Camlin Fine Q1 FY27 earnings call

Camlin Fine Sciences reported Q1 FY27 revenues of ₹519.9 crores (INR 5,199 million), marking a substantial 28% increase year-on-year and a sequential rise of nearly ₹100 crores. Despite this robust top-line growth, the company experienced significant margin compression, with EBITDA margins falling to 4% from +45% in the preceding quarter. This decline was primarily attributed to elevated raw material and freight costs, which the company found challenging to fully pass on to customers within the quarter.

The company has initiated a strategic restructuring, segmenting its business into Specialty Ingredients, Aroma, and Performance Chemicals, and has commenced disclosing segmental results. The Specialty Ingredients segment, encompassing straights and blends, generated over ₹400 crores (INR 4,000 million) in revenue, maintaining a 20% growth run rate. However, its EBITDA of 6.35% was impacted by high raw material prices. The Performance Chemicals segment recorded a modest 2.5% EBITDA, largely due to the shutdown of the diphenol plant.

The Aroma segment, focused on vanillin, sold approximately 560 tons in Q1 FY27, including 350 tons of ethyl vanillin and 200 tons of methyl vanillin. Despite strong customer approval (95%) for ethyl vanillin, the segment incurred a negative burn of ₹4-4.5 crores. This was attributed to sub-optimal capacity utilization (25%) during the cautious ramp-up of the ethyl vanillin campaign. Management expects a positive EBITDA for Aroma in Q2 FY27, driven by improved capacity utilization and a planned shift towards higher-margin methyl vanillin production.

Looking ahead, management anticipates a recovery in overall EBITDA margins, targeting 10-11% for FY27 and 12-14% by FY28, contingent on raw material price stabilization. While Q1 saw a one-quarter lag in passing on increased costs, the company expects to pass on some, though not all, of these increases to customers in Q2, particularly within the blends segment. Elevated raw material prices are projected to persist in Q2 due to ongoing geopolitical conflicts, indicating continued cost management challenges.

Working capital cycles have elongated due to global supply chain disruption^🌐s, including issues in the Hormuz Strait and Red Sea, and slower customer recoveries, posing a liquidity concern. Despite these pressures, gross debt was reduced to ₹640 crores from ₹670 crores (March 31st) through prepayments on IFC and EXIM loans. To support the projected FY27 revenue growth of ₹2,200-2,300 crores, the company anticipates needing an additional ₹100-200 crores in credit lines, which are expected to be secured within the next 1-1.5 months.

The diphenol plant remains shut down due to unfavorable economic conditions and high raw material prices, which has negatively impacted the Performance Chemicals segment. The company is actively exploring various alternative uses for the plant, with a definitive decision expected by Q3 FY27. In the interim, hydroquinone, a key intermediate, is being procured from the Chinese market for the next two quarters to ensure supply for internal needs.

The company reported an exceptional item^📎 in Q1 FY27 related to a fire incident in Brazil in February, which resulted in a write-off and a 20% haircut on an insurance claim of ₹40 crores (INR 400 million). Additionally, CFS Europe has entered liquidation, incurring minor cash burn for legal processes. The liquidation process for the China entity is also underway, with an estimated expenditure of ₹1-2 crores (INR 10-20 million) expected in the current quarter.