Capitaline

Analyst Meet / AGM 17-Feb-17

Conference Call

S H kelkar

Expects to grow at a rate of 14-15% in the domestic fragrances segment

S H kelkar held conference call to discuss the performance for the quarter ended December 2016. Senior management of the company addressed the concall.
Highlights of the Concall

Total Income grew by 1% during Q3FY'17 to Rs. 232 crore from Rs. 230 crore in Q3FY'16. EBITDA was lower by 3% to Rs. 41 crore from Rs. 43 crore. EBITDA margin stood at 17.9%. Profit Before Tax higher by 18% to Rs. 36 crore from Rs. 31 crore. Profit After Tax increases by 16% at Rs. 25 crore compared to Rs. 22 crore.

For 9MFY'17 Total Income grew by 11% to Rs. 733 crore from Rs. 659 crore in 9MFY'16. EBITDA increases by 21% to Rs. 136 crore from Rs. 113 crore. EBITDA margin improves by 150 bps to 18.6%. Profit before tax was higher by 64% to Rs 118 crore from Rs 72 crore. Profit After Tax increases by 58% at Rs. 77 crore compared to Rs. 49 crore.

Domestic F&F (Fragrance and Flavour) business has definitely seen impact of demonetization and the environment still remains uncertain as many FMCG companies have postponed new product development, which is critical for the company's growth.

The exports fragrance segment declined by 24% yoy this quarter (down 14% in 9MFY17) was dragged by subdued demand conditions in overseas markets (especially MENA region), sharp decline in PFW business (Netherlands-due to soft global demand conditions leading to overcapacity in developed markets), lower realizations due to currency headwinds in select markets and rationalization of formulations business.

Flavors business is currently growing at more than 20% organically plus the company plans to grow this segment inorganically as well. Many smaller companies don't have capex in place to sustain the regulatory environment, which is an opportunity for the company.

The company expects to grow at a rate of 14-15% in the domestic fragrances segment versus 8-9% for the industry. In flavors the company expects to grow at more tahn 20% versus 10-11% for the industry. The company also target to garner close to 10% market share in certain South Asian markets.

Fragrance division forms around 88% of total revenues. Contribution from the Flavours division increased to 12% in 9MFY17 from 6% in 9MFY16.

S H kelkar board has approved the proposal to acquire and develop the Intellectual Property (IP) in Fragrance Encapsulation Technology held by Tanishka Products. Tanishka Products (TP), a partnership firm in its start-up phase, has been in the business of manufacture and sale of micro-encapsulated fragrances since 2012. Acquisition of Fragrance Encapsulation Technology (FET) would enable the Company to offer differentiated fragrance products and systems. Acquisition executed through SHK's wholly-owned subsidiary, Keva Chemicals Pvt. Ltd. (KCPL). The consideration payable towards acquisition of perpetual license for FET and capital investment in TP LLP would be Rs. 3 crore plus an amount payable at the end of 5 years, equivalent to a portion of the revenues of KCPL that would be generated in FET sales using the IP in FET.

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