INVESTMENT IDEA
PCG RESEARCH
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Personal Products
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Bloomberg
CMP as on 19 May-17
Equity Capital (Rs Cr)
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Equity O/S (Cr)
Market Cap (Rs cr)
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Kushal Rughani
kushal.rughani@hdfcsec.com
Private Client Group - PCG RESEARCH
20 May 2017
S H Kelkar
CMP Recommendation Buying Range Target Time Horizon
BUY at CMP and add on
Rs. 289 Rs. 289-258 Rs. 329 - 373 12 Months
Declines
SHKELK Company Background
539450 S H Kelkar and Company is a Fragrance and Flavour manufacturer in India. The Company operates in two
segments: Fragrances, which manufactures/trades in Fragrances and aroma ingredients for Fragrances, and
SHK Flavours, which manufactures/trades in Flavors. It offers fragrances in various categories, such as personal
SHKL care, hair care, skincare and cosmetics, fabric care, household products and fine fragrances. The Company
offers flavors in various categories, such as dairy products, beverages, confectionery, bakery products and
289 pharmaceuticals. It provides a range of services, which include Bio Technology Research Service, Cosmetic
144.6 Research Service, Cosmetic Testing Laboratory and Custom Synthesis Services. The Company's
manufacturing facilities are located at Raigad, Vapi and Mulund in India, and Barneveld in the Netherlands.
10 Over the years, SHK has developed a vast product portfolio of fragrances and flavor products for the FMCG,
personal care, pharmaceutical and food & beverages industry. The Company has a diverse and large client
14.46
base of over 4,100 customers including leading national and multi-national FMCG companies, blenders of
4181 Fragrances & Flavors producers.
56
Investment Rationale
283290
S H Kelkar (SHK) is one of Indias largest fragrance & flavor (F&F) companies with a market share of ~12%
362 as of 2016. Its fragrance products are used as raw materials in personal & fabric care, skin & hair care, fine
fragrance and household products, while flavor products are used in baked & dairy products, beverages and
202 pharmaceuticals. In October 2015, company had come out with an IPO at Rs 180 with 2.8cr equity shares
which included Rs 200cr fresh issue of shares to repay its debt. For FY17, companys Flavor segment
recorded robust 113% growth and its contribution for FY17 stood at 19%. The company derived 60% of its
FY17 revenues from India and 40% from exports.
57.0
SHK has established a strong presence in Indias fragrance market (share of ~24% as of 2016), backed by
37.3 its strong consumer insights, access to key raw materials, R&D prowess and compliance to regulatory
norms. It intends to tap opportunities in new and nascent categories in India, such as men's grooming, fine
5.7
fragrance, fabric softener and deodorants.
Yellow SHK is an emerging player in Indias Rs 1800cr as of FY14 flavor market (share of ~2% as of 2016). The
market is dominated by small unorganized players, which provides a huge opportunity for players like SHK
to grow via inorganic route. In line with this, the company recently acquired two new companies. This not
only helped SHK to increase its market share, but also provided access to a new client.
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Strong relationships with fast-growing FMCG companies, high exposure to emerging geographies (including
India) and product innovation are the key for the companys growth going forward. The Brands like SHK,
Cobra and Keva brands enjoy leadership positions in their respective categories and have established
substantial brand equity in India.

View & Recommendation

We expect EBITDA margin to improve from 16.7% in FY16 to 18.8% in FY19E, driven by (a) shift in
composition of exports in favor of high-value-added items and (b) shift in production base of the ingredients
business from the high cost region of the Netherlands to the low cost region of India. Over FY17-19E, we
expect revenue/PAT CAGR of 14% / 22% and Return Ratios (RoE/RoCE) to strengthen to ~20%. We initiate
coverage with Buy rating and value the stock at 34x FY19E EPS. Our price target of Rs 373 implies 30%
upside potential from current levels. We recommend investors to buy the stock at CMP of Rs 289 and add on
dips to Rs 258 with sequential targets of Rs 329 and Rs 373 over the next 12 months.

