Buy S H Kelkar and Co; target of Rs 343: Motilal Oswal

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26 Aug, 2025 12:21

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Robust performance led by a recovery in FMCG growth trend: SHKL’s revenue increased 13.5% YoY to INR2,831m (est. of INR2,551m) in 3QFY18 (22% YoY growth post netting off GST from the base quarter). Fragrance business reported growth of 16.5% YoY to INR2,546m, while Flavors business reported de-growth of 8.4% YoY to INR272m. EBITDA rose 46% YoY to INR576m (est. of INR459m post excise adjustment), with the margin expanding by 440bp YoY to 20.3% (est. of 18% post excise adjustment). Gross margin contracted sharply by 600bp YoY to 46.1%, while other expenses declined 180bp YoY to 14.1% of sales. Fragrance PBIT margin came in at 15.5% (v/s 13.6% in 3QFY17), while Flavors PBIT margin stood at 25.5% (v/s 30.8% in 3QFY17). Consequently, adj. PAT grew 33% to INR338m (est. of INR286m post excise adjustment) from INR254m in the year-ago period. Strategy to strengthen fine fragrance presence in Europe: SHKL launched its first collection of perfumes from the recently established fine fragrance development center in Amsterdam. The company also acquired Italy-based Creative Flavors & Fragrances (CFF), which has a strong presence in fine fragrance and fabric in Italy. With the acquisition, SHKL has now strengthened its presence in Europe with facilities in Milan and Amsterdam, and is well on track to achieve its target of ~10% revenue contribution from fine fragrances over three years (as of now, it contributes 2% of Fragrance revenue).

With a recovery in FMCG growth, SHKL appears set to step into the growth phase. Additionally, it has been evaluating cost-saving measures like shifting of the ingredients business from high-cost Netherlands, which should aid margin expansion. We largely maintain our earnings estimates, and value the stock at 28x FY20E EPS. Maintain Buy with a target price of INR343.

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