S H Kelkar and Company (SHK) jumped 9.72% to Rs 127.60 after the company announced strong business update for Q4 March 2021.SHK, the largest Indian origin fragrance and flavours company in India, saw healthy demand and enquiries during Q4 FY2020-21, with normalization seen across both domestic and international markets. Client engagements and wins remained robust across the mid & large sized FMCG customers. Creative Flavours and Fragrances (CFF), the company's 100% wholly-owned subsidiary, also delivered steady performance during the quarter.
During the quarter, some of the company's raw materials saw moderate inflation. However, the SHK's prudent inventory management philosophy enabled it to efficiently manage the situation. This, in addition with a healthy product mix enabled the company to maintain profitability margins at healthy levels during Q4 FY21.
In a key development, SH Kelkar's wholly-owned subsidiaries, Keva Italy and CFF, entered into an agreement for acquisition of 70% equity stake of Nova Fragranze S.r.l. (Nova). Incorporated in the year 1992, Nova is a ltaly-based company specializing in fragrance development and marketing with focus on premium customers in the high-end product segments of hair care and beauty care. In the year 2020, Nova's revenues stood at 2.4 million euros, with a solid gross margin profile more than 60%. As per the agreement, Keva Italy and CFF shall be acquiring 28% and 42% stake, respectively of Nova. The consideration to be paid for the acquisition of 70% stake is 1.52 million euros (approx. Rs. 13.4 crore).
In another development during the quarter, SH Kelkar has become the exclusive distributor for Isobionics Santalol in India. The new fragrance ingredient is the first joint product from BASF and Isobionics and is now available for the Indian market through SHK.
On the balance sheet front, the company was able to significantly lower its total debt during the quarter owing to robust collections, strong cash flows, and normalizing inventory levels. The net debt position decreased by Rs 113 crore and stood at Rs 379 crore as on 31 March 2021 (provisional and unaudited figure) compared to Rs 492 crore as on 31 December 2020.
On the macro-environment, while there are concerns related to the second/third wave of COVID-19 in India and certain international markets, the company said it remains fairly confident of delivering healthy growth in overall operations on the back of steady demand environment anticipated in the FMCG industry.
SHK has a long standing reputation in the fragrance industry developed in 96 years of experience. Its fragrance products and ingredients are used as a raw material in personal wash, fabric care, skin and hair care, fine fragrances and household products. Its flavour products are used as a raw material by producers of baked goods, dairy products, beverages and pharmaceutical products.
On a consolidated basis, the company posted a net profit of Rs 35.39 crore in Q3 FY21 as against a net loss of Rs 10.88 crore in Q3 FY20. Net sales jumped 30.5% to Rs 375.35 crore in Q3 FY21 over Q3 FY20.
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