SHK is Indias largest domestic fragrance producer with a market share of ~21%. SHK has been operating in
the country for more than 90 years, which gives it an edge over MNC peers in terms of understanding and
meeting consumer needs. We believe (a) access to key raw materials and in-house ingredient manufacturing,
(b) strong R&D team of 80 people, (c) portfolio of 9,500+ products and (d) compliance with regulatory
norms will help the company to maintain its leadership position in the industry. Besides this, SHK is looking
to tap opportunities in new and nascent categories in India, like mens grooming, fine fragrance, fabric
softener and deodorants.

Fragrance Business
SHKs products are used by leading companies engaged in personal care, hair care, skin care & cosmetics,
household products, fine fragrances and F&F blends. A portion of the companys ingredients is used by other
F&F companies. SHK caters to more than 3,700 customers, including Godrej Consumer Products, Marico,
Wipro, HUL, VINI Cosmetics and J.K. Helen Curtis. The fragrance business contributed 87% of SHKs
revenues in FY17. For FY17, company recorded flat revenues for the segment on yoy basis at Rs 857cr.
Fragrance Business posted 130bps yoy margin expansion to 14.5%. The companys manufacturing plants are
located at Raigad, Mumbai, Vapi and Barneveld (the Netherlands). We expect the segment to record 11%
revenue cagr over FY17-19E and would reach to Rs 1070cr in FY19E.

Flavors Segment
The flavor business contributed ~13% of revenues in FY17. It has posted 113% yoy growth in revenues to
Rs 124cr led by acquisitions and growth from existing business. Operating margin for the segment surged
900bps yoy to 28%. Its products are used as raw materials in baked goods, dairy products, beverages,
pharma and confectionary. SHK has over 400 customers under this segment, including Britannia, Vicco
Laboratories, Vadilal Industries and Ravi Foods. The companys manufacturing plant for flavors is located at
Raigad, Maharashtra. We have estimated 28% revenue cagr over FY17-19E and would reach to Rs 205cr in
FY19E.

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Emerging player in flavor business; acquisitions to aid growth

SHK is an emerging player in the flavor market with a share of ~2%. The Indian flavor market was at ~Rs
1800cr as on FY14 and is dominated by many small players (which together account for ~42% share, as
against just 12% in case of fragrance). We view this as a big opportunity for SHK as it intends to grow via
the inorganic route. As the F&F industry is characterized by high level of customer stickiness, we believe
growing inorganically is the quickest way to not only increase market share, but also gain access to new
clients. In line with this, SHK had acquired Hi-Tech Technologies (HTT), thereby gaining access to one of the
largest bakery and confectionary players (Parle) in India and doubling its market share. It also recently
announced the acquisition of Gujarat Flavors Pvt. Ltd. Relationship with fast-growing FMCG companies,
product innovation and entry into new categories are the key to growth SHKs share in domestic FMCG
companies (such as GCPL, Dabur, Britannia, Marico, Vadilal and Vinni) has been quite sizeable at 35-40%.
Listed domestic FMCG names have exhibited robust growth over FY11-16 (average CAGR of ~16%), and are
expected to continue performing well, especially with demonetization and GST likely to adversely impact
unorganized players. The companys products, which are used as raw materials by many FMCG companies,
thus will be a critical component of product success. SHK derived 15-20% of its revenue from products
launched in past three years. This, along with its foray into new F&F categories, should help the company
record revenue CAGR of 28% over FY17-19E in the Flavors segment.

Compliance to stringent regulatory norms

SHKs fragrance manufacturing plants in Mumbai and Raigad comply with the International Fragrance
Association (IFRA) regulations, while the flavour manufacturing plant in Raigad is registered with the US FDA.
Additionally, plants are regularly audited by major client companies, such as Coca Cola and Hindustan
Unilever (HUL) to ensure high level of standards. SHK is also compliant with the norms required by the Food
Safety and Standards Authority of India (FSSAI). High level of regulatory compliances, sensitive nature of
final products and high costs act as entry barriers for new entities in the fragrance space. Also, setting up of
manufacturing facilities requires various approvals, and regulatory agencies (India and abroad) and clients
regularly conduct checks to ensure compliance.

