Rev dip on forex volatility; aim to be debt-free: SH Kelkar

Mumbai-based fragrance and flavour manufacturer SH Kelkar on Wednesday launched its Rs 500 crore initial public offer (IPO). Speaking to CNBC-TV18, chief executive officer Kedar Vaze says the proceeds from the IPO will be used to wipe-off all the debt from its books.

The IPO is driven with the intention of offering a part exit to private equity investor Blackstone and one more promoter, adds Vaze.

On the road ahead, Vaze says the company will be interested in signing joint-ventures and adds that the blip seen in revenue over the past few years is due to euro-rupee forex volatility. The company has three manufacturing plants in India in Raigad, Vapi and Mulund in Mumbai and one more in the Netherlands.Below is the transcript of Kedar Vaze’s interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18.Nigel: You are looking to raise close to around Rs 500 crore, but we have an outline of only Rs 150-200 crore of what these proceeds will be used. Is this IPO only to give an exit to Blackstone? Just give us the details.A: The company is a cash generating business, we do not have too much capital investment in the company, so this is primarily an initial public offering (IPO) driven with an exit for Blackstone. While we are doing that, we also decided to take in money in the company to write off all the debt that is the on the books of the company. So, this will completely make it a debt free company and then we can use the balance sheet to look at long-term large acquisitions or any long-term joint venture (JV) or large capital investments.Reema: We will come back to your plans regarding a long-term acquisition or a strategic tie-up, but before that your revenue growth seems to be slowing. In FY13, it was 16.8 percent, FY14, the topline growth was 14.3 percent and FY15, it was at 10 percent. What was the reason for that and what can you tell us about the revenue growth in the coming years?A: About 20 percent of our revenue comes in our subsidiary in the Netherlands. In FY15, because of the euro to rupee conversion that has come down in terms of revenues, so in the same currency basis, it has actually not degrown, or it is not slowing down, it is an effect of the change in the currency of euro to rupee conversion.Reema: So, long-term revenue growth for the company would be?A: If you break up the last five years’ revenue growth in terms of the Netherlands subsidiary which is almost at full capacity and the business out of India, the business out of India is doing about 18 percent plus compounded annual growth rate (CAGR) growth and that is very much sustainable given that the market is growing at that rate.Nigel: Give us a few details and what is your current market share? I think you are a few percentage points behind the market leader and you told us that maybe you look at acquisitions as well. Can you give us details?A: We have one of the largest companies in the Indian domestic fragrance market. In terms of the market share, the competition is largely global multinational companies (MNC), subsidiaries in India, so they have a large share, but a large part of their customers is the global MNC brands. Vis-à-vis, the brands from domestic fast-moving consumer goods (FMCG) companies, we have by far the largest market share in the country.Nigel: What are those numbers if you could give us?A: We are roughly 21 percent of the market of 50 percent, which is the domestic FMCG companies. So, roughly 40 percent of the market.Reema: You spoke about the possibility of an acquisition or a strategic tie-up and your balance sheet is now open for you to lever that for any of the above. Take us through, have you identified an acquisition, what could be the nature of this strategic tie-up. Would it be with an MNC player, why would you need it?A: We do not have any specific targets or discussions at this point. We have been exploring various opportunities for the last two years, but we do not have anything specifically tied up. The industry in general has been one where there has been a lot of consolidation globally and we see that happening in the Asian market and Indian market going forward. We are prepared for that as it comes.Nigel: Could you give us some details about the anchor book investors as well?A: We had a lot of demand on the anchor book. The names are already out in the media. A lot of interest from large domestic mutual funds as well as global foreign institutional investors (FIIs). So, long only large FIIs have invested in the anchor book.Reema: Take us through what the capacity utilisation is at your four manufacturing plants.A: We have been, though our capital cycle in the last seven years invested almost Rs 180 crore in capacity expansion. So, our capacity today is less than 40 percent utilisation across all the plants.Nigel: I know you have a land in Raigad and you have some operations in Mulund as well. Would it make sense just to transfer everything to Raigad and on fact develop the current plot in Mulund. I believe it is around 10 acres, we just took a rough valuations, it could be Rs 400-500 crore. Is that an option going ahead?A: We have actually three manufacturing facilities in India, one in Raigad, one in Vapi and one in Mulund. The Mulund facility is largely a 100 percent export oriented unit (EOU), so there is no immediate plans of moving that out.