S H Kelkar and Company Ltd's consolidated revenue for Q1FY19 came in at Rs236.39cr, up marginally by 0.9% yoy. The operating profit stood at Rs32.94cr which declined significantly by 20.5% yoy in Q1FY19. The EBITDA margin declined by ~376bps to 13.9% in Q1FY19. The adjusted net profit after tax came in at Rs18.69cr, lower by 30.3% yoy. The revenue, operating profit, and net profit after tax of the company missed the street estimates of Rs289cr, Rs70cr, and Rs38cr by 18%, 53%, and 51%, respectively.
• The company has entered into an agreement on May 25, 2018 to acquire 90% equity stake in Anhui Ruibang Aroma Ingredients Company ("Anhui") in China within a period of 18 months from the date of agreement. The enterprise valuation of Anhui is RMB27mn, on a going concern basis.
• The revenue remained subdued with a marginal increase of 0.9% yoy. This is on account of a likely fall in the volumes coupled with a fall in the realization levels during the quarter.
• Gross margin declined by ~377bps yoy to 44.1% on account of rising input costs and subdued realizations during the quarter.
• The fall in the EBITDA margin was on account of a dip in the gross margin coupled with lower operating leverage during the quarter.
• The effective tax rate increased to ~36% in Q1FY19 vs ~33% in Q1FY18 leading to a further fall in the net profit of the company.
• Fragrance segment – The segment revenue increased marginally by 4.3% yoy on higher volumes to Rs211.31cr. However, due to input cost inflation and likely subdued realizations, the segment EBIT declined by 19.3% yoy to Rs29.48cr during the quarter. The segment EBIT margin contracted significantly by ~408bps to 14% in Q1FY19.
• Flavours segment – The segment revenue declined significantly by 21% yoy to Rs24.7cr on account of likely lower levels of volume and weak realizations during the quarter. The segment EBIT declined by 38.6% yoy to Rs3.86cr on account of input cost inflation and weak realizations. The segment EBIT margin declined by ~449bps to 15.6% in Q1FY19.
Conference call highlights
• The performance of the company in its overseas business during the quarter was impacted by unprecedented supply-side constraints and surge in key raw material prices.
• The pass through of rising raw material costs is expected to commence over the upcoming quarters, albeit with a lag.
• SHK’s recent acquisition, Creative Flavours & Fragrances (CFF), reported a healthy volume growth during the quarter. This is combined with price hikes, which resulted in strong revenue growth of 18% in CFF’s core fragrance division.
• The cost increase over the past 12 months has been around ~25%. This would be passed on gradually allowing recovery of the margin.
• The company would require few more quarters to resume to normalcy taking into account supply stabilization and fluctuating forex rates.
• Ongoing capex would become operational in H2FY19, which would provide captive consumption of power, and thereby, optimize power and fuel costs.
• The company has a target of achieving 20% return on capital employed for new investments.
• The Flavour division reported a subdued performance on the back of price surge in key raw materials.
S H Kelkar & Company Ltd ended at Rs. 201.85, up by 4.35 points or 2.2% from its previous closing of Rs. 197.50 on the BSE.
The scrip opened at Rs. 199 and touched a high and low of Rs. 206.80 and Rs. 199 respectively. A total of 1,33,770 (NSE+BSE) shares were traded on the counter. The stock traded above its 200 DMA.
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