SHK is looking at tapping opportunities in new categories of growth, such as men's grooming, fine fragrance,
fabric softener and deodorants, where India is still at a nascent stage compared with South-East Asian
countries. The Indian men's grooming market is projected to post strong growth over the next 5 years which
would help SHK to post strong revenues growth. Changing consumer lifestyle, increasing disposable incomes
in urban areas and growing image/appearance awareness among men are driving growth in the mens
grooming market in India.

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Niche segment and key component in consumer products

SH Kelkar (SHK) has established a strong presence in the niche Indian Fragrance and Flavors (F&F) industry.
Fragrances and Flavours constitute key components of a variety of consumer products and hence are critical
raw materials for FMCG companies. It is a key ingredient behind developing different variants of consumer
products and suppliers of particular ingredients are usually not changed during the lifecycle of the product.
On account of the significance of this raw material, consumer companies largely deal with only established
suppliers and this act as a barrier for new entrants to break in. SHKs long operating history, experienced
management, wide portfolio of products and a well-diversified consumer base have helped in cementing its
position in this industry.

Organised F&F industry growing at 12% CAGR; expected to track growth rate in consumer staples: Indian
F&F market size was pegged at Rs 38.1 bn at end of CY14 and has posted 9.5% CAGR over CY10-14. Of this,
the organised industry stood at Rs 29.3bn - 77% of the total industry and has grown at a faster rate of
12.1% CAGR. Their rate of growth incidentally exactly matches the growth rate of the Indian FMCG industry
12.1% CAGR of FY10-15. With FMCG industry expected to grow at 11-12% CAGR over the next 5 years,
organised F&F players should also do the same over the same period.

Consolidation trend presents opportunity for expanding presence

Global F&F industry is also quite fragmented with thousands of players, though, there is an increase in
consolidation trend being witnessed amongst larger companies. At a global level, top 5 and top 10 companies
hold 63% and 80% market share respectively. The Indian industry is also dominated by global MNCs while
local players are fragmented and smaller in size, mostly catering to the unorganised market.

In India, the top 6 F&F players constitute 72% of total market while the balance 28% is held by smaller
players with less than 1% market share. The Fragrance segment is more consolidated, though, relative to
Flavours with top 5 players constituting 85% of the former segment relative to 58% for the latter. We believe
the Indian F&F industry would also see consolidation in future which provides opportunity for companies like
SHK to expand their presence through acquisitions in different categories such as the acquisition of Hitech
Technologies (HTT) and Gujarat Flavors Ltd. by SHK to expand presence in its Flavours business.

SHK is the only relevant domestic player with double digit market share

Indian F&F industry is dominated by global MNCs - amongst the top 5 players, 4 are foreign companies
together constituting 58% of the market between themselves. SHK is the only domestic company that
features amongst top 5 with a market share of 12%. Its share is higher at 20.5% in the Fragrance space
where it ranks a close number 3. The company currently derives. 87% of its turnover from its Fragrances
division segment. In Flavours, SHK is the 5th largest player in the industry but market share is much smaller
at merely 2%. It is to be noted, though, that the Flavours industry is far more fragmented with players
outside the top 5 still controlling 40% share of the market vs. merely 15% in the case of Fragrance this
presents a sizeable opportunity for growth for SHK to ramp up its Flavours play.

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Expanding presence in Flavours segment presents a high growth opportunity

SHKs Flavours products are used as ingredients in baked goods, dairy products, beverages and
pharmaceutical products. It has created a base of over 400 customers and its customer list includes the likes
of Britannia, Vicco Laboratories, Vadilal Industries etc.

The companys Flavours segment has grown by 8 x over past 7 years (FY10-17) to reach revenues of Rs
124cr in FY17 (vs. Rs 10cr in FY10) and constituted 13% of its total turnover in FY17 vs. a mere 3% in FY10.
Flavours segment remains inherently attractive given the much bigger presence of smaller players (42% of
Indian Flavours industry is constituted by smaller players with < 2% market share).

