S H Kelkar and (NSE:SHK) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to S H Kelkar and Company Limited's earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. I now hand the conference over to mister Anup Pujari from CDR India. Thank you, and over to you, mister Pujari. Thank you. Good afternoon, everyone, and thank you for joining us on S H Kelkar and Company Limited's q two and h one f y twenty twenty seven earnings conference call. We have with us mister Kerala Jose, full time director and group CEO Mr. B Ramakrishnan, CEO, Fragrances Asia and USA and Mr. Jagdish Agarwal, group chief financial officer of the company.

0:59 We will begin the call with opening remarks from the management, following which we'll have the forum open for a question and answer session. Before we start, I'd like to point out that some statements made in today's call may be forward looking in nature and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Kira to make his opening remarks. Good afternoon, everyone, and thank you for joining us for the SHK Kelkar and Company earnings call for second quarter and first half of financial year twenty twenty seven. Our first half performance has been encouraging with good momentum across our businesses. The fragrance segment reported revenue growth of 11.9% in the first half 'twenty seven, driven by India and international markets.

1:50 Excluding the impact of the low margin business we hired off in quarter four twenty six, the annual revenue of which was roughly INR 50 crores, the underlying growth was about 14. Our priorities remain to leverage our creative and technical expertise, respond to evolving customer requirements and strengthen our presence across key markets, especially new investment areas in Europe and America. The Flavor business continued to perform well, recording strong growth of 47% during the first half. Business has benefited from demand across domestic and international markets. We continue to see significant long term potential in this segment and remain focused on expanding our contribution to this business through innovation and continued development in application centers.

2:43 Over the past few years, we have invested significantly in building the global, creative, technical and manufacturing capabilities across developed markets in Europe and America. Our focus now to consolidate these gains, harness them for sustained growth by bringing new products to the market at a faster pace. Looking ahead, while the external environment is likely to remain dynamic, our strategic direction remains unchanged. We remain focused on reinforcing our position as a globally competitive, technology led fragrance and flavor company to leverage our innovation capabilities and scientific expertise and integrated global platform to deliver sustainable, profitable growth over the long term.

3:32 Our continued research in proprietary molecules, formulation technologies and sustainable ingredients will be our key differentiator as we grow confidently to the new geographies that we are expanding. With that, let me hand over to Jagdish to take you through the financial performance in greater detail. Over to you, Jagdish. Thank you, Kelkar. Good afternoon, everyone, and thank you for joining us. Let me take you through the financial performance for the second quarter and first half of FY 'twenty seven. The consolidated revenue from operations grew by 15% Y o Y to INR $6.36 crores in second quarter of FY 'twenty seven. Taking H1 revenue to INR $12.99 crore, an increase of 14%.

4:24 EBITDA for the first half increased by 33% to INR 168 crores with EBITDA margins improving to 13%. At the consolidated level, gross margins remained broadly stable during first half of FY twenty twenty seven amid volatility in raw material prices and global sourcing conditions. Protecting profitability has remained a key priority supported by proactive raw material planning, appropriate pricing actions, operational efficiencies and continued cost optimization. These measures have helped us manage input cost pressures and maintain operating performance in a challenging environment. Within the fragrance segment, H1 revenue grew by 11.9% Y o Y to INR $10.88 crore.

5:15 Growth was broad based across geographies. The flavor segment maintained its strong growth trajectory with H1 revenue increasing by 47% on a Y o Y basis to INR and $1.84 crore. The favorable performance was supported by sustained demand and deeper customer engagement across domestic and international markets. The higher revenue base also contributed to an improvement in segment profitability. While we remain encouraged by the performance of this business, the pace of growth may vary across quarters depending on the timing of customer orders. Moving to the balance sheet. Net debt stood at $9.11 crore as of 09/30/2026.

6:03 During the first half, we consistently maintained high inventory levels to ensure supply continuity and meet customer commitments amid uncertainties in global sourcing and raw material availability. This increased working capital. We expect September end date level to represent a peak for the year with the reduction anticipated by March 2027 as we optimize inventory levels. Beyond the current financial year, our objective is to progressively improve cash generation and reduce debt on a year on year basis, thereby strengthening our balance sheet and enhancing financial flexibility. Looking ahead, our focus will remain on sustaining operating performance, protecting profitability and improving working capital efficiency.

