19, taking its total capacity to 120,000 MTPA.
Another 132,500 MTPA will be added in Dahej in FY21 (expected to come on stream in Q4FY21),
which would take Rossari’s total installed capacity to 252,500 MTPA. We have highlighted Rossari’s
capacities available historically as well as in future expectations in Exhibit 38.
The Dahej facility entailed a capex of INR 108 crore, and as per management, capacity is expected
to be optimally utilised over the next 3-4 years. Rossari’s high asset turnover is expected to be
maintained in its expanded capacity as well.
Exhibit 38: Rossari's available capacity ('000 mtpa)
252.5 252.5 252.5
132.5 132.5 132.5
120
80
60 60
120 120 120 120
60 60 80
Silvasa Dahej Total
The Dahej facility will be utilised to manufacture surfactants, agriculture products, silicone oils and
others, and is designed for polymerisation, condensation, among other reactions. The facility will
be fungible across segments. With better technology, the Dahej facility will be cost efficient as per
the management. The 14-acre land parcel in Dahej will have space for further capacity addition.
Post commercialisation of the Dahej capacity, the management plans to use some of Silvassa
facility’s capacity to also manufacture products for its personal care subsidiary RPCPL, primarily
formulations, which is the focus area.

Rossari Biotech Ltd
Exhibit 39: Details of Rossari’s manufacturing facilities
Location Installed capacity Capabilities
 Flexible manufacturing capabilities for powders, granules and

liquids; fungible assets across all categories
Silvassa,  Comprehensive range of testing and packaging capabilities
120,000 MTPA
Gujarat  Being an associate member of ZDHC, contributing to zero
discharge of hazardous chemicals, working hand in hand with
the entire value chain to reduce the chemical footprint
 Enjoying proximity to deep-water, multi-cargo Dahej port

132,500 MTPA  Well equipped with advanced technologies
(Being commissioned;  Once commissioned, the Dahej plant will emerge as an
Dahej,
Expected to be ‘Industry 4.0-ready’ manufacturing site, with advanced
Gujarat
completely manufacturing processes and automated systems such as auto
functional by FY2021) dosing, sensor-based automatic batches and packing
processes, and continuous online monitoring
Source: Company
New capacity adds revenue potential significantly. As highlighted by management, total revenue
that can be generated from the 2,52,500 MTPA capacity is around INR 1,500 cr.
Exhibit 40: Total revenue potential of Rossari's capacities is ~INR 1500 cr

INR 1,500 cr
Revenue potential of Rossari's total capacity
1102
880
713
600
516
258 299


Rossari Biotech Ltd
VI. R&D driven company with focus on four chemistries

Rossari’s products are based primarily on four chemistries – acrylic chemistry, silicone chemistry,
enzymes and surfactants. We believe that such focussed approach has lent the company with
strong mastery in product development, through their R&D activities. Rossari has two R&D centers,
one in Silvassa and a recently launched center at IIT Bombay. The company has 40+ scientists in its
R&D centers, who aid in product development. Exhibit 41 shows Rossari’s R&D spends.
Exhibit 41: Rossari's R&D spends (INR Cr)
9.8
8.5
7.2 6.8
FY17 FY18 FY19 FY20
a. Acrylic chemistry: Diverse end use with growth potential

Acrylic acid is used to manufacture acrylic esters and resins, which find application in coatings,
adhesives, oil treatment chemicals, detergent intermediates, water treatment chemicals, and water
absorbent polyacrylic acid polymers. Glacial (distilled) acrylic acid derivatives are used in
superabsorbent polymers and detergent polymers. Acrylic ester demand grew by 7% CAGR over
2015-2020 as per industry reports. Below table highlights some key uses of acrylic acid derivatives.
Exhibit 42: Applications of Acrylic acid derivatives
Product Applications
Superabsorbent polymers are polyacrylates with cross-linked

Diapers
structure. They can absorb and retain substantial portion of liquid.
Acrylic resins used in industrial, decorative and other coatings like

Coating/ Adhesives/ Sealants
adhesives, paper, leather, polishes, carpet and tablet.
Water treatment, Textiles, Polyacrylates are detergent polymers used in washing powder
Detergents formulations.
Acrylic polymers and copolymers are used in cosmetic industry to

Cosmetics provide stability to formulation, as well as providing visual and
sensory effects.
Note: Segments in which Rossari operates are highlighted
The Global Acrylic Acid derivatives market is expected to see mid-to-high single digit growth as per
various industry reports. Out of this, acrylic polymers are expected to see strongest growth, and a
large part of this is expected to come from the Asia-Pacific region.
b. Silicone chemistry: Industry to reach USD 104m size by 2023

Silicone additives market in India is expected to reach USD 104m by 2023 from USD 69m in 2017,
driven by strong demand from end user industries (Exhibit 44 highlights uses of silicone additive),
like paints and coatings, personal care and industrial applications (refer Exhibit 43).

