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  • Company update: SH Kelkar and Company — Buy — TP Rs.315

    Gradual progress

    Publish date: July 6, 2018

    SH Kelkar and Company (SHKL) are growing steadily on the back of growing demand, easing of the raw material fiasco (fire broke out in their German plant recently), recovery of margins due to increase in product prices and the possibility of signing big logo soon.

    Key Highlights

    We recently met the company’s chairman, chief financial officer (CFO) and the director strategy and here are some of the takeaways from the meeting:

    • Demand has grown in both the flavors and fragrances segment. The June 2018 quarterly report will mention the pickup in sales. However, the revenue may be tad lower because the company has discontinued pass-through sales.
    • The fire outbreak in the German plant had spiked the raw material prices. But the company insists they are on the mend and that operations will go back to full strength in the next two-three quarters.
    • The top brass also spelled its intention to primarily focus on three countries — India, Indonesia and Italy.
    • The company also insists the overseas acquisitions in recent times have helped them gain market share and expand its capabilities. We, however, are waiting to see what happens as overseas acquisitions can be quite tricky. (Read the full report to understand the company’s strategy)
    • The top management also spoke about signing a big logo imminently and their recent acquisition of Frutarom for US$7.1 billion. This will make SHKL the second-largest fragrance and flavors company globally.

    Valuation & outlook

    We have pared down the company’s earnings estimate by 3-5%. The company’s decision to abort pass-through sales — it contributed at least Rs.100 million every quarter — and slow recovery in margins are two reasons for the trim.

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