6:51 We believe these priorities will support continued business growth while strengthening our financial position over the long term. With that, I would like to be moderator to open the forum for questions. Thank you. Thank you very much. We will now begin with the question and answer Anyone who wishes to ask a question may press star and then one on their touch tone phone. If you wish to remove yourself from the question queue, you may press star and then 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Again, to register for a question, you may press star and then 1 now.

7:46 Your first question comes from the line of Abhijit Akhila with KIE. Please go ahead. Hi. Good afternoon. Thank you so much for taking my questions. First one was just if you could please share an update on the major CapEx projects, the new projects underway both in India and abroad. What are the timelines for these and how you see the ramp up going? So the CapEx is in Europe are almost all done. So the factory is put to use since May. We have seen second quarter, it's fully operational. The CapEx projects in India, particularly the fragrance factory renewal is expected to complete by end of this year, of put to use in quarter four.

8:36 And thereafter, next year, we will transition the factories out from Mulan to the new factory. The second factory is also expected in financial year 'twenty seven, 'twenty eight. Incremental CapEx will be included. And the factory in the second factory in Mulan will then transition out to the second factory in Manuti, Avashivli. This is likely to happen. So first factory could be used in quarter four this year and the second one could be used in quarter four next year, which would conclude our large CapEx expansion as we complete our domestic requirements on fragrance and flavor growth for the next few decades.

9:25 Thank you. And the other aspect was just on these overseas creation development centers that we have set up across three new markets. Any update there in terms of progress, in terms of customer discussions, any traction in So the project first half, we've done budgeted sales in The U. S. So U. S. Market, we already started generating revenues. The numbers are small. It will take a couple of years to ramp up, and there is active momentum. We also have our first sales in Germany and the first sales in The U. K. Market. So we are on track to start to monetize our investments, which we have concluded in the last two years.

10:14 Got it. And just the last one from me was on the demand scenario across regions. If you could please just characterize how things are looking from a customer demand standpoint and your ability to pass through whatever input cost pressures you may be seeing? So as of now I'm quite optimistic that the supply chain issues and the sort of Middle East Oil Crisis should abate or stabilize at least to wherever the results of the U. S. Elections, midterms and net effect of that. We are putting in our paradigm that we will see some stabilization of cost and thereafter rapid growth across Asia and continued growth in European markets. So we expect the markets to rebound and have very strong demand in the second half of the year.

11:17 This I think the biggest risk factor to this is the ongoing situation in The Middle East. And we expect to have some better understanding of where that is headed in a few days from now when the U. S. Midterm election results and any net or any changes in policies do occur. But we are very hopeful and very optimistic that we will see stabilization of the raw material prices and rapid demand. We don't expect any subdued markets. First half of the year, the Middle East market has been low key. While we have continued to grow, it is lower growth rates than what we have been experiencing previous years.

12:10 So I expect that growth rates to probably also resume on a better rate in the second half. Okay. Thank you so much and wish you all the best. Thank you. Thank you. Your next question comes from the line of Bharat Gupta with Fair Realty Capital. Please go ahead. Hi. I hope I'm audible. So I have a couple of questions. One was in regard to the domestic demand. You mentioned that the demand has been resilient, but if you look on the numbers, it has been a 9% kind of a growth in the domestic fragrance side. So can you just split the growth across the volume versus the overall value addition side, how the bifurcation has been?

13:00 So roughly 5% is the growth in cost and 4% is the growth in volume. Okay. And when we have been reading across the communities being shared by the FMCG companies, so they have reported a double digit growth across their space. So how we see the growth bifurcation with respect to our tier one, tier two, tier three clients, where we have been able to gain the market share? No. I think the growth reported and manner of growth, we have also seen rapid growth with the large clients. We have seen lesser growth with the smaller clients. So the typical higher inflation, the larger brand and the larger companies are better placed to pass on the sort of cost and have the inventory and contracts.

14:00 We've seen this time and again when there is inflation and higher pricing that the bigger brands gain some volume share. But this is very transient. So we expect that in the market pricing stabilizes, we will end up with again growth on the mid and smaller sector. So primarily the moderate growth which we have seen across the domestic space has largely been because of some muted performance from the small and peer to clients. We also are mindful that about INR 25 crores of revenue we have intentionally exited low margin categories. So to that extent, it's not a like for like growth. Like for like growth is more towards 12%.

