Summary
S H Kelkar and Company Limited - Q3 FY26 Earnings Call Summary Monday, February 09, 2026 03:00 P.M. IST
Event Participants
Executives 3 Jagdish Agarwal (Group CFO), B. Ramakrishnan (CEO - Fragrances, Asia and USA), Kedar Vaze (Whole-Time Director and Group CEO)
Analysts 7 Abhijit Akella, Bharat Sheth, Debanjana Chatterjee, Dhaval Shah, Henil Bagadia, Jatin Chawla, Riddhesh Gandhi
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Consolidated Revenue | ₹1,718 crores | +10% YoY for 9M FY26; Q3 was relatively softer due to subdued demand and slower product ramp-ups. |
| Adjusted EBITDA Margin | 13% | Excludes impact of new growth-led investments and high insurance costs; adjusted for these, management targets 17% in 2 years. |
| Gross Margin | 42.4% | Relatively stable QoQ but at the lower end of the range; improvement expected by Q4 FY26/Q1 FY27 as high-cost inventory is consumed. |
| Total Debt | ₹800 crores | Level expected to remain range-bound (± ₹20-30 crores) in the near term due to ongoing capacity expansion. |
| Incremental Insurance Premium | ₹13.5 crores | Annualized additional cost due to the previous fire incident; expected to persist for approximately one more year. |
| Pending Insurance Claim | ~₹100 crores | Management expects settlement within the next 6 to 12 months with no material risk to recovery. |
| US Opex (Fixed) | $3.5 - $4.0 million | Reflects peak opex levels for the US Creative Development Centre and leased manufacturing facility. |
Geographic & Segment Commentary
- Fragrances: Segment performance is currently impacted by front-ended investments in global markets (UK, Germany, USA, UAE). While India remains steady, international EBIT margins are currently depressed (~8%) but targeted to reach 13-14% as global operations scale over the next 2-3 years.
- Flavours: This segment is in a “steady state” following historical reorganizations and investments. It currently delivers high margins (20-22% EBIT range) and serves as a blueprint for the expected trajectory of the international Fragrance business.
- International Markets (ROW): Strong double-digit growth recorded in Middle East, Africa, and Central Asia. The US market reached a milestone with its first customer order, with a revenue target of $2.5 million by the end of next year.
Company-Specific & Strategic Commentary
- Global Expansion Strategy: Company is investing in markets representing 75% of the global fragrance market (US, UK, Europe) to capture opportunities from M&A-led disruption among top-tier competitors.
- Capacity Expansion: European capacity is being doubled/1.5x by Q4 FY26; India is adding 9,000 tons in Q1 FY27 with a long-term plan for an additional 15,000 tons.
- Asset Modernization: New facilities in Vanavate and Vashivali (India) will replace older, less efficient units (e.g., Mulund), leading to ₹3-4 crores in annual lease savings.
- Innovation & Patents: Management highlighted a portfolio of 25+ patents globally, emphasizing technology-led growth to capture new direct-to-consumer and small-to-medium FMCG brands.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue Growth | 12% CAGR | Base year is FY25; growth to be driven by international CDCs and recovery in domestic FMCG demand. |
| EBITDA Margin | 17% (Target) | Two-year timeframe; assumes operating leverage from US/Europe and normalization of India operations. |
| ROCE | ~14% | Expected within 2-3 years as new initiatives reach cash break-even and insurance/fire-related costs subside. |
| Capex (India) | ₹70 - ₹80 crores | Planned over the next 12-18 months for rebuilding and replacement of facilities. |
Risks & Constraints
| Risk | Context |
|---|---|
| Leverage & Cash Flow | Current debt of ₹800 crores and high capex/opex phase have pressured ROCE; CFO prioritizes improving working capital efficiency. |
| Demand Volatility | Domestic India growth has been “muted” despite GST changes, and European orders saw timing-related postponements in Q3. |
| Cost Inflation | Higher insurance premiums (₹13.5 cr) and currency fluctuations (Rupee depreciation) have offset some raw material price benefits. |
Q&A Highlights
Execution Strategy
- Question: Why is now the right time to invest globally? (Jatin Chawla)
- Answer: Large competitors like IFF and Firmenich are distracted by M&A integration; mid-sized players can capture emerging direct-to-consumer and smaller FMCG clients (Kedar Vaze).
US Operations
- Question: What is the timeline for US breakeven? (Henil Bagadia)
- Answer: Fixed costs are $3.5-4m; first order is secured, and management targets ~$2.5m in business by the end of next year (B. Ramakrishnan).
Financial Health
- Question: When will ROCE improve from current single digits? (Dhaval Shah)
- Answer: ROCE is currently depressed due to the fire incident and aggressive global expansion; 14% is targeted in 2-3 years as initiatives turn cash-positive (Kedar Vaze / Jagdish Agarwal).
Margin Recovery
- Question: Why haven’t gross margins hit the 45% historical level? (Jatin Chawla)
- Answer: High-cost inventory lag and currency fluctuations (Rupee) have slowed the recovery; underlying RM prices are stabilizing (Kedar Vaze).
Key Takeaway
S H Kelkar reported a transitional quarter with 9M FY26 revenue growth of 10% to ₹1,718 crores, though Q3 was dampened by softer domestic demand and gestation costs of international expansion. The company is currently in a high-investment phase, having established Creative Development Centres (CDCs) in the US and Europe to target the 75% of the global fragrance market located outside India. While this has pressured adjusted EBITDA margins to 13% and elevated debt to ₹800 crores, management remains committed to a 12% CAGR and a 17% EBITDA target within two years. Key levers for recovery include the settlement of a ₹100 crore insurance claim, the commissioning of expanded capacities in Europe and India by Q1 FY27, and the conversion of US “green shoots” into meaningful revenue. Investors should monitor the stabilization of domestic FMCG demand and the successful ramp-up of the new US and European facilities to validate the long-term ROCE target of 14%.
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