Concall AI

Gem Aromatics Limited — Q2 FY26 earnings call

Call held 14 Nov 2025

Management summary

GEM Aromatics reported a challenging Q2 FY26 with revenue of ₹89.5 crores and a net loss of ₹2.6 crores, primarily due to external factors like US tariffs and domestic GST changes impacting demand and margins. Despite this, the company successfully completed its IPO, repaid ₹140 crores of debt, and is on track to commission its significant Phase-II Dahej plant by November 30th, aiming for long-term growth and product diversification into higher-margin specialty chemicals.

Highlights

Successful IPO listing on NSE and BSE on August 26, 2025, marking a significant milestone.
Phase-II of Dahej plant (Krystal Ingredients) expected to commence production on November 30, 2025, adding 10,829 metric tons of new capacity.
Investment of ₹250 crores in Dahej project, funded by internal accruals and debt, for strategic capacity expansion.
Repaid ₹140 crores of debt (₹97.4 crores long-term, ₹42.6 crores working capital), improving net debt to equity ratio to 0.3x from 0.8x.
Customer base expanded to over 269 customers across 18 countries, strengthening global presence.

Concerns

Q2 FY26 revenue from operations stood at ₹89.5 crores.
EBITDA for Q2 FY26 was ₹3 crores, with an EBITDA margin of 3.4%.
Reported a net loss of ₹2.6 crore for Q2 FY26.
Impacted by 50% US tariffs leading to deferred orders and lower export volumes.
GST rate changes (Natural Menthol 5%, Synthetic 18% from 12%) led to customers reassessing blend requirements and delaying purchases.

Key financials

4 periods

Headline

Net Block (as of Sep 30, 2025)
₹206 Cr
Capital Work in Progress (as of Sep 30, 2025)
₹25 Cr

Q2 FY26

Revenue
₹89.5 Cr
EBITDA
₹3 Cr
EBITDA Margin
3.4%
Net Loss
₹-2.6 Cr
Cash PAT
₹0.5 Cr

H1 FY25

Depreciation
₹3.5 Cr

H1 FY26

Revenue
₹177.2 Cr
EBITDA
₹17.9 Cr
EBITDA Margin
10.1%
Net Profit
₹5.4 Cr
PAT Margin
3.1%
Cash PAT
₹10.3 Cr
Depreciation
₹4.8 Cr

What they filed

Q1 FY27: revenue up 12.8%, net profit down 198.6% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	112	97	202	88	90 −20%	79 −19%	110 −45%	99 +13%
Expenses	97	84	156	73	86	72	95	96
EBITDA	15	13	46	15	3 −80%	7 −46%	16 −66%	3 −78%
Margin	14%	13%	23%	17%	3%	9%	14%	3%
Other income	1	1	-0	1	1	-2	0	0
Interest	1	2	3	4	4	3	3	3
Depreciation	2	2	2	2	3	9	9	9
Profit before tax	13	9	40	11	-3 −120%	-6 −163%	4 −90%	-9 −179%
Tax rate	25%	21%	31%	26%	2%	-16%	75%	-8%
Net profit	10	7	28	8	-3 −126%	-5 −167%	1 −96%	-8 −199%
EPS	2.08	1.59	5.89	1.70	-0.49	-0.96	0.19	-1.51

How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence

Capex Capex disclosed internal accruals and debt
- Dahej project for Cooling Agent unit, Phenol and Citral derivatives ₹250 Cr
Furthermore, the Dahej project represents an investment of around Rs. 250 crores funded through a combination of internal accruals and debt.
Debt Debt disclosed
- Repayment Repaid Rs. 97.4 crores of long-term debt pertaining to Krystal Ingredients and Rs. 42.6 crores of working capital borrowings at GEM Aromatics. ₹140 Cr
The company repaid Rs. 140 crores split into Rs. 97.4 crores of long-term debt pertaining to Krystal Ingredients and an additional of Rs. 42.6 crores of working capital borrowings at GEM Aromatics. In line with the other planned utilization of IPO proceeds, these repayments have significantly improved leverage profile, bringing the net debt to equity ratio down to 0.3x from 0.8x earlier.

Guidance & targets

Revenue

Company Level Revenue Revenue · FY28 · High confidence ₹1,050-1,100 crores

And our eventual goal post is in FY '28, at the company level, we are going to be in the range of about Rs. 1,050-Rs. 1,100 crores at the EBITDA of about 16%-18%.

— Yash Parekh

Profitability

Company Level EBITDA Margin Profitability · FY28 · High confidence 16%-18%

And our eventual goal post is in FY '28, at the company level, we are going to be in the range of about Rs. 1,050-Rs. 1,100 crores at the EBITDA of about 16%-18%.

— Yash Parekh

Capacity

Phase-II Dahej Plant Operational Capacity · November 30th · High confidence Operational

Our Phase-II, which will drive the next leg of growth, is expected to commence on November 30th. All the approvals are in place.

— Yash Parekh

Production

MEHQ and Guaiacol Production Start Production · Q4 FY26 (around January/February) · High confidence Start Production

Effectively, the MEHQ and the Guaiacol production would start in Q4, around January/February.