Rossari Biotech Ltd
Exhibit 43: Silicone Additives market size and growth in India (USDm)
7.1% 104
69
2017 2023F
Note: Growth rates are on an annual basis. Source: Industry reports, Edelweiss Professional Investor Research
The product is used as a processing aid due to its physical properties.
Exhibit 44: Applications of Silicone Additives

Used as visual property enhancer for paints, along with substrate wetting, adhesion,
Paints and Coatings defoaming etc. Finds application in protective paints and coatings, aviation industry,
automotive industry etc. among others.
Construction Used in surface finishing, outdoor furniture and paints
Used as solvent for foam stabilizer, wetting agent or emulsifying agent in skincare
Personal Care
products. Water resistant properties are used in sub screens, foundations etc.
Used in haircare products due to water resistance and repairing hair damages.
Cosmetics
Additionally, used in eyeshadows, lipsticks, eyeliners etc.

c. Enzymes: Demand to grow in India

Enzymes are natural protein molecules which function as highly specialized catalysts for
accelerating the pace of chemical reactions, particularly biochemical processes which otherwise
proceed slowly. Enzymes find applications in diverse segments, like food and beverage, cleaning
products, animal feed, biofuel production, diagnostics and other areas.
Asia Pacific markets are expected to be largest consumers of industrial enzymes, surpassing North
America by 2022, with a total market size (including industrial and specialty) of USD 2.77bn. India is
expected to contribute 10.1% of the Asia Pacific market with a total demand of USD 279m. We see
substantial growth headroom for enzymes in the domestic market.

Rossari Biotech Ltd
Exhibit 45: Enzyme market sizes (in USDm)
4.7%
3310
9.7% 2770 2630
1745
10.0%
173 279
India Asia Pacific North America

2017 2022F
Note: Growth rates are on an annual basis. Source: Advanced Enzymes, Edelweiss Professional Investor Research
Going forward, developments in pharmaceutical and chemicals sectors and demand for specialty
enzymes are expected to boost market growth.
We highlight various uses of enzymes in Exhibit 46.
Exhibit 46: Applications of Enzymes

Aids in processing food and beverages, improves production efficiency, quality
and consistency. They are used in
Food and  Baking –improves dough fermentation, crumb structure, loaf volume etc.
Beverages  Dairy – milk coagulation, ripening of cheese, modification of milk fat etc.
 Other segments – Confectionaries, processing cocoa, Coffee, egg, tea, fruit,
vegetables, and application in beer, distilled spirits.
Used in laundry detergents, dishwashing and other cleaning products, as it
Cleaning products provides improved cleaning performance and is simultaneously environment
friendly.
Enzyme feed additives function as biocatalysts that assist in digestion and
Animal Feed utilization of nutrients, aiding feed development with less expensive
formulations.
 Biofuel production
Other industrial  Starch Processing
uses
 Textile and Leather - desizing, scouring, stonewashing, cellulose removal and
degumming of silk
 Research/biotechnology – for DNA amplification and sequencing
Specialty uses  Diagnostics - routine urinalysis, blood chemistry determinations, and
immunological and microbiological testing
Source: Advanced Enzymes, Edelweiss Professional Investor Research

Rossari Biotech Ltd
d. Surfactants: Diverse applications with mid-single digit growth ahead

Surfactants are surface-active ingredients which concentrate at surfaces such as water-air or water-
oil when dissolved in water. Surfactants find application in emulsification, detergency, foaming,
wetting, water repellence among others.
Domestic surfactant market is expected to grow at 6% CAGR between 2018 and 2024, with
strongest demand from the personal care segment (which is a focus area for Rossari). Growth
rates by various applications are shown in Exhibit 47, with further details in Exhibit 48.
Exhibit 47: Surfactant market sizes by applications (in USDm)
6.3% 780
4.8%
650
7.8%
540
490 470
4.6% 5.8%
300
210
170 150
130
Household Cleaning I & I Cleaning Personal Care Industrial Others
2018 2024F
Note: Growth rates are on an annual basis. Source: Galaxy Surfactants, Edelweiss Professional Investor Research
Exhibit 48: Applications of Surfactants
 Detergent and Soaps – to remove oily and organic soiling
 Detergent additives
Household Cleaning
 Dishwashing products
 Others – abrasive cleansers, specialty cleansers etc.
Industrial and
Used in commercial and industrial cleaning
Institutional Cleaning
Personal Care Used in haircare, skin care and cosmetics for cleansing and conditioning properties
Textiles Used in textile processing as antistatic, untangling and softening agents
Other, Industrial Uses

Used in oil industry, fuel additives, food processing, polymers, paints, coatings and inks etc.
etc.

