Release Date: February 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- S H Kelkar & Co Ltd (BOM:539450, Financial) reported healthy year-on-year and quarter-on-quarter revenue growth, driven by increased contributions from new accounts and a revival of demand from midsized and smaller accounts.
- The company's core Europe segment reported positive results with healthy revenue growth and strong gross and EBITDA margins.
- S H Kelkar & Co Ltd (BOM:539450) sustained its margin performance during the quarter and remains on track to report over 16% EBITDA margins for the full year.
- The company secured multiple order wins from a global MNC player, marking a significant breakthrough in penetrating tightly held global accounts.
- The company has a strategic plan to better penetrate existing and new markets, particularly focusing on Southeast Asia, Africa, the United States, and other markets.
Negative Points
- The ramp-up of the new MNC orders is delayed by 12 to 14 months due to program delays on the client side.
- The company's Flavours segment, despite encouraging performance, still has single-digit margins and requires strategic focus for improvement.
- The company has a high inventory status, which has impacted its capital employed and needs to be reduced to improve ROCE.
- The company's debt stands at INR 526 crores, primarily due to acquisitions, and there is a need for efficient cash flow management to reduce this debt.
- The company faces competition from major global players who hold over 60% of the market share in India, posing a challenge to its market position.
Q & A Highlights
Q: Can you quantify the volume growth across regions and segments, particularly Flavours and Fragrance, during the quarter?
A: The price growth this quarter was minimal, around 1% to 2%, so most of the growth was in volume terms across both segments.
Q: Regarding the RFQ bid from the MNC, is the expected run rate of INR 100 crores per annum for 3 years still valid?
A: The expected quantum remains the same, but the ramp-up will take longer due to program delays from the client side. The timeline has extended by 12 to 14 months.
Q: When will the orders from the MNC translate into revenue?
A: We have received initial orders, and they will ramp up over the next year. Significant revenue contribution is expected by the second half of next year.
Q: Is the CapEx in Indonesia primarily for the RFQ or exploring the Indonesian market?
A: The CapEx is for establishing our own manufacturing facility for fragrances in Indonesia, which will be commissioned this quarter. We have a sizable business in Southeast Asia.
Q: Are you participating in any tenders from other MNCs in India or overseas?
A: We are not actively chasing other MNCs at this point. We have enough growth opportunities and projects on our development team.
Q: What is the current market share of S H Kelkar in the Indian fragrance business?
A: Our market share in the Indian fragrance business is roughly around 20%.
Q: What steps have been taken to improve efficiency?
A: We have combined operations between our facilities in the Netherlands and Italy, optimizing production planning and raw material efficiency, which has increased production volumes without significant CapEx.
Q: What are the plans for debt reduction in FY '25 and '26?
A: We are committed to operational efficiency. Cash flow generated will be used for CapEx and inventory reduction. We are already on an inventory reduction plan starting this quarter.
Q: What is the target ROCE and timeline to achieve it?
A: Our target is to achieve upwards of 20% ROCE within 4 to 5 quarters, driven by 12% growth and 7-8% inventory reduction.
Q: How do you handle raw material price fluctuations?
A: We negotiate with clients on price adjustments every 6 to 12 months. The typical time lag for passing on cost changes is 4 to 6 months, and we maintain inventory to hedge against fluctuations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
