Highlights of the Concall

• S H Kelkar and company revenues from operations higher by 1% to Rs. 236.0 crore in Q1FY19 from Rs. 233.9 crore in Q1FY18

• Domestic Fragrance business witnessed healthy revival of demand and grew at 13% led by steady demand in the domestic FMCG space

• Performance in the overseas Fragrance and Flavours division was impacted by unprecedented supply side constraints and surge in key raw material prices. Under the circumstances, the company is more focussed on quality of earnings than on growth in our International Fragrance business.

• On a sequential basis Gross Margin improved from 39% to 44% but was lower than 48% in the corresponding quarter

• EBITDA at Rs. 36.2 crore as against Rs. 46.5 crore in Q1FY18; EBITDA margin stood at 15.1% vs 19.4% in Q1 FY18. Slowdown in revenues resulted in lower profitability during the quarter. Furthermore, the raw material situation impacted margins. PBT stood at Rs. 28.0 crore as against Rs. 40.1 crore in Q1FY18. PAT stood at Rs. 18.7 crore as against Rs. 26.8 crore in Q1 FY18

• Unprecedented price surge in key raw materials and supply side disruption continued to impact profitability during the quarter. While the company has taken measures to mitigate cost pressure through increase in selling price and plans to take further such steps in future as well as undertake cost-saving measures, the pass through of the same to margins is expected to start reflecting in performance over the coming quarters, albeit with a lag.

• The company firmly believes the core business is performing in line with market and the medium to long-term outlook remains positive

• SHK's recent acquisition, CFF, reported a healthy volume growth during the quarter. This, combined with price increase taken, resulted in strong revenue growth of 19% in CFF's core Fragrance division and stood at ~Euro 4 million. Profitability was under pressure given the on-going raw material supply disruptions. CFF is planning to take further price increases to normalize margins. SHK is actively pursuing prospects to cross-sell technology from CFF to launch innovative products in the Indian market.

• SHK, through its subsidiary Keva Fragrance Industries Pte Ltd, Singapore, has acquired 66.67% of Anhui Ruibang Aroma Co Ltd., a company based in China. At a time when there is strong global demand for Tonalid, a key aroma ingredient, this acquisition has provided SHK access to additional manufacturing capacity. Coupled with the new facility at Mahad, which is expected to go on stream later this year, this will help the group service the demand better.

• The company finds it easier to acquire new customers at normalized margins reflecting raw material cost push but challenging to push up pricing in existing contracts