Source: Galaxy Surfactants, Edelweiss Professional Investor Research

Rossari Biotech Ltd
e. Raw materials: mostly sourced domestically

Raw material inputs are sourced from various suppliers like Galaxy Surfactants, Godrej Industries,
BASF and India Glycols.
Most of its raw materials are sourced from the domestic market, with ~10% being imported. Of this,
those from China account for is less than half of total imports. The management expects to source
higher quantities domestically as capacities in key chemicals come on stream.
For example, the management highlighted that while acrylic acid is imported from LG and BASF,
dependence on overseas sources will reduce with Bharat Petroleum Corporation (BPCL) setting up
production in India shortly.
There is a possibility of a volatility in raw material prices due to movement in crude oil. Key
chemicals like acrylic and acetic acid are derivatives of crude oil. As seen in Exhibits 49 to 50,
individual demand-supply also results in the price movements for these chemicals, which has
eliminated volatility related to crude to some extent. However, over the recent years, changes in
product mix has continuously driven gross margin expansion.
Exhibit 49: WTI Prices - USD/bbl & Acrylic Acid Prices (China) - USD/MT
4,000 120
3,500
100
3,000
80
2,500
2,000 60
1,500
40
1,000
20
500
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Acrylic Acid (LHS) Crude WTI Spot Prices (RHS)
Source: Bloomberg, Edelweiss Professional Investor Research
Exhibit 50: Acetic Acid Prices (Spot Price Huabei) - USD/MT

6,000
5,000
4,000
3,000
2,000
1,000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Bloomberg, Edelweiss Professional Investor Research

Rossari Biotech Ltd
VII. Large yet differentiated player in the Indian textile chemicals space
Rossari is one of the largest domestic manufacturer in the textile specialty chemicals space, where
it provides specialty chemicals required for the entire value chain. TSC is the segment through which
the company started its operations, and which has now gained reasonable scale.
a. Service oriented model reduces competitive pressure

Rossari’s textile specialty products involve a service element, which is a source of competitive
advantage for the company. Given the fragmented market structure, which increases customer
service challenges, local producers like Rossari enjoy significant advantages, which is an entry
barrier for overseas players.
Exhibit 51: Growth rate in TSC moderated by capacity constraints and

industry slowdown due to covid; expected to recover FY22 onwards (Revenue
325
- INR cr)
269 282
262
246
203 214
As seen above, the growth trajectory has moderated over the last few years after a period of strong
initial growth. This is partly due to capacity constraints and focus on the fast growing HPPC business.
We expect growth trajectory to recover over FY22-23E, aided by capacity availability at the Dahej
facility to be commissioned in Q4FY21. Focus on export markets like Bangladesh, Mauritius,
Vietnam and the US is expected to provide further headroom in a mature industry. Rossari’s R&D
centre at IIT Bombay is also focusing on textile chemicals.
FY21 is expected to be a lacklustre year for this segment due to impact of the COVID-19 pandemic
and consequent demand contraction in India at the start part of the year. However, Q2FY21 has
shown encouraging trends of revival in this business. Going forward, the management’s focus will
be on health, hygiene and wellness products, adding product lines in colouration and preparatory
segments like sizing, yarn lubricants, dyes and pigments, along with expansion of its existing green
product portfolio.
b. Large bouquet of products for the entire value-chain

Rossari caters to and offers products for all textile processes, starting from fibre, yarn to fabric, wet
process and garment processing. These products, including specialty chemicals, improve various
properties of the textile – like hydrophilic, anti-microbial, flame retardant, fragrance, water
repellent and ultraviolet (UV) absorption properties. The company has over 1,500 products in this
category.
The management’s focus remains on products seeing increased demand, such as hydrophilic
softeners, anti-microbial finishes, micro encapsulated range, water repellents and UV protective
textile finishes, for which it has requisite global certifications.

Rossari Biotech Ltd
Green chemistry remains the focus area

Rossari’s products in the textile chemical segment are eco-friendly in nature and are substitutes for
chemicals that are polluting in nature. For instance, it produces and sells Greenacid to several textile
manufactures, which replaces conventional acids used for pH adjustment. This helps improve cost
efficiency for the customer.
Green chemicals being made from natural sources are also cost competitive when compared to
conventional products. This is partly due to the low-cost feedstock availability of these products.
We highlight Rossari’s product bouquet in Exhibit 52.
Exhibit 52: Rossari’s products in the textile manufacturing value chain

Stage Products application
 Yarn dyeing and finishing
Yarn production  Yarn lubricants
 Performance enhancers
 Lubricants
Man-made fibre  Water based and non-water based
production  Antistats
 Antimicrobial
 High performance thread lubricants
Thread
 Water based and non-water based
production
 Thread finishing
 Performance enhancers and base treatment
Digital printing
for digital printing technology
 Pre-treatment of cellulose
 Comprehensive pre-treatment range of
Fabric processing product based on complex combination of
chemistry of wetting, sequestering and
dispersant sustainable chemistry focus
 Full range of products based on dispersant,
Dyeing auxiliaries
chelating agents and levelling agents
product based on complex combination of
chemistry polymer science and nano
Finishing range
technology
 Performance products
 Enzymes and biochemical finishing range
product based on complex combination of
chemistry polymer science and nano
Garment finishing
technology
 Enzymes and biochemical finishing range
 Comprehensive range of product based on

complex combination of chemistry polymer
Printing science and nano technology
 Enzymes and biochemical printing range

Rossari Biotech Ltd
c. Textile specialty chemicals expected to grow as industry growth revives