14:47 Right. And just on the coming on to the RFQ space, so can you just share an update about the progress of RFQs, which are currently under evaluation? And has there been any meaningful developments in terms of new customer wins, conversions or any incremental wallet share opportunity? There is no specific RFQs that we are participating. This is ongoing one to one engagement with large number of clients. We continue to engage with clients in all the markets and bigger clients, midsized clients, increase our market wallet share with existing clients as well as add new clients. So it's an ongoing process.

15:32 We have more than 5,000 clients across the world, which we are servicing and we are adding new clients as well as new product wallet share with the existing clients. Just a last bit, like in terms of the expenditure, which has been going around on the TDC side, So what kind of expenditure are we looking out for this fiscal year in Israelis for the next fiscal year? So we have completed our hiring and put to use all the CDCs in Germany, Manchester and in The U. S. So we are now kind of first half is indicative of the all cost team. And of course, there will be some marginal people coming in and going as things evolve.

16:21 But there is no investment in any center. So all the centers are manned, they are input to use. As I mentioned, both Germany, UK as well as USA have their first sales in. So things are now on its way. Right. And just on the margin side, so flavors have been... Have done considerably when there has been a strong improvement in demand as well as when we look in the margins. So do you think that kind of a margin remains on a sustainable side? And will there be any improvement in the fragrance margin as well because CDC spending will moderate over the subsequent quarters? So in term of the gross margin side, I don't expect anything substantially different. We are seeing some inflationary availability issues continuing in the market.

17:17 If things ease out, as I mentioned, we are closely watching the geopolitical developments and we will plan accordingly. But if things ease out, we can probably see some 0.5% improvement in the margin profile. Otherwise, margins gross margins are expected to be in the 43 As percent far as the I mean, the EBITDA level, I think the operating leverage as we grow sales, so our fixed cost on CDCs are more or less in place. And as we grow our operating leverage will start to kick in below the gross margin in term of EBITDA percentage.

18:05 Right. And with the RMs pricing on a higher side, so and the inflationary headwinds continues to be in place. So when we speak about the net debt reduction, so do we stick to the objective of sticking below the expiry '26 levels or there can be some increase in the inventory because of the geopolitical scenario? No. We are already carrying high levels of inventory given what is happening. So we don't expect any further increase in inventory. In fact, we have planned to subsequent quarters to reduce the inventory intensity and working capital intensity of the business. Thanks. Right. That's it from my side. Thanks for answering.

18:51 Thanks. Thank you. Your next question comes from the line of Ritesh Shyam Gandhi with Discover Capital. Please go ahead. Hi, sir. Was saying, you know, since two thousand and and nineteen, you know, just looking at your ROCEs, you know, they've... You you know, all except for, you know, 2021, which is a COVID year. Or, you know, our ROCs have been under the twelve percent. I understand that there's a reasonable amount of growth in the CapEx that we're doing. And once I get utilized, it should go up. But, you know, just given the sort of specialty, the nature of the business, the high barriers to entry, lead we've had over the years, just want to understand what is it that's driving this sustained period of almost eight years of the return on capital under your cost of capital?

19:56 I think we need to define what is the ROCE metrics that we are looking at. If we look at the mature markets, which is India and which we've been operating for more than two, three decades, Our ROCEs are in 20% range. We are adding markets which are 20 to 30x bigger than our Indian market. And we are investing proportionate or disproportionately higher quantum of monies to penetrate these markets in the last many years. So the ROCs will remain subdued. And as we grow the business, the ROCs will start to look healthy. But how do we get the comfort that this expansion that we're doing outside of our home market is going to yield the results that we are actually looking for? Because it's been a reasonably long time of actually investing happening.

20:54 Just wanted to understand what's giving us the confidence to kind of continue to expand. What we need to look at is the it's not that we are investing only in one thing. We have been continuing to invest. Our objective is to be one of the top global fragrance and flavor companies. We started with India market, which is a 5% or less of the global market, and we want to take the remaining 95% of the global market as we grow. So the investments will be continual. We have taken very big jump in 2024 because of the environment of other competitive opportunities where the bigger companies had mergers and there was good opportunity for midsized companies. So as the industry offered us opportunity, we have taken big jumps in U. S.