In-line with its strategy, SHK has recently acquired Hi-Tech Technologies (HTT) for a total consideration of Rs
25cr (FY16 turnover of Rs 23cr). HTT is a Mumbai based company engaged in manufacturing and sale of
Flavours and largely caters to bakery and confectionery segment. The acquisition is in line with companys
plan to pursue strategic acquisitions route to expand its presence in Flavours segment.

Bakery and confectionery segment together constitute ~27% of the Indian Flavours market and this
acquisition gives SHK an opportunity to enhance its presence in this segment. The acquisition displays
managements seriousness about ramping up its presence in the Flavours segment this would enhance the
overall growth opportunity for the company.

Q4 and FY17 Results Highlights

SHKs Q4 FY17 performance was weak from all the fronts. Its operating revenues declined 7% yoy to Rs
248cr, EBITDA declined 14% yoy to Rs 37cr and PAT grew 12% yoy to Rs 27.4cr. Revenue growth was
dragged by weak performances of fragrances business (down 15% yoy; both domestic and overseas/exports
business posted sharp decline); flavors business registered another strong quarter with 118% yoy growth
(partly aided by acquisitions). EBITDA margin contracted 130 bps yoy to 14.9% dragged by weak leverage.
PAT growth was aided by sharp dip in Tax Outlay to 21% (down 1,600 bps yoy) and depreciation (due to
change in accounting policy).

For FY17, SHK posted revenue growth of 6% led by robust 113% surge in revenues from Flavors Segment.
EBITDA Margin for the year stood at 17% and PAT growth of 6%, 11% and 43% yoy respectively; recurring
EPS stood at Rs7.2/share. Overall, domestic business posted 13% yoy revenue growth and overseas/exports
business posted 6% yoy.

Fragrance business posted weak performance overall with 15% revenue decline dragged by (1) 12% yoy
decline in domestic fragrance business (high base and challenging demand conditions due to postponement
of New Product Development by FMCG companies post demonetization) and (2) 21% decline in
overseas/exports business owing to pricing pressures in select markets and currency headwinds.

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Flavors business continued its strong growth momentum posted 118% yoy growth aided by 135% growth in
domestic Flavors (partly aided by acquisitions).

Promoters have bought shares worth Rs 41cr

In Dec 2016, Promoters had hiked its stake from 56.7% to 57.6%. They acquired 13.5 lakh equity shares at
Rs 300 for consideration of Rs 41cr. This shows confidence of the promoters in the business of the company.

Conference Call Highlights

Management highlighted that domestic business delivered robust performance in 1HFY17 led by new wins;
however, demand challenges post demonetization and postponement of NPDs by FMCG companies led to a
weaker H2 FY17. Overall, management remains confident of mid-teen growth in domestic fragrances
revenues in FY2018 aided by low base and commercialization of new wins achieved in 1HFY17.

The company has finalized strategic investments to improve capacity in India and improve operational
efficiencies. It is exploring various options including relocation of capacity, expansion or servicing different
markets from different locations (to optimize operational efficiency).Overall, the company will undertake 2-3
different projects in phases of Rs 25-30cr each and maintenance capex will be around Rs 15-18cr (for FY18).

Acquisitions in Flavors segment

The Company has been continuously looking to further consolidate its leadership position in domestic market
and has planned to take direct control of customer relationships in Northern region. For this purpose, the
Company is expanding its sales team to serve the growing needs of the customers in that region. SHK had
made several small acquisitions in Flavors segment, which would help drive Flavors revenues in the years to
come.

SHK had acquired Rasiklal Hemani Agencies Pvt. Ltd. (RHAPL) in March, 2016. Company paid Rs. 25 cr and
further, an amount of Rs. 5 cr is to be paid by way of Goodwill/non-compete. The Company expects pay back
in 2 to 3 years.

Through deep industry knowledge and wide network of trade contacts of its promoters, RHAPL has over the
years built a strong portfolio of customers for the Companys fragrances. The acquisition shall enable the
company to expand the marketing and field activities in Northern region by directly reaching the customers
through RHAPLs infrastructure.