Robust growth in the textile specialty chemicals segment is expected ahead. The overall industry
(which includes apparels, technical textiles and home textiles) is slated to double between FY20 and
FY26 as shown in Exhibit 54, after stagnating in the last few years. Domestic and overseas demand,
aided by growing production, is expected to be reasons behind this growth.
Industry growth is expected to drive growth in the textile chemical market by 13.3% CAGR over
2019-25, after growing by 10.4% CAGR during 2014-19, as per industry estimates. By 2025, this
segment is expected to grow to USD 3.8bn, of which the textile specialty chemicals is a sub-segment.
Exhibit 53: Indian Textile & Apparel Market Size (USD bn)
14
42
7 8
6 19 20 164
17
4
11 67 74 78
2
5
21 35
2005-06 2010-11 2017-18 2018-19 2019-20 2025-26(P)
Apparel Technical Textile Home Textile
Source: Welspun, Edelweiss Professional Investor Research
Exhibit 54: Textile chemicals expected to grow at double digits (USD bn)
3.8
13.3%
10.4%
1.8
1.1
2014 2019 2025 P

Source: FICCI, Edelweiss Professional Investor Research

Rossari Biotech Ltd
VIII. AHN: A higher margin business which can scale up

Rossari diversified into the AHN segment on the back of its expertise in chemistries like enzyme and
surfactants, and experience with disinfectants. This business is smaller than the other two segments
and contributed around 10% of revenue over FY18-20.
Though on a smaller base, growth of this segment has been robust over FY18-19. However, the
same slowed down in FY20. Going forward, this business can scale up and clock around 19% CAGR
over FY21-23E.
Exhibit 55: AHN segment is expected to scale up over FY21-23E

(revenue - INR crore) 95
73
57 56
52
29
18
Acquired in FY19 by Rossari, Lozalo is one of the brands under which it sells shampoo for cats, dogs
and horses. The company is also present in areas like poultry feed, supplements and additives, pet
grooming and pet treats. Most products are manufactured in-house with the exception of pet
treats. Feed products are transacted on a B2B model while pet grooming and pet treat products are
sold through retail shops via the distribution channel.
Rossari has over 100 products in this segment. Exhibit 56 highlights its key application areas.
Products under this segment include enzymes, probiotics, trace minerals and acidifiers.

Rossari Biotech Ltd
Exhibit 56: Rossari’s presence in AHN sub segments and product range

Rossari Biotech Ltd
IX. Strategic focus: Exports and inorganic growth

Over the last few years (i.e. FY17-20), exports have grown continuously (refer Exhibit 57), except in
FY20, when the company focused on the higher margin domestic focused HPPC business, owing to
its capacity constraints. The company aims to increase share of revenue from exports in future
across business segments going forward.
Exhibit 57: Rossari's export revenue (INR cr)
32 41 72 66
FY17 FY18 FY19 FY20
Exhibit 58: Rossari’s strategies for overseas markets

TSC AHN
US, Egypt, Tunisia, Turkey, Latin American Nepal, Bangladesh, Myanmar,

Geographies
countries and Southeast Asian countries like Vietnam, the Philippines, Egypt,
in focus
Vietnam and Bangladesh. Kenya, Nigeria and Mauritius
Already set up offices in Ho Chi Minh City

Expanded into markets like Nepal,
Existing (Vietnam) and Dhaka (Bangladesh). It has
Bangladesh, Indonesia, the Philippines
offices established a distribution chain in Bandung,
and Sri Lanka in FY20
West Java and Jakarta in Indonesia.
 Undertake statutory registration in

 Focusing on existing textile hubs like Vietnam
several countries
and Bangladesh
Strategy  Plans to undertake seed marketing
 Leverage green chemistry expertise
of its cat litter business in the US,
 Collaborate with apparel and textile brands
UK, Germany and Japan in FY21
Inorganic growth could be a further catalyst

In its FY20 annual report, the management indicated its intention of acquiring synergistic existing
businesses to support its growth aspirations. Given its Balance Sheet strength, cash generation
abilities and fragmented nature of domestic market, where the company operates in, this can be a
source of growth. We have seen its appetite for similar arrangements in the past, e.g. acquisition of
the Lozalo brand in the AHN segment, or recent acquisition of Buzil Rossari’s remaining stake from
JV partner.