— Yash Parekh
BHA Production Start Production · FY27 · High confidence Start Production

Previously FY28 → Start Production

there is a situation in the Phenol chemistry where BHA was effectively planned for FY '28, now for now. We have fast-tracked that and we are going to be starting that particular production in FY '27.

— Yash Parekh
Cooling Agent Production Start Production · November 30th · High confidence Start Production

So, we are going to start the production of Cooling Agents by the November 30th, effectively.

— Yash Parekh

Utilization

Cooling Agent Utilization Utilization · December first half · Medium confidence Reasonable degree

But we expect a reasonable degree of utilization starting December first half.

— Yash Parekh

Market Conditions

GST Impact Stabilization Market Conditions · Q4 FY26 · Medium confidence Stabilization

Now, it is transient in nature, and we effectively will have the stabilization by Q4.

— Yash Parekh

Revenue Mix

Mint Portfolio Share of Revenue Revenue Mix · FY25 · High confidence 70%

And again, we had about 70% for total revenue in FY '27 was the Mint portfolio. I am sorry, my apologies. 70% as of FY '25.

— Yash Parekh

What to watch in Q3 FY26

Phase-II Dahej Plant Commercial Operations

Q4 FY26 (around Jan/Feb)

Current Expected to commence production on November 30th, 2025.

Target Commercial operations for Phenol, MEHQ, and Guaiacol.

Why it matters

This is a significant capacity addition and diversification into higher-margin products, crucial for future growth and margin improvement.

Our Phase-II, which will drive the next leg of growth, is expected to commence on November 30th. All the approvals are in place... Effectively, the MEHQ and the Guaiacol production would start in Q4, around January/February.

Risks & concerns

External challenges affecting demand and margins (US tariffs, GST changes)
high

50% US tariffs led to deferred orders and lower export volumes; GST changes (Natural Mint 5%, Synthetic 18% from 12%) caused customers to reassess blends and delay purchases.

Management acknowledged
Lower realization and high raw material costs in Mint category
medium

Mint prices down ~10% YoY, combined with high raw material costs and unfavorable product mix, pressured profitability.

Management acknowledged
Geopolitical volatility impacting new plant streamlining
medium

Volatile geopolitical situation adds uncertainty to streamlining new plant operations, though better visibility is expected by Q4 FY27.

Management acknowledged

Q&A highlights

6 direct, 1 evasive

Rationale and margins for Phenol Derivative business (Dahej CAPEX) Direct

So, it is a Greenfield project, Tushar that we have set up at Dahej. So, there are multiple other products in our multi-purpose plant that we have established. The Phenol Derivative, of course, has made a significant contribution to the total capacity that has been installed. First, let me answer the question, which is the rationale of getting into this segment. Now, we also manufacture Synthetic Anethole, for which main precursor is Anisole. So, the thought process was effectively to start with going in a backward integration to manufacture our own Anisole.

Clarifies the strategic backward integration and product diversification driving the significant Dahej CAPEX, moving beyond Anisole to MEHQ, Guaiacol, and other aroma chemicals.

Asked by Tushar

Margin accretiveness of Phenol Derivatives, Vanillin production, and Cooling Agent export strategy Direct

Clearly, in terms of our process technology that we have implemented, we feel confident that we will be able to do better margins than what are expected with our existing portfolio of products. That is there. As a right to win, there are contingencies that we have figured out. Like I mentioned, one example where the start of the Phenol category was because we had started focusing upon Synthetic Anethole, which is a pure aroma chemical product going into flavors and fragrances and then going backward integration to Anisole.

Addresses profitability expectations for new products, clarifies product scope (no Vanillin), and highlights competitive advantage and export potential for Cooling Agents.

Asked by Tushar

Impact and resolution of US tariffs and domestic GST changes Direct

Now, tariffs clearly on last week of August, 50% tariffs were announced. That did have a significant impact as majority of our large-scale customers have gone ahead and accepted the tariff pass-through. But because the number is so large by 50%, they have primarily slowed down on their demand... On September 2nd, the GST Council announced the change in the GST rate, where Natural Mint and Menthol primarily was moved from 12% to 5%, and synthetic was moved into 18%... there has been some degree of pent-up demand officially coming back around Q4.

Explains the direct impact of recent policy changes on demand and sales volumes, and management's expectation for demand recovery in Q4.

Asked by Aashish

Capacity breakdown, utilization, and peak revenue for the new Dahej facility Partial

So, from a standpoint, sir, of the actual capacity that we are putting up, that is 10,829, a large part of it is going to be towards Phenol. We are not giving category-wise profit margins or EBITDA. Certainly, whatever eventual, it is going to be margin-accretive. And our eventual goal post is in FY '28, at the company level, we are going to be in the range of about Rs. 1,050-Rs. 1,100 crores at the EBITDA of about 16%-18%.

Provides overall capacity addition and long-term revenue/EBITDA targets for the new facility, despite not giving product-specific breakdowns.

