After a subdued third quarter performance, Kedar Vaze, Group CEO of SH Kelkar & Co, said he hoped the export pain was behind the company.
Speaking to CNBC-TV18, Vaze said that the international fragrance business had been facing headwinds and fell 2 percent in the third quarter on the back of currencies being devalued and general disruption in higher credit rates.
The company had earlier reported a consolidated net profit of Rs 25.38 crore against Rs 21.81 crore YoY in the third quarter. Its revenue increased to Rs 249.42 crore from Rs 244.81 crore.
He said that operations in Netherlands, which accounts for 15 percent of its business abroad, declined 20 percent. Overall, fragrance export had fallen by 13 percent.
He said the domestic business was continuing to do well despite the impact of the note ban that was imposed last November.
Below is the verbatim transcript of Kedar Vaze’s interview to Reema Tendulkar and Nigel D’Souza on CNBC-TV18.
Nigel: Just looking at your numbers in your fragrance business you have said that there are some international headwinds that you are facing, I think currently the mix is around 78 to 30 percent. Will you look to change that mix going ahead and also if you could give us individually what are the margins you enjoy on your domestic business, for your fragrance business and for your international business?
A: Just a quick comment, I think international business has been facing quite a lot of headwinds both in terms of the global demand through our Netherlands operations that has been slow and therefore we have seen decline in some of that business which is coming out of Netherlands operations. Also, the low margin, low value, product sales from India into market such as Africa has been affected with a lot of devaluation of currencies and disruption in general higher credit risk.
So, we have not chased this market below a certain margin and risk profile. Between both of these trends, the international fragrance business has basically been flat, minus 2 percent for the nine month, for the year-to-date (YTD) and the total fragrance domestic has continued on a good clip at 16 percent, 18 percent growth per YTD and total 14 percent YTD on the fragrance share without the Netherlands operation.
Reema: You said overall international revenues are down 2 percent, is that right?
A: Between the India based business is down 2 percent, Netherlands operations is down further 20 percent. So, the combined fragrance export is down 13 percent.
Reema: Fragrance export is down 15 percent?
A: 13 percent YTD.
Reema: This is what percentage of your overall revenues and should we expect any recovery in your fragrance business in terms of exports?
A: The export business pain is behind us in terms of decline in the volume and the kind of margin profile where we had low value products. So, the entire decline in topline is not reflected directly in the bottomline. We have improved our margins from our formulation exports from India and we will continue to grow on this space. So, there is a base erosion on the low margin product which we have allowed to decline in this period.
Nigel: Netherlands operations as a percentage of your total revenues, what is it?
A: It is about 15 percent.
Nigel: Wanted to ask you about your capacity utilisation, I remember at the time of the IPO you were talking about pushing up capacity utilisation levels, what are they currently?
A: They are around 45 percent for our operations in India and at 80 percent in our operations in Netherland. Going forward we will look at further investments in the India side to allow us to improve our operating efficiencies.