Rossari Biotech Ltd
X. Perfect formulation of growth, balance sheet strength and cash generation

Continued demand from Rossari’s customers, tailwind from end-user industries (e.g. health and
hygiene in the pandemic period), seeding of new products and additional capacity coming on stream
from Q4FY21 will be key drivers of Rossari’s growth over FY20-23E. We expect revenue to clock 22%
CAGR over this period as shown in Exhibit 59.
Exhibit 59: Revenue is expected to grow 22% CAGR over FY20-23E

1102
22%
880
713
33% 600
516
258 299

As highlighted earlier, a shift in product mix is expected to tilt the margin profile of Rossari towards
the higher side. This coupled with operating leverage kicking in as Rossari’s new capacity gets ramp-
up will ensure a higher growth at the EBITDA and PAT level. PAT will also benefit from the reduction
in debt that Rossari has undertaken.
As shown in Exhibits 60 and 61, EBITDA and PAT are expected to increase by 27% and 29% CAGR
over this period.
Exhibit 60: EBITDA is expected to grow 27% CAGR over FY20-23E
213
27%
166
134
62% 105
78
45
25

Additionally, we expect solid operating cash generation to occur over this point of time. Over FY17-
20, Rossari’s operating cash flow generated is cumulatively at ~INR 120 cr, which is around 76% of
the cumulative PAT for this period. With increasing contribution from the HPPC business, which has
aided in reduction of working capital cycle, we expect the operating cash generation to improve
going ahead. We highlight this in Exhibit 62.

Rossari Biotech Ltd
Exhibit 61: PAT is expected to grow 29% CAGR over FY20-23E
140
29%
105
82
61% 65
46
29
16

Exhibit 62: Strong cash generation expected

140 2.0
120
100 1.5
80
1.0
60
40 0.5
20
0 0.0
Operating cash flow (INR cr) - LHS OCF/EBITDA - RHS OCF/PAT - RHS
Rossari turned debt free after paying off its debt (raised earlier for funding growth capex) using
proceeds from its initial public offering (IPO). The management has reiterated conservatism in terms
of borrowed capital during various interactions and debt (both net and gross) has been at
comfortable levels in the last few years (refer Exhibit 63).
Exhibit 63: Rossari turned net cash positive in FY20

80 0.4
0.4 70
0.3
60 0.2
0.2
0.1
40
0.0 0.0
24 22
20 -0.1
8 -0.2 -0.2
0 -0.3
FY17 FY18 FY19 FY20
Total Debt (INR cr) - LHS Net Debt/Equity

Rossari Biotech Ltd
Outlook and Valuation
XI. Initiating coverage with a BUY recommendation

Valuations factor in large opportunity size, strong growth and option value
Rossari has seen a strong listing and the stock price is already close to doubling from the issue price.
At the current price, the stock trades at 28x its FY23E earnings. In order to understand potential
market valuation of Rossari, we have evaluated growth and valuation parameters of Rossari with
other listed chemical stocks, as well as its closest peers who derive large share of revenue from the
consumption industry – Fine Organics Ltd and Galaxy Surfactants Ltd. We have adjusted the growth
potential priced in Rossari’s current market value by calculating the price-earnings to growth
multiple, or PEG multiple.
Exhibit 64: Comparison of valuation parameters of Rossari Biotech and listed chemical stocks
Rev PAT FY22 FY23
FY22 FY23 FY22 FY20
Market Cap FY22 FY23 P/E PEG FY20-23E FY20-23E EBITDA EBITDA
Rating EV/EBITDA EV/EBITDA ROE Net
Company (INR cr) P/E (x) (x) (x) CAGR CAGR Margin Margin
(x) (x) (%) D/E
(%) (%) (%) (%)
Peerset
Aarti Industries Not Rated 19,174 27.5 21.3 16.4 13.4 1.9 18.0 18.9 23.4 23.5 18.4 0.7
Fine Organics Not Rated 7,908 37.5 30.4 25.1 21.2 2.9 15.6 16.5 22.1 22.7 25.5 -0.2
Galaxy Surfactants Not Rated 6,477 22.6 19.7 14.4 12.7 2.2 11.2 12.6 14.7 14.8 20.9 0.3
Navin Fluorine BUY 10,780 36.7 24.8 24.4 16.3 1.8 26.1 30.9 28.2 29.1 16.3 -0.2
PI Industries Not Rated 35,494 36.9 30.7 27.3 22.3 2.4 24.5 32.1 23.2 23.5 16.9 0.1
SRF BUY 28,459 21.9 19.1 13.9 12.1 2.1 13.9 13.4 23.8 23.9 19.8 0.8
Vinati Organics Not Rated 11,341 30.1 24.2 21.9 17.4 2.8 18.5 12.0 36.8 37.3 22.9 -0.2
Rossari Biotech BUY 4,038 36.2 27.1 21.8 16.4 2.0 22.4 29.1 18.8 19.3 25.0 -0.2
Peerset Average - - 30.5 24.3 20.5 16.5 2.3 - - - - - -
Consmn Average - - 30.1 25.0 19.7 17.0 2.6 - - - - - -
Note: Consumption focused peers are highlighted. Source: Bloomberg consensus, Edelweiss Professional Investor Research
As we can observe from Exhibit 64, on a PEG basis, Rossari’s listed peers are trading at an average
multiple of 2.3x, while consumption-focused peers are trading at a PEG multiple of 2.6x. Compared
to the peerset, Rossari’s FY20-23E growth expectations are higher, which coupled with a strong
balance sheet and return profile, should fetch Rossari similar market valuation multiple.
We initiate coverage on Rossari Biotech Ltd with a BUY recommendation and a target price of INR
912 (resulting in an upside of 17%), valuing the company at 32x its FY23E earnings. The multiple has
been arrived at factoring in the growth potential and strong operational and financial parameters
of the company. At this target price, the PEG multiple for Rossari would be at 2.5x, in line with its
peerset average and lower than its consumption focused peers.
We believe that Rossari’s valuation includes an option value of success in the personal care business
which could significantly speed up earnings growth. Rossari could be a long-term growth story
driven by the domestic consumption focussed business. Consequently, long-term investors could
potentially benefit from the earnings momentum, despite some time correction that may occur
given the stock’s recent strong performance.

