Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Achieved 11.3% year-on-year revenue growth in Q1 FY 2025 despite challenges from a fire incident.
- Fragrance division posted a 7% year-on-year growth.
- Significant growth in the Flavour segment with a 57% increase in revenue year-on-year.
- Global Ingredients segment demonstrated a strong turnaround, reversing previous losses and resulting in profitability.
- Solid improvement in gross and EBITDA margins driven by a stable raw material environment and favorable product mix.
Negative Points
- Fire incident at the Vashivali fragrance facility led to an order backlog of roughly INR 30 crores.
- Recorded an exceptional loss of INR 120 crores net of tax due to the fire, impacting plant, machinery, building, and inventory.
- Net debt levels are expected to rise to around INR 600 crores due to inventory replenishment and pending insurance claims.
- Domestic Fragrance segment remained flat due to the fire incident and deferment of some business to the next quarter.
- Potential headwinds in raw material prices and shortages of natural products could impact future margins.
Q & A Highlights
Q: Congrats on a good set of numbers. So my question to you would be that I have noticed that you have revised Q1 FY '24 numbers by lower by INR 22 crores. So I just wanted to know why that is?
A: As I mentioned, we have in the quarter to undertake -- to divest the majority stake in our acquisition in NuTaste Food and Drink Labs with a strategic focus to -- focus more on our core business. We have a strategic investor who is coming in on board and taking the next charting the growth of this business in the future. Give you a context, we acquired this business 2 or 3 years ago when it was INR 22 crores in revenue. Last year, we grew that business to over INR 90 crores revenue. Going forward, that business would need a full investment in plant and machinery, new factory operations and future growth capital. Given the current contingencies in the CapEx planned, we thought it is prudent to divest this business into a strategic investor. That has happened in the quarter 2 this year. To take into effect that, we have changed the numbers from previous years, so we have a like-for-like comparison of our business.
Q: I have noticed that you have not reported revenue numbers from Global Ingredients. So I just wanted to ask why that is?
A: No. So we have reported -- it will be in the presentation. I can just share with you. The Global Ingredients revenue was INR 19 crores in this quarter 1 as against INR 13 crores last year, and the EBIT number is INR 0.3 crores plus as against to minus INR 3.1 crores last year. Just a quick additional comment on the Global Ingredients is we did not touch upon that in the opening comment. Again, Global Ingredients as a business has a positive tailwinds due to the situation of chemical industry in Europe and the move -- globally geopolitical and the sort of derisking policies of most large companies to move away from dependency on China. So we are seeing some very good robust contracts on our Global Ingredients. And that is also, again, a sustainable growth story for the company.
Q: First, it's a commendable job with the way you have turned around the business despite the disruption caused by fire. My first question is on the subsegment of growth. If we have to look at the segments which are doing well, so can you give us some color on which are the segments that are aspiring for you in terms of whether it is the large [indiscernible] which is doing well? Or is it the [indiscernible] business that is doing well for us?
A: So actually, at the moment, we have growth across all the segments, both the smaller accounts as well as the large global accounts and large corporate, all corporate and small accounts are growing well across the region, both in India, Southeast Asia as well as Europe fragrances. For specific for Flavours, there are a few accounts that have grown much bigger than last year. We see renewed momentum in the Flavour business. So I mean, basically, Ingredients, Flavour and Fragrance, all 3 segments are seeing robust demand, robust growth. 5 quarters ago, we alluded a few steps that we would take to change the trajectory, and we have ensured that all those are fulfilled that has resulted in a continuous growth trajectory and especially Global Ingredients, which was in a difficult situation 2 years ago, we have been able to turn it around. And all the businesses today, there is no specific segment that is lagging. Each one of them is on budget or ahead of budget.
Q: And if we have to look at the medium-term horizon, then you expect this trajectory to last for at least next two to three years, this demand environment which we are seeing in India and overseas, how long do you expect this tailwind to last?
A: So I think on the Global Ingredients, that is, to my mind, a structural change that's a movement away from China dependency is not to -- it's not one or two years trend, it's a longer-term trend, and we will benefit from that. In India domestic consumption also continues to grow. That is a longer-term trend. Our business, global business, global account and European business is specifically situated where we are looking at good market share gains. Being a small market share in these segments, again, we have a good runway to grow. So I see robust growth across all segments in the next three to five years in the midterm. And then we have also established smaller inroad markets like the US and some other Middle East markets, which we will develop over the next three, four years for the growth leg in the strategy subsequent from three, four years from now. So we are starting these markets, it will take three, four years of gestation period for the revenue to start kicking in.
Q: And sir, Global Ingredients is currently relatively small percentage of our total business contributing to 4% to 5%, when you see this business 3 to 5 years down the line and currently they are making 1% kind of a margin in this business. So just wanted to get an idea as to where do you see this business scaling up? And what kind of margin can it make once it reaches a decent size?
A: So our strategic focus has been largely on formulations business. The ingredient business is a business that supports our formulation business. We don't expect it to be more than -- at any point more than 20% of our total offering. We don't propose in our strategy to become an ingredient supplier. We would like to continue our focus on being formulations and proprietary product supplier. The Global Ingredients business, we expect to grow in line with the rest of the business and remain 10% to 15% of our total portfolio.
Q: Okay. Got it. And sir, since the last couple of years, we have been talking about the backward integration that has been benefiting. So I just wanted to get an idea as to what are the capabilities that the company has increased within itself because if I refer to a few of the calls in the past, we have mentioned that most of the backward integration has come through our vendors. We have shifted from China to some of the Indian vendors and those are the guys who are a key part of your backward integration program. So just wanted to understand what kind of capabilities have you built in for your macro integration? And what kind of capabilities do you rely on your vendors?
A: It's a good question. There are two parts of this. One is the know-how and the intellectual property and the other is the actual infrastructure and physical infrastructure capital or factory. So in all our backward integration programs, we are the ones who develop the technology, we are the owner of the IP, and we toll produce it with various vendors. So the entire
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