The Board considered and approved the acquisition of the Business Undertaking of Hi-Tech Technologies
comprising of Flavours Division, through Company's subsidiary Keva Flavours Pvt Ltd. ("KFL"). HTT is a
Mumbai-based sole-proprietorship, owned by Mrs Kanchan Mhatre and is in the business of Manufacture and

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Sale of Flavours and also Trading and Services in Cyber Security and Digital Forensics since year 2000. HTT
has manufacturing facility in Daman, with FSSA licence and has presence throughout India. The acquisition
would enable broadening of the Group's Flavours business.

SHK had acquired it on a slump sale basis, for net aggregate consideration of Rs. 28.6 Cr. HTT had posted
revenues of Rs 23cr in FY16. With this, the flavourists of HTT shall work exclusively for KFL.

Fragrance & Flavors Industry Outlook

While the global fragrance and flavour industry is highly fragmented with thousands of players, there is
increased consolidation among the larger companies. In the calendar year 2013, the top 12 companies
operating in the global fragrance and flavour industry held ~83% of the global fragrance and flavour
industry. These top 12 companies can be further broken down into the top four companies, consisting of
Givaudan SA, Firmenich, International Flavors and Fragrances, Inc. and Symrise AG, that individually hold
market share of above 10%, and collectively hold almost ~57% of the overall global fragrance and flavour
industry among them. The remaining eight companies individually have market share of 2-5%, and
collectively hold ~30% of the global fragrance and flavour industry. Regional companies make up the balance
of companies in the global fragrance and flavour industry.

The fragrance and flavour products are, in many Products key components in a wide variety of FMCG
products. The Indian fragrance market posted CAGR of 10.1% over the last four years, and the Indian
flavour market posted CAGR of 11% over the same period. Large Indian industrial houses in the Indian
fragrance and flavour industry are comprised of a few well-established companies with decades of
experience.

In the calendar year 2013, the top five companies operating in the Indian fragrance and flavour industry,
Givaudan SA, Firmenich, International Flavors and Fragrances, Inc., us and Symrise SA, each held a market
share of approximately 23.0%, 14.0%, 14.0%, 12.0% and 7.0%, respectively, of the Indian fragrance and
flavour industry, and collectively held a market share equivalent to approximately 70.0% of the total Indian
fragrance and flavour industry. These major players are able to remain competitive by leveraging on their
resources and research and development facilities to produce high quality, custom-made products,
particularly for their quality conscious multinational customers.

Fragrance products and ingredients are used as a raw material in personal wash, fabric care, skin and hair
care, fine fragrances and household products. Company has over 3,700 customers for fragrance and
fragrance ingredients products, including, among others, Godrej Consumer Products Limited, Marico Limited,
Wipro Consumer Care and Lighting Limited, Hindustan Unilever Limited, VINI Cosmetics Private Limited.
Flavour products are used as a raw material by producers of baked goods, dairy products, beverages and

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pharmaceutical products. Company has over 400 customers for our flavour products, including, among
others, Britannia India, VICCO Laboratories, Vadilal Industries and Ravi Foods. SHK has four manufacturing
facilities, three of which are located in India and one in The Netherlands, with total installed manufacturing
capacity of over 19,819 tons annually. Fragrance facilities include automated, cost-efficient and scalable
blending systems, research and development facilities and quality control and microbiology laboratories,
among others. SHK has a strong and dedicated research team of 18 scientists operating in facilities in
Mumbai and Barneveld. SHKs research team has developed 12 molecules over the last three years, of which
it has filed patent applications for three. Each of the creation and development centers has advanced
technological equipment to develop, test and evaluate products. The creation and development centers work
closely with cosmetic laboratories for certain product categories, such as skin care. During the financial year
2015, company developed over 502 new fragrance and flavours compounds which are sold commercially.
Company also has strong quality control systems to enable traceability and repeatability for each batch of the
products.