1050
1200
600
750
900
1000
1500
2000
2500
1200
1600
2000
2400
500
800
1200
1500
1800
2100
900
Nov-19
Nov-19 Nov-19 Nov-19
Dec-19 Dec-19 Dec-19
Dec-19
Jan-20 Jan-20 Jan-20
Jan-20
Feb-20 Feb-20 Feb-20
Feb-20
Mar-20 Mar-20 Mar-20
Mar-20
Rossari Biotech Ltd
Apr-20 Apr-20 Apr-20

Apr-20
May-20 May-20 May-20
Edelweiss Professional Investor Research

May-20
PI Industries
Jun-20 Jun-20 Jun-20
Vinati Organics
Jun-20
Aarti Industries
Galaxy Surfactants
Jul-20 Jul-20 Jul-20 Jul-20
Aug-20 Aug-20 Aug-20 Aug-20
Sep-20 Sep-20 Sep-20 Sep-20
Oct-20 Oct-20 Oct-20 Oct-20
Nov-20 Nov-20 Nov-20 Nov-20
650
700
750
800
850
2500
3300
4100
4900
5700
1100
1600
2100
2600
1400
1850
2300
2750
3200
600
Jul-20 Nov-19 Nov-19 Nov-19
Aug-20 Dec-19 Dec-19 Dec-19

Jan-20 Jan-20 Jan-20
Aug-20
Feb-20 Feb-20 Feb-20
Aug-20 Mar-20 Mar-20 Mar-20
Apr-20 Apr-20 Apr-20
Sep-20
Exhibit 65: 1-year stock price performance chemical companies
SRF
May-20 May-20 May-20

Sep-20
Jun-20 Jun-20 Jun-20
Rossari Biotech
Fine Organic Industries
Oct-20 Jul-20 Jul-20 Jul-20

Navin Fluorine International
Aug-20 Aug-20 Aug-20

Oct-20
Sep-20 Sep-20 Sep-20
Oct-20
Oct-20 Oct-20 Oct-20
Nov-20 Nov-20 Nov-20 Nov-20
37
Source:Bloomberg, Edelweiss Professional Investor Research
Rossari Biotech Ltd
Risks to our investment thesis:

1. Lower than expected growth in the HPPC business – this could stem from (a) slower than
expected growth in new businesses – like personal care – which has been seeded or are being
seeded; (b) slowness in health and hygiene segment as pandemic scenario normalize; or (c)
slower pace of orderbook development.
2. Delay in scaling up – Any delay in scaling up of business lines like AHN/industrial cleaning will
impact earnings visibility over longer time horizon and impact market valuation
3. Slower ramp-up in the new capacity at Dahej which could occur due to (a) delays due to
lockdowns or other impacts of the pandemic situation; (b) growth across business segments.
4. Volatility in raw material prices – extreme volatility can impact the gross margins to some
extent.
5. Business mix development – Profitability assumptions are dependent on robust growth of high
margin businesses.

Rossari Biotech Ltd
Management Profile
Exhibit 66: Management team at Rossari Biotech Ltd.