Asked by Kaushal Sharma

Reasons for gross margin drop and normalized margin expectations Direct

So, I think in realizations, we did face some pressure, particularly in Menthol and the Mint business. So, that has given so many headwinds around Mint, right, so partially, I will say there was also raw material pressure, but the large part of gross margin erosion was because realizations came off. So, we are not really giving margin guidance, particularly because of extremely volatile times, very tough to say today what we will do, what we will be able to achieve. But the goal is to reach back to our long-term averages.

Identifies specific factors (Menthol realization, raw material costs) for margin pressure and indicates a goal to return to historical averages.

Asked by Akshada Deo

Strategy to mitigate competition and challenges in new product categories Direct

So, the strategy is clear. We continue to focus on the tasks that we can control and that is by getting into newer products that are there in our pipeline, which are value-accretive in nature. These are specialty products targeting the aroma chemical industry and that is precisely what we are going towards... We have fast-tracked that and we are going to be starting that particular production in FY '27.

Outlines management's proactive strategy of focusing on high-margin, unique, value-added specialty aroma chemicals and fast-tracking production to counter market challenges.

Asked by Akshada Deo

Menthol price decrease and strategy to integrate into Cooling Agents Direct

So, the prices have come down from last year by about 10% or so in the actual gross value of that particular product. And as we move forward, the idea is to forward integrate Menthol into Cooling Agents. So, the game plan is set for moving in that direction where we can control based on capacities, the technology that we have put in and really drive the business forward. So, we will be doing less of direct Menthol actually manufacturing Menthol and going more forward into the Cooling Agents.

Explains the impact of Menthol price decline and the strategic shift towards higher-value Cooling Agents to mitigate this.

Asked by Darshan Garg

Pricing differential between Natural and Synthetic Mint and its impact on realization Evasive

So, I think we can take this question offline because there is a lot of background noise, Rikesh. It is difficult for me to concentrate and hear your question in total. I am just getting bits and parts of it. We can perhaps take this question offline.

Highlights a critical pricing and realization issue that management was unable to address clearly, suggesting potential sensitivity or complexity.

Asked by Rikesh Parikh

2 min read 6 chapters

Detailed narrative

IPO and Strategic Growth Initiatives

GEM Aromatics successfully listed on NSE and BSE on August 26, 2025, marking a significant milestone in its 27-year journey. The IPO was undertaken to strengthen the balance sheet by partially repaying borrowings and supporting long-term growth plans. The company is transitioning from a single-product, single-facility setup to a leading specialty ingredient company, now offering 70 products and serving over 269 customers across 18 countries.

Q2 FY26 Financial Performance Overview

For Q2 FY26, GEM Aromatics reported revenue from operations of ₹89.5 crores. EBITDA stood at ₹3 crores, resulting in an EBITDA margin of 3.4%, and the company recorded a net loss of ₹2.6 crores. For the first half of FY26, revenue was ₹177.2 crores, with EBITDA at ₹17.9 crores (10.1% margin) and a net profit of ₹5.4 crores (3.1% margin). Depreciation increased to ₹4.8 crores in H1 FY26 from ₹3.5 crores in H1 FY25, impacting overall profitability.

Dahej Plant Commissioning and Capacity Expansion

The Phase-II of the new Dahej plant, part of Krystal Ingredients, is expected to commence production on November 30, 2025. This facility, representing an investment of ₹250 crores funded by internal accruals and debt, will add 10,829 metric tons of new capacity. It will house India's largest Cooling Agent unit (over 500 metric tons per annum) and dedicated lines for Phenol and Citral derivatives, with MEHQ and Guaiacol production starting in Q4 FY26 (Jan/Feb).

Market Challenges and Mitigation Strategies

The company faced external challenges in Q2 FY26, including 50% US tariffs announced in August, which led to deferred export orders and lower volumes. Domestically, GST rate changes (Natural Mint to 5%, Synthetic to 18%) caused customers to reassess blend requirements and delay purchases in Mint and Clove categories. To mitigate these, management is strengthening sourcing, optimizing production, maintaining strict inventory discipline, and fast-tracking value-added products like BHA (now FY27 from FY28) to diversify revenue streams.

Product Portfolio, R&D, and Future Outlook

GEM Aromatics' portfolio includes specialty ingredients, essential oils, aroma chemicals, and value-added derivatives, with a strong focus on Phenol Derivatives, Cooling Agents, and Citral derivatives. The in-house R&D center, with 13 scientists, is crucial for developing new molecules and advancing green chemistry. The long-term demand outlook remains strong, supported by growth in Oral Care, Personal Care, Wellness, Flavors, Fragrances, and Alternative Medicine, with a target of ₹1,050-1,100 crores revenue and 16%-18% EBITDA margin by FY28.

Capital Structure and Debt Reduction

The company significantly strengthened its financial position by repaying ₹140 crores of debt in H1 FY26. This included ₹97.4 crores of long-term debt related to Krystal Ingredients and ₹42.6 crores of working capital borrowings. These repayments, utilizing IPO proceeds, improved the net debt to equity ratio to 0.3x from 0.8x, demonstrating a commitment to a healthier balance sheet.

This is an AI-generated summary of a publicly available earnings call transcript.

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