S H Kelkar and Company Limited - Q4FY21 Business Update

S H Kelkar and Company Ltd (SHK), the largest Indian origin Fragrance and Flavours Company in India, has announced the business update for Q4 FY 2020-21.

Operational Update:

The Company saw healthy demand and enquiries during Q4 FY2020-21, with normalization seen across both domestic and international markets. Client engagements and wins remained robust across the mid & large sized FMCG customers. Creative Flavours and Fragrances (CFF), the Company's 100% wholly-owned subsidiary, also delivered steady performance during the quarter. On a consolidated basis, sales in Q4 FY 2020-21 stood at ~Rs. 397 crore (Note: 1. Provisional and unaudited figures; 2. including consolidation of CFF performance). On a like to like basis, the revenues stood healthy at Rs. 329 crore (excluding CFF contribution), delivering a solid growth of 22% YoY

During the quarter, some of the Company's raw materials saw moderate inflation. However, the SHK's prudent inventory management philosophy enabled it to efficiently manage the situation. This, in addition with a healthy product mix enabled the Company to maintain profitability margins at healthy levels during Q4 FY2020-21

In a key development, SH Kelkar's wholly-owned subsidiaries - Keva Italy and CFF, entered into an agreement for acquisition of 70% equity stake of Nova Fragranze S.r.l. (Nova). Incorporated in the year 1992, Nova is an ltaly-based company specializing in fragrance development and marketing with focus on premium customers in the high-end product segments of hair care and beauty care. In the year 2020, Nova's revenues stood at EUR 2.4 million, with a solid gross margin profile of G0%+. In addition, the Company operates an asset-light business model with a healthy balance sheet profile.

- As per the agreement, Keva Italy and CFF shall be acquiring 28% and 42% stake, respectively of Nova. The consideration to be paid for the acquisition of 70% stake is EUR 1.52 million (~Rs. 13.4 crore). The Company proposes to fund the investment through internal accruals and no additional debt is envisaged to be taken on. This value-accretive and synergistic acquisition is in-sync with SHK's growth strategy to expand its addressable market in Italy and Europe, expand its product offerings and diversify into newer high-margin product segments. This acquisition will further strengthen SHK's business capabilities and enhance its position in the global fragrance industry.

- The effective date of acquisition shall be April 01, 2021 as per the agreement.

On the balance sheet front, the Company was able to significantly lower its total debt during the quarter owing to robust collections, strong cash flows, and normalizing inventory levels. The net debt position decreased by ~Rs. 113 crore and stood at ~Rs. 379 crore as on March 31, 2021 (Note: 1. provisional and unaudited figure) compared to Rs. 492 crore as on December 31, 2020. This reduction in debt levels is in-sync with management commentary and guidance in the earlier communications.

- The total net debt at ~Rs. 379 crore includes consolidation of CFF debt and the debt availed for payment of the second and final tranche of the CFF acquisition.

- Going forward, given that there is no major capex plans on hand and the focus remains on healthy free cash flow generation, SHK should be able to significantly strengthen its Balance Sheet position in the upcoming fiscal

In another development during the quarter, SH Kelkar has become the exclusive distributor for Isobionics Santalol in India. The new fragrance ingredient is the first joint product from BASF and Isobionics and is now available for the Indian market through SHK. The new fragrance ingredient is an alternative to sandalwood oil and is produced on a biotechnological basis from renewable raw materials.

On the macro-environment, while there are concerns related to the second/third wave of COVID-19 in India and certain international markets, the Company remains fairly confident of delivering healthy growth in overall operations on the back of steady demand environment anticipated in the FMCG industry. The Company is also undertaking all measures to mitigate risks and ensure safety of its employees and is constantly monitoring operations such that it poses minimal risk for spread of this disease.

Shares of S H Kelkar and Company Ltd was last trading in BSE at Rs.116.3 as compared to the previous close of Rs. 118.25. The total number of shares traded during the day was 20951 in over 448 trades.

The stock hit an intraday high of Rs. 120 and intraday low of 116. The net turnover during the day was Rs. 2479796.

Note: Euro to INR FX rate at 88.5

Source : Equity Bulls

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