21:44 A. And Europe in term of our investment portfolio. And unfortunately, we had a fire incident two years ago. So we have a little bit of negative CapEx or double CapEx in the domestic market as we are recovering from that incident. So this is not the, I would say, the healthiest situation. It's not the ROC when everything is going well. This is the ROC as we have continued our expansion despite having some setbacks in our domestic business. And we expect by next year, the domestic business, capital employed and new factory to start to push our ROCs back to normal levels.

22:31 Having said that, if you want to do a quick assessment, we have roughly INR 80 crores of spend in our CDCs, which are not generating any meaningful revenue yet. If you deduct the 80 crores and add it to the profitability, you can see the underlying ROCs of our mature business. Got it. And just to know, when do you think there'll be enough revenue to recover these losses? I think we are not making losses. I would say we are investing for the future from our profits of the existing business into new markets. It will take good three to four years before we are breakeven in those markets by themselves and then another further three to four years as we continue to grow to generate meaningful returns on this investment.

23:27 So it's a long haul. It will take seven, eight years before these businesses are then generating a good return on investment. Got it. So and just to understand this EBITDA margin of about 12% to 13% which we've had for the last couple of quarters, is this a sort of sustainable number which will go up from here? Or is there any little bit of an exceptional because of holding some low cost inventory or anything of that nature? So the 13% is actually at the lower side of the sustainable EBITDA, which we are doing.

24:13 It's on the subdued side. We expect it to improve here on. All right. And last thing, just going forward over the next two to three years, is there any kind of guidance you can give us both in terms of revenue and margins? So we look at continuing to grow more than 12% on the revenue side. It will be depending on the inflation and volume, but 12% to 13% growth on the top line, we expect on a continuing basis. We also are looking at slightly higher than that on the EBITDA growth. So we expect 14% on a 12% revenue growth, 13% to 14% EBITDA growth year on year And in the next two, three then but sir, just one thing, given the Indian market, I'm assuming, is growing at a low double digits and we are for very low base offshore, wouldn't our growth rate shouldn't our growth rate be materially higher than 30 to 12% given all the investments we've done?

25:26 Yes. I think that it would ramp up. The base of some of the older businesses are not kind of growing at a rapid pace. So effectively, the 12% is 25% on the new business And having a mass of existing business, which is steady state, which is mature penetrated markets. Got you. You're saying that the growth should I be quicker you're saying? I didn't understand. The growth has two components. We are not growing the new products. Our existing products, which are in the market for multiple decades are now growing at 5%, 6%. They are not growing faster than that. It is they are fully market penetrated.

26:13 They are growing, but they are not going to grow at 20% growth. So the business growth comes from the new product and new categories, which are growing at 25%. The composite comes to 12%. Alright. Okay, sir. Thanks. Thank you, sir. I'll just rejoin the queue. Thank you. The next question comes from the line of with Rare Enterprises. Please go ahead. Hi, sir. Thanks a lot for the opportunity. Sir, how is scaling up German and U... UK and US geographies shipping up? Any new client additions is a plan that you can throw light on? Thanks a lot, sir.

27:04 Yeah. So, basically, Germany, UK, and all new clients. We don't have any existing fragrance clients in these markets. The entire business is with new products and new clients. Right. So so how... So you had previously mentioned that Germany will break even this year and grow faster. So any such milestones for other geographies you can provide where we have invested in CVT? We We have not alluded that it will breakeven. It's basically starting to generate revenues. So we are now in the scaling up the revenues. We are not so last year and year and half was basically putting the team, getting the system, getting product out to the clients, starting the first move.

27:55 We are now seeing revenues in all these three markets starting to generate. They will be meaningful as we go. It will take another twelve months to eighteen months to ramp up to significant numbers on the overall scheme of the company. Understood, sir. 100%, but the base is very small. So we see that it will ramp up rapidly, but it will be meaningful. It will take at least twelve to eighteen months for these revenues to be meaningful in the overall revenues of the company. Understood, sir. Thank you. Thank you. Your next question comes from the line of Jatin Chawla with RTL Investments.

