Highlights of the Concall

• Q3FY19 revenues from operations stood at Rs. 254.5 crore compared to Rs. 281.8 crore in Q3FY18. EBITDA was at Rs. 45.0 crore as against Rs. 58.2 crore. PAT stood at Rs. 21.4 crore as against Rs. 27.2 crore. EBITDA margin stood at 17.2% vs 20.5%.

• During Q3 FY19, the company reported a subdued performance owing to a unique set of challenges in the domestic business. Although the company witnessed an uptick in sales in the months of October and November, sales declined in the month of December, which impacted the overall performance in Q3 FY19, resulting in flat growth in 9M FY19

• Some categories witnessed a transitory slow-down due to delays in GST refund leading to uncertainty among certain customers. As things get more streamlined, the company anticipates business in these segments to recover going forward

• 9MFY19 revenues from operations stood at Rs. 772.6 crore as against Rs. 736.5 crore, higher by 5% YoY. EBITDA stood at Rs. 123.9 crore as against Rs. 141.3 crore. PAT stood at Rs. 68.9 crore as against Rs. 72.9 crore

• Fragrance division delivered a steady growth during the 9MFY19. Domestic revenues grew by 6% while overseas revenues up by 7%

• Flavour division reported subdued performance during the period with a decline in domestic revenues

• The International segment saw a healthy pick-up in growth during 9M FY19. International flavors segment grew at a healthy rate of 21%, while fragrance division marked a steady growth of 7%

• Pricing pressures on key raw materials continued to impact profitability on a YoY basis

• The company undertook price increases during the period under review to partially cover the unprecedented raw material inflation. This, combined with the several cost-optimization measures undertaken by SHK over the last several quarters, has resulted in stable gross margins, which improved sequentially during Q3 FY19

• Gross margins in 9M FY19 stood at 44% vs. 47% in 9M FY18. The company expects gross margins to further improve once the Mahad facility operations fully ramp up.

• The Mahad facility manufactures Tonalid and other key raw materials used in the fragrance industry. The facility, commissioned in September, 2018, is expected to reach optimal utlizations levels over the next few quarters. Operationalization of this facility will help improve availability of key raw materials, business and cost efficiencies going forward

• The employee costs during 9M FY19 increased by 4% YoY owing to a one-time expense of Rs. 5.4 crore incurred towards rationalization of Creative Development Centers (CDC) in Europe

• The company expects growth to normalize from Q1FY20 onwards as operating parameters stabilize along with improving macro factors