International biz contributes 33% to total revenues: SH Kelkar

A: Our capacity utilisation is well below 50 percent around the 45 percent mark, although our industry doesn’t look at capacity utilisation as one of the main matrices.

Reema: Your fragrance business saw a 10 percent decline in the international segment and plus you face some cost pressures, is that continuing in Q2 as well?

A: We have seen this through the last year softening in the international market, the competition and the growth environment is still very slow. However, growth started to renew over the last couple months, so we don’t foresee any negatives going forward on the international fragrance business.

Nigel: In your fragrance business the revenues grew by close to 17 percent, so that’s good going but unfortunately your earnings before interest & tax (EBIT) is up only by around 6 percent. This pressure on the fragrance business which is more than 85 percent of your total revenues, do you expected to continue going ahead?

A: No, in fact, this is largely effect of accounting changes, a lot of changes have happened in the inventory policy in the first quarter due to Indian Accounting Standard (Ind AS). Our underlying operating profit remains intact, a lot of the provisioning policies have changed as a result of the accounting standards, which has preponed some of our expenses from later period.Reema: Let’s talk about the company’s topline growth. It was at about 15.5 percent in Q1 and even on a constant currency basis growth of close to about 15 percent. Is that the revenue run rate and growth rates that we should expect for the full year?

A: Yes, we maintain our long-term target of 15 percent compound annual growth rate (CAGR) for the business as a whole and I would expect that for the full year.

Nigel: Your finance cost has come in sharply lower. What is the current debt level, how much has it come down by?

A: Last year we did the initial public offering (IPO) and after that we had a zero debt position. This quarter we have a slight positive or a small debt around Rs 20 crore largely owing to the acquisitions and inventory position which we are holding. So, overall debt is very close to zero.

Reema: Your margins expanded by 60 basis points for the entire consolidated business. What’s the raw material movement like in the quarter that we are in, should we expect further margin improvement?

A: From previous year to this year comparison we have about 2 percent saving in the cost of our purchase across a lot of different products, so there has been a saving on account of petroleum prices coming down and some of the currencies softening. There has been additional 2 percent saving on the production cost due to our research and development (R&D) in term of supply chain optimisation and process optimisation. So at the cost level for the domestic fragrance we have a 4 percent improvement in this year versus the same quarter last year.

Nigel: What’s your current international business contribution to your total revenues as a percentage?

A: International business as a total percentage is 33 percent of our total business, 67 percent is the domestic.

Nigel: Are you looking to grow that business, is there any expansion on the cards over there and have you added any more clients?

A: We continue to add clients in our international business. Our office in Indonesia has been fortified with additional sales people. We have also expanded in Thailand, Malaysia and the entire southeast Asia region via our Singapore office.

Nigel: What’s the breakup of the international revenues? Could you tell us geographically?

A: International revenue about 17 percent is out of our European subsidiary and the remaining 16.5 percent comes with Middle East, Africa and Southeast Asia roughly in an equal split.