28:44 Please go ahead. Hi, good afternoon and thanks for the opportunity. I think you mentioned that you see 13% margin at the lower end of the range that you see. I think in the past, you have said 15% as more like the base margin you would like to have. So over what period do you see yourself getting to that 15% margin? Should that happen in FY 2028 or beyond? It's a bit uncertain from the point of view what do we track in term of inflation. Last six months, we have very high base inflation given all the disturbances.

29:30 If we are at a steady state, I think in twelve months' time, we should reach the 15% EBITDA. If we continue to have further inflation, probably it takes two years. But somewhere between twelve to eighteen months, we feel see the operating leverage kicking in and our target of 15% EBITDA plus will come in picture. Got it. And on I think on Flavors, 1Q, there was some large order. But the 2Q Flavors kind of run rate of 72 crore on revenue, that you see that as a sustainable run rate? Yes, I think that Q2 run rate is a bit lesser than the normal run rate. Q1 was much higher. So I think the average is somewhere in the middle.

30:24 I think 72 or 73, which is the 72 for Q2 and that's one is 180. I think probably 90, 85, 90 per quarter is the correct run rate. Q2 has been below the run rate, Q1 has been above the run rate. Got it. Got it. Also when I look at the first half, you've already done 13%, 14% growth. We are broadly seeing some revival in consumption in India, so growth should pick up. And with all the investments that you've done in TDC, your overseas business should also kind of grow faster. So why is it that we are looking at only like a 12, 13% growth going forward and not 15% kind of growth?

31:13 I think if we look at midterm basis, we've seen 15% kind of growth year on year for a few years, and then we've seen macro events, some pandemic or something happening where there is a six month or nine month flat growth. So we don't want to overestimate the CAGR growth, I think 12%, 13% growth year on year. We may see years where we are doing 15%, 16%, maybe even higher growth rate. But on an average year on year, I think 12% to 13% from here is what we see. If we compare with some of our global peers, the very large global companies, they are doing 2% to 3% average growth in these markets.

32:03 So global average of 3% to 4%, if we are doing 13%, 14%, we will be at a good clip. And we are not talking about 12%, 13% on sort of like for like. So we expect 12%, 13% growth even in euro terms and in euro like for like currency. So double digit growth like for like currency, if we have benefit of currency exchange and that we are not counting in the 12% to 13%. Got it. Flip side on that is what is the inflation assumption. I think the anybody's assumption of last year to this year is the inflation has been much higher than the any predicted number. So we see net volume impact on that. The inflation remains sort of neutral or in normal range.

33:02 Growth rates can revive beyond the 12%, 13%. Got it. Got it. Just one last question. So when I look at your other expenses, they are now kind of stable at that INR95 crore level broadly for the last three quarters. But our interest cost and depreciation are still increasing and I would assume that with new CapEx getting commissioning, they would probably increase a little bit further. So what do you see as the kind of sustainable run rate on interest and depreciation costs? When you look at the interest, I think the this quarter interest is almost a 17.5 CR, which looks more or less at a peak level. But the rate of interest are going up and even though we are going to reduce the debt, which we are targeting to reduce, the interest for the second half is going to remain more or less in the range of 617 crore per quarter.

33:55 When we talk about our depreciation, once we do our capitalizations for the new facility, the depreciation will go up slightly. So we are expecting roughly 100 of the depreciation in some way in the range debt decisions and amortizations annualized basis around 145 to 150 CR. Got it. Thanks a lot. I just want to add that the amortization of some of our acquisitions that have been done in Europe at some point for the next two, three years, those amortizations will start to reduce. Jatin, sir, sorry to interrupt, but we are not getting your audio.

34:41 I think any indicative timeline on that? No. So the... This is the twelve year amortization. So when the first acquisition 2018 that will start to reduce 2028 onwards. Got it. Got it. Thanks a lot. Thank you. Before we take the next question, a reminder to all the participants, if you wish to register for a question, you may press star and then 1. Your next question comes from the line of with Fires Asset Management Company. Please go ahead. Hi. Yeah. I don't know. Ask about the inventory bill. By when do we see this unwind and we go back to our better working capital cycle?

35:29 That's my first question. Think over the next six months we have progressively started the process. Already October we have reduced some inventories and next six months we will continue to reduce our inventory intensity. So we don't expect inventory in total to come down dramatically, but as we ramp up the sales, we will have the lower inventories managing higher sales. Sure. And when do we expect our insurance claim to be closed? Like I think some amount is still pending, right? Yes. In this financial year by March 27. Okay. And the last question from my side would be on our liabilities. Most of it is going into overdraft or short term liabilities.