Attractive growth opportunity at a reasonable valuation

Similar characteristics to consumer companies should help valuations

SHK is a clear proxy to the FMCG industry as its growth is largely driven by demand for FMCG products.
Further, with F&F comprising merely 2-3% of the cost of the final FMCG products, F&F companies tend to
have a strong ability to pass on cost-push to customers and maintain profitability. We expect SHK to post
14% revenue CAGR over the next two years while EBITDA CAGR would be higher at 15.3% (aided by margin
expansion) over the same period.

Lack of similar domestic investible opportunity should lend scarcity premium to the stock

In the Indian F&F industry, SHK is the only significant domestic player (fourth largest on the basis of overall
market share, ranked third in Fragrance, which currently constitutes c.94% of the companys turnover).
While it is the only F&F company in the listed space at present, lack of sizeable domestic player also implies
that there may not be a similar business opportunity that could possibly get listed in future as well. This
would result in SHK benefitting from a premium valuation for lack of alternative in the same space.

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Recent correction provides an attractive entry point

We recommend that investors should look to BUY SHK to participate in the domestic consumption theme at a
attractive valuations. Over time, as the market gets increased confidence in the business and the
managements execution capabilities, we believe there is potential for the stock to re-rate, given strong
growth and robust return ratios coupled with healthy balance sheet profile.

SHK has posted 10.5% revenue cagr over FY13-17. Over FY17-19E, we expect revenue/PAT CAGR of 14% /
22% and Return Ratios (RoE/RoCE) to strengthen to ~20%. We expect EBITDA margin to improve to 18.8%
in FY19E, driven by (a) shift in composition of exports in favor of high-value-added items and (b) shift in
production base of the ingredients business from the high cost region of the Netherlands to the low cost
region of India. We initiate coverage with Buy rating and value the stock at 34x FY19E EPS to arrive to price
target of Rs 373 which implies 30% upsides. We recommend investors to buy the stock at CMP of Rs 289
and add on dips to Rs 258 with sequential targets of Rs 329 and Rs 373 over the next 12 months.

Key Risks

Sharp changes in raw material prices could adversely impact profitability

In manufacturing of F&F, SHK uses raw materials like essential oils, fruit extracts, flowers, woods etc. The
prices of these raw materials have been volatile in the past and could adversely impact its operating margin.
SHKs FY15 results were adversely impacted by high volatility in raw material prices which led to a 396bps
compression in its EBITDA margin. SHK has, since, implemented measures like price hikes and cost controls
which aided in a 265bps margin recovery in FY16. Similar adverse changes in raw material prices could have
a negative impact on SHKs earnings.

Increased competitive intensity may erode pricing power

SH Kelkar faces competition from global companies producing Fragrance products and from global and
domestic companies producing Flavour products. The top five producers of F&F products, viz. Givaudan SA,
International Flavours and Fragrances Inc., Firmenich, SH Kelkar and Symrise, have a market share of
approximately 85% of the Indian Fragrance market and approximately 58% of the Indian Flavours market.
The foreign companies have stronger financial strength and larger scale of operations coupled with a higher
investment in research and development and hence represent major threat to the company's operations.
Inability to compete effectively may have an adverse effect on its business, results of operations and
financial condition. Moreover, a growing trend towards consolidation has been evident in the F&F industry
due to an increasing preference by major multi-national customers for suppliers with global operations in the
F&F industry.

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Increased regulations on the industry could raise cost of operations substantially:

Food products and their ingredients, consumer goods (such as cleaning and care products) and cosmetic
substances are subject to high regulatory standards for the protection of consumers from health hazards in
all countries in which the company manufactures/distributes its products. Regulations of India, the European
Community, the United States and Japan matter the most for the company.