Name Designation Profile
Founder of Rossari Biotech, Edward Menezes, has nearly 25 years of experience in the speciality
chemicals industry. He is Executive Chairman and looks after operations of the company. Earlier, he
has part of Clariant India (erstwhile Sandoz India). In addition to a bachelor’s degree in science
Edward Executive
(chemistry major) from KJ Somaiya College of Science, University of Mumbai, he holds a bachelor’s
Menezes Chairman
degree of science (technology) in textile chemistry from University Department of Chemical
Technology (UDCT), University of Mumbai. He holds a master’s degree in marketing management
from Prin. L. N. Welingkar Institute of Management Development & Research, Mumbai
Co-founder and Managing Director of the company, Sunil Chari, has over 20 years of experience in
Managing the speciality chemicals industry. He has a bachelor’s degree in arts from Kakatiya University and
Sunil Chari
Director holds a diploma in technical and applied chemistry from Victoria Jubilee Technical Institute (VJTI),
Mumbai
Puneet Arora is CEO of the global textile chemicals division. During his 10 years tenure, he has worked
in sales and marketing of the textile specialty chemicals and institutional and industrial cleaning
Puneet Arora CEO-TSC
chemicals. He is associated with the company since its incorporation. He has a bachelor’s degree in
commerce from the Ambedkar College of Commerce & Economics, University of Mumbai
Mr. Manikantan Vishwanathan recently appointed as Group CFO in October 2020. He has gathered
expertise in finance, regulatory affairs, commercial, legal, IT implementation, taxation and budgetary
Manikantan V. Group CFO
control in addition to handling merger and acquisitions during his work tenure of 30 years. He is a
Chartered Accountant by profession.
Manasi Nisal is a qualified chartered accountant from the Institute of Chartered Accountants of India
Manasi Nisal CFO and is associated with the company since November 2019. Earlier, she was working with HUE Chem
Textiles Pvt as a General Manager – Accounts and Finance
Prasad Gadkari has more than 10 years of experience in handling purchase, managing a factory and
President –
Prasad Gadkari productivity, and industrial relations. He holds a diploma in business management from Nagpur
Manufacturing
University
Rajeev Jha has over 10 years of experience in the field of sales and marketing of products across
Vice President –
Rajeev Jha textile specialty chemicals and HPPC segments. He has a bachelor’s degree in science (textile
HPPC
chemistry) from the Department of Chemical Technology, University of Mumbai
Anish Kumar has been associated with the company since 2012. Previously, he worked as General
Vice President –
Anish Kumar Manager for the domestic and international market at Varuna Biocell Pvt. He has a bachelor’s degree
AHN
in veterinary science and animal husbandry from the Jawaharlal Nehru Krishi Vishwa Vidyalaya
Manjiri Paranjpe has over 10 years of experience in R&D in the textile specialty chemicals and HPPC,
Manjiri Vice President – enzymes, formulations, emulsification, and institutional and industrial cleaning chemicals. She has a
Paranjpe R&D bachelor’s degree in science (textile chemistry) from Department of Chemical Technology, University
of Mumbai

Rossari Biotech Ltd
Timeline
Exhibit 67: Rossari’s journey since inception

Rossari Biotech Ltd
Financials
Income statement (INR crore)

Year to March FY19 FY20 FY21E FY22E FY23E
Income from operations 516 600 713 880 1,102
Total operating expenses 439 496 580 714 889
EBITDA 78 105 134 166 213
Depreciation and amortisation 12 17 24 28 28
EBIT 65 88 109 137 185
Interest expenses 3 4 3 0 0
Profit before tax 63 88 110 141 188
Provision for tax 18 23 28 36 48
Core profit 46 65 82 105 140
Extraordinary items 0 0 0 0 0
Profit after tax 46 65 82 105 140
Adjusted net profit 46 65 82 105 140
EPS (INR) basic 9.4 13.2 15.9 20.4 27.3
EPS (INR) fully diluted 9.4 13.2 15.9 20.4 27.3
Common size metrics as a % of net revenue

Operating expenses 85.0 82.6 81.3 81.2 80.7
Depreciation 2.4 2.8 3.4 3.2 2.6
Interest expenditure 0.6 0.6 0.5 0.0 0.0
EBITDA margins 15.0 17.4 18.7 18.8 19.3
Net profit margins 8.8 10.9 11.5 11.9 12.7
Growth metrics (%)

Revenues 76.9 16.2 18.8 23.4 25.2
EBITDA 74.0 34.8 27.8 24.0 28.6
PBT 60.7 38.6 25.2 28.2 33.6
Net profit 57.9 42.9 25.7 28.2 33.6
EPS (28.2) 40.3 20.3 28.2 33.6

Rossari Biotech Ltd
Financials
Balance Sheet (INR crore)

As on March 31 FY19 FY20 FY21E FY22E FY23E
Equity share capital 4 10 10 10 10
Preference Share Capital 0 0 0 0 0
Reserves & surplus 119 277 359 464 604
Shareholders funds 124 287 369 474 614
Total Debt 8 70 0 0 0
Other Long Term Liabilities 0 0 0 0 0
Deferred Tax Liabilities 2 0 0 0 0
Minority interest 0 0 0 0 0
Sources of funds 133 357 369 475 615
Gross block 86 122 176 176 176
Depreciation (12) (29) (53) (82) (110)
Net block 74 94 123 95 66
Capital work in progress 3 22 0 0 0
Total fixed assets 77 115 123 95 66
Other Non Current Assets 0 0 0 0 0
Investments 0 18 18 18 18
Inventories 55 58 69 85 107
Sundry debtors 86 94 117 145 181
Cash and equivalents 6 127 87 184 312
Loans and advances 13 33 53 73 93
Other current assets 0 0 0 0 0
Total current assets 160 313 326 487 693
Sundry creditors and others 114 108 117 145 181
Provisions 1 4 5 5 5
Total CL & provisions 115 112 122 149 186
Net current assets 45 200 204 338 507
Net Deferred tax 0 0 0 0 0
Misc expenditure 11 24 24 24 24
Uses of funds 133 357 369 475 615
Book value per share (INR) 26 58 75 96 125
Cash flow statement

Net profit 46 65 82 105 140
Add: Depreciation 12 17 24 28 28
Add: Misc expenses written off (12) (13) 0 0 0
Add: Deferred tax 3 (1) 0 0 0
Gross cash flow 48 68 106 134 169
Less: Changes in W. C. (15) 34 45 36 41
Operating cash flow 63 34 61 98 128
Less: Capex 35 55 32 0 0
Free cash flow 28 (21) 29 98 128