36:18 Is there any way of reducing or, like, sub changes into a three to five year loan to reduce the low... Rollover dependence, or is this all towards working capital? It's mostly towards working capital. So it depends on the nature of users. Sure. Yeah. That's it from my side. Thank you. Thank you. The next question comes from the line of Bharat Sheth with Quest Investment Managers Private Limited. Please go ahead. Hi. Good afternoon, Kelkar and Jigdish, and thanks for the opportunity. Kelkar, most of my question has been answered, but I would like to understand, I mean, on the particularly flavor side, the kind of having numbers that we are seeing.

37:03 So this year will be substantial growth. So how do we see this growth momentum sustaining and where do we think a potential flavor type business that we can... One can look forward? So I think on the flavor, of course, 40% plus growth is quite anomalous growth. We have a sustainable quarter on quarter 20% growth, which is the underlying growth. We've seen additional sales in particularly in exports given the freight and disturbances in The Middle East and the markets that has generated large additional revenue in the first quarter and we see this as more as a one off transaction with the customers have increased their inventory levels given higher lead times, uncertainty on logistics, etcetera.

38:02 So we don't think it's not a consumption, it's additional sales. So their pipeline on the inventory between us and the clients usage has increased. Apart from that, I think 20% plus is a sustainable flavor growth. As we've seen after the pandemic, particularly huge movement towards packaged food, the industry growth on the sort of processed food has been substantial apart from the 7%, 8% growth in volume consumption as the population grows. We have seen additional flavor usage due to the packaged food or flavored products.

38:48 If you take simple products like dairy previously and even now I think we are at roughly 3% of the dairy being flavored or processed in the totality. But as things are moving to more and more packaged and bottled milk and flavored milk and flavored products, this ratio is increasing. Every aspect of food industry and food consumption in India is getting more and more into processed food and factory production. Multiple small bakeries across the country, they are now able to reach many more customers to the D2C platforms. So some of them are expanding their reach geographically through using the D2C basis.

39:41 And many of the small retail outlets have closed down. So the total consumption of food and the consumption of sort of processed food in the overall bucket is growing fast. We are quite small in terms of market share. So we expect to continue to grow at 20% thereabout year on year. So do you expect that this expanded base in '27, there could be some degrowth in '28 and then we'll grow 20% or whatever base we have built up that will because many people have built up our inventory. So there is all Yes. So I what supply chain. I wouldn't take 40% as the base. I would take in this year also the 20%. So if you've done about 20 crore of business in the first quarter, we can say as a one off in terms of inventory purchase from the clients and then subsequent consumption as is we end up with something like 127% for the first half on a sustainable basis.

40:53 And we will continue to build it in progressive manner. We have actually increased our development spend within Flavours also almost by double what it was two years ago. So things are we have the capability, capacity as well as the development team ready to increase the rate of increase. Okay. Great. And one more question for Jagdis. So Jagdis, is the CapEx pending? I mean, as on today in cash flow terms, considering both the factory and apart from yes. So it's going to spill over to the next year. When we talk about this year, the remaining CapEx for this year for financial year '27 is in the range of $30.35 year.

41:42 When we move to '27, '28, so we have incurred some CapEx is moving to the next year as well. So how much that will be for '28? Can you give some broader color? Yeah. So '28 would be in the range of 75 to 80 CR total, which includes all operating CapEx until quarterly. 13 crore this year and INR 15 crore next year. And what will be the sustainable CapEx apart from this? Which CapEx? Operational CapEx? Yes, maintenance and... Which is like around 15 CR roughly. Okay. Thank you and all the best. Thank you. Your next question comes from the line of Raghuram Kuchi with Best Pals Research and Advisory LLP. Please go ahead.

42:33 Sir, thanks for the opportunity. Am I audible? Yes. Yes. Kedar sir, just wanted to understand about your investment in the PDP, like because these are mature markets, Europe and U. S. Like what is giving you the confidence or what is our right to win in this market? Like just wanted to understand on that aspect, Because it is those both the markets are mature and how are we able to get a footing to this market and what is the reason for the getting quarters in this market and who are, whom are we suffering to, will we be suffering to large customers or or in the SME or mid segment.