Financial Summary (Rs cr)

(Rs Cr) FY15 FY16 FY17 FY18E FY19E

Sales 835 927 981 1108 1272
EBITDA 117 154 167 198 238
Net Profit 71 80 105 128 157
EPS (Rs) 5.0 5.5 7.3 8.9 10.8
P/E 56.8 51.5 39.1 32.2 26.3
EV/EBITDA 35.2 26.6 24.7 20.8 17.3
RoE 13.9 12.6 13.4 14.8 16.1
Source: Company, HDFC sec Research

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Revenues to post strong ~14% cagr EBITDA and PAT Trend

1400 250 238
1272
1200 1108 198
200
981 167
1000 927 157
154
835
761 150 137
800 128

Rs Cr
666 118 117
105
600 100
79 80
71
400 54
50
200
0
0 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Company, HDFC sec Research
Source: Company, HDFC sec Research

Revenue Mix for FY17 (%) Strong Return Ratios (%)

25.0
21.4 21.9
12.7 20.1
20.0 18.3 18.0
16.6 16.1
15.6 14.8
15.0 13.9 13.4
12.6

10.0
Fragrance

5.0

Flavours
0.0
87.3 FY14 FY15 FY16 FY17E FY18E FY19E

RoE RoCE

Source: Company, HDFC sec Research

Source: Company, HDFC sec Research

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Fragrance Geography Mix for FY17 (%) Flavours Geography Revenue Mix for FY17 (%)

30
48

Domestic
Domestic
52

Exports
Exports
70

Source: Company, HDFC sec Research

Source: Company, HDFC sec Research

FY17 EBITDA Break up (%)

21.5

Fragrance

Flavours

78.5

Source: Company, HDFC sec Research

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Fragrance & Flavours (F&F) Segment Market Share (%) Fragrance Segment Market Share (%)

15
26
30 23
7

10

12

7 21

14 21
14

Givaudan SH Kelkar Firmenich IFF Symrise Others Givaudan SH Kelkar Firmenich IFF Symrise Others

Source: Company, HDFC sec Research Source: Company, HDFC sec Research

Flavours Segment Players Market Share (%)

20

41

21

Other Players IFF Firmenich SH Kelkar Givaudan Symrise

Source: Company, HDFC sec Research

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Income Statement (Consolidated)

Balance Sheet (Consolidated)
(Rs Cr) FY15 FY16 FY17 FY18E FY19E (Rs Cr) FY15 FY16 FY17 FY18E FY19E
Net Revenue 835 927 981 1108 1272 SOURCE OF FUNDS
Growth (%) 9.7 11.0 5.8 12.9 14.8 Share Capital 141.5 144.6 144.6 144.6 144.6
Operating Expenses 718 773 815 910 1034 Reserves 368 618 667 760 875
117 154 167 198 238 Shareholders' Funds 509 763 812 905 1020
EBITDA
Long term Debt 39 30 9.2 0 0
Growth (%) -14.6 32.0 7.8 19.0 20.0
Net Deferred Taxes -5 -9 -7.0 -7 -7
EBITDA Margin (%) 14.0 16.7 17.0 17.9 18.7
Long Term Provisions & Others 4 5 5 7 9
Depreciation 29 29 20 22 24 Total Source of Funds 555 789 854 918 1049
EBIT 88 125 147 176 214 APPLICATION OF FUNDS
Net Operating Income 25 10 12 14 17 Net Block 201 202 235 271 320
Interest 19 14 5 5 3 Goodwill 84 84 84 84 84
94 120 153 185 227 Investment 0 0 0 0 0
PBT
Long Term Loans & Advances 35 47 66 71 78
Tax 25 40 48 58 73
Total Non Current Assets 320 333 385 426 482
RPAT 71 80 105 128 157
Inventories 318 337 350 397 436
Growth (%) -9.6 12.8 31.5 21.6 22.5 Trade Receivables 195 234 217 234 272
EPS 5.0 5.5 7.3 8.9 10.8 Cash & Equivalents 76 82 56 33 67
Source: Company, HDFC sec Research Other Current Assets 27 81 102 100 104
Total Current Assets 616 734 725 763 879
Trade Payables 96 129 111 137 162
Other Current Liab & Provisions 285 132 144 88 83
Total Current Liabilities 381 261 255 225 245
Net Current Assets 235 473 470 538 633
Total Application of Funds 555 789 854 918 1049
Source: Company, HDFC sec Research

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Cash Flow Statement (Consolidated) Key Ratio (Consolidated)

