Hello Sir,

Hope you are doing well.

Fragrance and flavor are 2 very important constituents of any product used for personal consumption or for general use.

S H Kelkar & Company is the largest Indian origin fragrance and flavor company in India and today we will briefly look at this company.

Post GST, demonetization and covid-19, the company went through a slowdown in the business; however, it now seems to be getting back on growth track. The management is targeting double-digit growth in business with sustainable 16% EBITDA margins.

Below, we have shared notes from Q1 FY 24 con-call of the company.

Hope you find the details useful for your own investments or to add the stock to your watch list.


Info: We have released 2 new stock recommendations in the last few days:

  • 1 Special situation opportunity – Change in ownership along with already strong profitability and growth might result in re-rating of the company to higher valuations. Further, the stock is consolidating in a tight range and the open offer price caps the downside – Details @ click HERE


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S H Kelkar & Company – Insights from Q1 FY 24 con-call of the company

– General

  • We have commenced FY 2024 on a promising note, delivering a steady growth of 7.7% from operations in the first quarter. Notably, our operations in the Indian market showcased a healthy growth of 12.1%
  • This performance was supported by traction from a large customer and comparatively lower base in the previous year
  • Meanwhile, growth in Europe stood at 3% on a constant currency basis; Our focus in Europe will be to optimize plant capacity utilization and drive profitability through better mix and margin

– Gross margin

  • We are looking at a gross margin improvement based on our pricing strategy and dialogue with the customers
  • There are signs of some raw material easing in the current marketplace, but these are very early days and we do not want to extrapolate this for longer term trend
  • We had substantial cost inflation in the last 18 months. So, this cooling off is only sort of restoring some of the normal levels of margin where it is a sustainable business

– India

  • India business will grow double digit

– Europe

  • The trend on European business on gross margin will continue
  • We are more than 85% in terms of capacity utilization in our European operations and we are looking at trying to maximize high margin businesses

– Indonesia

  • We are putting up factory in Indonesia
  • We see opportunity of tying up with the larger clients
  • With our Indonesia factory, we will open another kind of larger clients in that region which currently are not engaging with us on a full basis

– Fragrance division

  • Volume growth – on the Fragrance, it has been 6%
  • Our Core Fragrance division delivered growth in profitability, driven by upward price adjustments
  • Similarly, the European segment displayed improvements in margin, particularly given last year’s challenges, the margins were significantly affected by escalating costs

– Flavor division

  • Our Flavor division faced a mild downturn mainly due to softer demand from international markets
  • We are in the process of building the capability and infrastructure to meet the next level global standards in Food and Nutrition space
  • I think the underlying CAGR of 12% to 14% we are looking at in the full year and accordingly we will track the business

– RFP (request for proposal)

  • last year we were honored to be invited to bid on RFP by a large global FMCG player; this collaboration has taken much more time than initially anticipated
  • typically we expect to have some win and kind of commercial orders by end of this calendar
  • the expected commercial value of this RFQ is Rs100 crore annual revenue, which we should be able to generate

– Capacity utilization

  • India utilization levels are very low, 45% for Fragrance and Flavors.
  • Except the Ingredient business, everything else we have quite sufficient headroom for growth
  • if it’s a Southeast Asia product, we will supply from Indonesia. If it’s India Middle East, we will supply from our India operations. If it’s Europe or America, we will supply from our European operations

– Guidance

  • So, we expect that our margin profile to remain stable above 16% odd levels?…Yes
  • And our topline growth which we are anticipating for this year. So, that will be remaining in double digit only?…Yes



Disclaimer: This is not a recommendation to buy/sell S H Kelkar & Company The securities quoted are for illustration only and are not recommendatory.


Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/


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