Rossari Biotech Ltd
Financials

ROAE (%) 43 32 25 25 26
ROACE (%) 54 36 30 33 34
Debtors (days) 61 57 60 60 60
Current ratio 1.4 2.8 2.7 3.3 3.7
Debt/Equity 0.1 0.2 0.0 0.0 0.0
Inventory (days) 39 35 35 35 35
Payable (days) 81 66 60 60 60
Cash conversion cycle (days) 19 27 35 35 35
Debt/EBITDA 0.1 0.7 0.0 0.0 0.0
Adjusted debt/Equity 0.0 (0.2) (0.2) (0.4) (0.5)
Valuation parameters
Diluted EPS (INR) 9.4 13.2 16.6 21.3 28.5
Y-o-Y growth (%) (28.2) 40.3 25.7 28.2 33.6
CEPS (INR) 12.0 16.7 21.5 27.1 34.3
Diluted P/E (x) 81.7 58.2 46.7 36.4 27.3
Price/BV(x) 30.4 13.4 10.4 8.1 6.2
EV/Sales (x) 7.3 6.3 5.3 4.1 3.2
EV/EBITDA (x) 48.5 36.1 28.0 22.0 16.5
Basic EPS 9.4 13.2 15.9 20.4 27.3
Basic PE (x) 81.7 58.2 48.4 37.8 28.3

Edelweiss Broking Limited, Edelweiss House, Off, CST Road, Kolivery Village, MMRDA Area, Kalina, Santacruz East, Mumbai,
Maharashtra 400098
Vinay Khattar
VINAY
Digitally signed by VINAY KHATTAR
DN: c=IN, o=Personal, postalCode=400072,
st=MAHARASHTRA,
Head Research serialNumber=cd5737057831c416d2a5f7064c
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cn=VINAY KHATTAR
Date: 2020.11.16 16:41:46 +05'30'
Rating Expected to
BUY appreciate more than 15% over a 12-month period
HOLD appreciate between 5% and 15% over a 12-month period
REDUCE return below 5% over a 12-month period
120
115
110
105
(Indexed)
100
95
90
85
80
Nov-20
Nov-20
Jul-20
Jul-20
Sep-20
Sep-20
Sep-20
Sep-20
Oct-20
Oct-20
Oct-20
Oct-20
Oct-20
Aug-20
Aug-20
Aug-20
Aug-20
Rossari Sensex

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Edelweiss Professional Investor Research

Insightful. Independent. Decisive.

Rossari Biotech Ltd

Home, Personal Care and Performance Chemicals segment to foster growth

Focus on R&D and expertise in 4 chemistries aids product development

New capacity to provide headroom for all-round growth

Robust operational metrics and technocratic management: Initiate with BUY

Edelweiss Professional Investor Research 1

Edelweiss Professional Investor Research 2

Rossari ticks all the right boxes in our opinion with

PAT margin 10.9% 11.5% 11.9% 12.7%

Expect Return on Equity (RoE) of

Edelweiss Professional Investor Research 3

a) Providing application-oriented tailor-made products to the customers that address their

Edelweiss Professional Investor Research 4

34% 32% 29%

FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Exhibit 5: …to result in stable and improving gross

Source: Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 5

Exhibit 8: …aided by commissioning of capex in Dahej in

FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Exhibit 9: Working capital management remains

FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Source: Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 6

I. A play on the domestic consumption story

Exhibit 13: Business segments of Rossari Biotech

RSPL (Ghadi Detergent), IFB Hitech Hatch Fresh Pvt, Gokul

Present capacity 1,20,000 MTPA fungible capacity at Silvassa

Edelweiss Professional Investor Research 7

 Rossari’s proposition to provide customers with application-oriented tailor-made products

FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Exhibit 15: Various application areas for Rossari’s HPPC products

Sanitizers for electronic  Mobile-antibacterial sanitizers for screens

Edelweiss Professional Investor Research 8

Exhibit 16: Rossari’s business sub-segments in HPPC business

Home care Institutional

a. Ingredients business: Differentiated offering compared to peers

These products include

Edelweiss Professional Investor Research 9

b. Private labels: A testament of product development abilities

Original Design Manufacturing (ODM) Contract Manufacturing (CM)

Marquee clients: IFB Industries, Bosch and

Exhibit 17: Rossari’s products in the private label business

Edelweiss Professional Investor Research 10

c. Home care segment: Growth momentum to continue

2015 2018 2023F

Source: Company, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 11

Household Industrial and Institutional

Exhibit 21: Home care ingredients - share of end-user segments (2018)

Dish care application,

Laundry care, 72%

Source: Company, Edelweiss Professional Investor Research

d. Buzil-Rossari: The industrial and institutional cleaning business

Edelweiss Professional Investor Research 12

e. Extending ODM model in personal care segment

Exhibit 22: Details of the Personal Care business of Rossari

 Walmart – recently launched a handwash