(Rs Cr) FY15 FY16 FY17 FY18E FY19E Key Ratios (%) FY15 FY16 FY17 FY18E FY19E
Reported PBT 94 120 153 185 227 EBITDA Margin 14.0 16.7 17.0 17.9 18.7
Non-operating & EO items -25 -10 -12 -14 -17 EBIT Margin 10.5 13.5 15.0 15.9 16.8
Interest Expenses 19 14 5 5 3 APAT Margin 8.5 8.6 10.7 11.6 12.3
Depreciation 29 29 20 22 24 RoE 13.9 12.6 13.4 14.8 16.1
Working Capital Change 24 -235 -21 -91 -61 RoCE 15.6 18.3 18.0 20.1 21.9
Tax Paid -25 -40 -48 -58 -73 Solvency Ratio
OPERATING CASH FLOW ( a ) 116 -121 98 48 104 Net Debt/EBITDA (x) 1.2 -0.3 -0.3 -0.3 -0.5
Capex -29 -13 -13 -30 -44 Net D/E 0.3 -0.1 -0.1 -0.1 -0.1
Free Cash Flow 87 -134 85 18 60 Interest Coverage 6.3 10.7 32.0 44.0 79.2
Non-operating income 25 10 12 14 17 PER SHARE DATA
EPS 5.0 5.5 7.3 8.9 10.8
INVESTING CASH FLOW ( b ) -5 -4 -1 -17 -28
CEPS 7 8 9 10 12
Debt Issuance / (Repaid) -30 -9 -21 -9 0
BV 35 53 56 63 71
Interest Expenses -19 -14 -5 -5 -3
Dividend 1.2 1.5 1.75 2.20 2.80
FCFE 39 -157 59 5 57
VALUATION
Share Capital Issuance 127 3 0 0 0
P/E 56.8 51.5 39.1 32.2 26.3
Dividend -21 -26 -30 -37 -47
P/BV 8.1 5.4 5.1 4.6 4.0
FINANCING CASH FLOW ( c ) 58 -46 -56 -51 -51
EV/EBITDA 35.2 26.6 24.7 20.8 17.3
NET CASH FLOW (a+b+c) 169 -170 41 -19 26
EV / Revenues 4.9 4.4 4.2 3.7 3.2
Source: Company, HDFC sec Research
Dividend Yield (%) 0.4 0.5 0.6 0.8 1.0
Dividend Payout 23.9 27.1 24.0 24.9 25.8
Source: Company, HDFC sec Research

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Price Chart

400

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150

100

50

Apr-17
Sep-16
May-16

May-17
Jul-16
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Jan-17

Feb-17
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Nov-16

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Aug-16

Mar-17
Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year.

Sell: Stock is expected to decline by 10% or more in the next 1 Year.

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Rating Chart

R HIGH
E
T
MEDIUM
U
R
N LOW
LOW MEDIUM HIGH
RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

IF RISKS MANIFEST
IF INVESTMENT
IF RISKS MANIFEST PRICE CAN FALL 15% &
LOW RISK - LOW RATIONALE FRUCTFIES
BLUE PRICE CAN FALL 20% IF INVESTMENT
RETURN STOCKS PRICE CAN RISE BY
OR MORE RATIONALE FRUCTFIES
20% OR MORE
PRICE CAN RISE BY 15%
IF RISKS MANIFEST
IF INVESTMENT
MEDIUM RISK - IF RISKS MANIFEST PRICE CAN FALL 20% &
RATIONALE FRUCTFIES
YELLOW HIGH RETURN PRICE CAN FALL 35% IF INVESTMENT
PRICE CAN RISE BY
STOCKS OR MORE RATIONALE FRUCTFIES
35% OR MORE
PRICE CAN RISE BY 30%
IF RISKS MANIFEST
IF INVESTMENT
IF RISKS MANIFEST PRICE CAN FALL 30% &
HIGH RISK - HIGH RATIONALE FRUCTFIES
RED PRICE CAN FALL 50% IF INVESTMENT
RETURN STOCKS PRICE CAN RISE BY
OR MORE RATIONALE FRUCTFIES
50% OR MORE
PRICE CAN RISE BY 30%

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Disclosure:
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