S H Kelkar & Co.

S H Kelkar & Co. reported robust consolidated revenue growth of 17% year-on-year for the nine months ending December 31, 2024, reaching ₹1,556 crore. This growth was primarily driven by steady traction across all segments, particularly from small and mid-sized accounts, despite a subdued demand environment in the domestic FMCG industry. The European segment also contributed significantly, growing by 11.8% on a like-for-like basis, outperforming its market.

Gross margins during the quarter were impacted by higher raw material prices, which increased faster than anticipated due to drought situations in Indonesia and Brazil affecting natural products. The company also noted an inability to pass on price increases in the first half of the year due to supply chain disruptions. Despite these near-term pressures, the average gross margin for the nine months remained at 44%, and management expects margins to restore to 16-18% for FY26 as raw material availability improves and pricing actions materialize.

The company is making strategic investments in newer geographies, particularly in Europe, UK, and USA, focusing on product development teams. Total investment spend for FY25 is projected to be ₹45-48 crore. These investments are aimed at strengthening the long-term competitive position, expanding footprint in new markets, and engaging with global MNC accounts. Management anticipates these investments will drive higher market share and operating leverage, leading to a 'next leg of higher growth' of 18-20% from 18-20 months from now, building on a committed 12% CAGR.

Net debt stood at ₹703 crore as of December 31, 2024. This increase reflects the impact of inventory replenishment (₹140 crore for losses, ₹50 crore additional) following the Q1 incident and capital expenditure at the Vanavate facility (₹75 crore). A significant concern is the delay in collecting over ₹50 crore in GST refunds on export sales, pending for over two years. The company expects to reduce debt by approximately ₹100 crore in the next six months, supplemented by an anticipated partial insurance claim settlement.

The Flavour segment demonstrated healthy revenue growth and profitability, recovering strongly from a low base last year, with EBIT close to 22%. Management expects this segment to achieve a strong +15% CAGR. The Global Ingredients segment's turnaround remains on track, driven by structural initiatives like backward integration and operational optimization. The company sees favorable global export conditions from India, providing opportunities to accelerate growth in this segment.

S H Kelkar & Co. typically reviews its cost structure and implements pricing corrections with clients every six months, especially for substantial input cost changes. The company noted that while there is a slowdown in domestic Indian large accounts, overall grassroots demand remains strong, and they have gained market share from competitors. The European business, despite a market growing less than 2%, achieved a healthy 11.8% like-for-like growth, indicating strong performance relative to the industry.