43:21 Just wanted to get an understanding about the market. Two dynamics which are playing out globally in the developed markets in Europe and America. One, which is a global trend is a lot of small brands with the advent of direct to consumer and Internet based marketing. A lot of small brands are able to reach bigger markets. So the market share of smaller clients in the total fragrance is actually increasing. So this is opportunity for smaller players like us in America and Europe. The other thing which has happened in the industry in the last it is a continuing trend, but in the last ten years, which has reached a little bit of saturation is a tremendous amount of consolidation.

44:13 So today, three or four companies are, let's say, five companies, which are multibillion dollar companies. And then there are almost no companies in between our size and the multibillion dollar companies because they have all been acquired or merged or they have got consolidated in Europe and America. So there is a wide space, open space for midsize and smaller company clients, which we are looking to undertake. While at the same time, we are one of the only midsized and smaller companies that has a global technology and first to the world innovation platforms. So we are sort of competing with midsized companies across Europe and America with offerings that the large sized companies, global companies are able to give. So we are combining the technology advantage of a global company and the agility and cost of a small sized company. This is our offering. It's exactly where the market is growing and what the market needs.

45:24 Got it. Thank you, sir. And just what would be the market size that we need to just get it? Because you said like the markets are 20 times that of India. But I am assuming that the market that we you are referring to here is different or you are referring to the same thing that 20 times of India is same. This market is Fragrance market in these markets is even five times that of India size. So we're talking about 20,000,000,000 to $24,000,000,000 of market in Europe and America in total on the fragrance. If we eliminate some of the ingredients and the sale of that, we are still talking about a $10,000,000,000 available market in USA and Europe.

46:14 So you're setting aside what the big top four players are supplying, apart from that, you are saying that there's a $10,000,000,000 market available. And that's formulations to the market in these two regions about $10,000,000,000 revenue. Got it. Got it, sir. And thanks a lot, sir. Thank you very much. And can you talk a little bit more on the Southeast Asia, how your investments are shaping up and how the market is growing for Kelkar? So Southeast Asia, I mean, the past, especially during the pandemic, we had supply chain issues because we were trying to supply from India and their shipping lines logistics was not efficient.

47:01 We are now operating since last year our factory in Jakarta, which is doing exceedingly well. It's in full operations since September last year. We are now in a situation to have low lead times to our clients, and we are seeing the growth as a result of that with the midsize and larger clients now giving us business opportunities with much more confidence than previously. So in Southeast Asia as a business, see good green shoots. It continues to grow and we are well poised to catch this growth. This growth is it sustainable over a period of three to five years, like what are the investments we have already done that will take us for the next few years, 12% growth on top line? Yes, I think the percentage growth looks big, but the market size is quite I mean, it's much bigger than the Indian market.

48:03 Our absolute growth numbers are not that big. We're talking about INR $23,000,000 increase per annum. So we are very confident we can do that or exceed that. Thanks a lot, sir. Thank you very much. All the best. Thank you. The next question comes from the line of Praveen Agarwal, an individual investor. Please go ahead. Yes. Hi, sir. I have just a couple of questions. First is on this FDA. So does that benefit us in any form of manner once the European FDA gets into place? I don't think that it's likely to be very material in our industry.

48:56 We anyway are we have low duties on the finished products both ways. So it's not material. The FDA will not create any any opportunity or lack of opportunity. Sir. See, sir, second was when I look at your stand alone numbers and that contributes 50% of the business roughly, the... Some of the margins on the stand alone business, and I'm assuming this is largely India business, is lower... Significantly lower. If I look at the track record, historically, used to... At least on the reported basis, it was around 14, 15% per annum. And for the last two years, even considering this year, it has gone down to two, 3% in the stand alone number.

49:45 So just trying to understand what's happening here. No, see, as a result of the fire incident, all our operations has moved to the subsidiary companies in KFG and KFL, which is the factories we are now operating. So that stand alone numbers are not reflective of the actual business. So we need to combine the operation cost and the margins of the subsidiaries into the stand alone. Understood. So one last question. I think next year when the business moves back to direct operations that numbers will restore. Understood. So one more question. So there are this smaller player and I know this is not a like to like comparison in India like Privy and then there is another very tiny company called S H Kelkar. Their margins and their growth are significantly higher. So what are they doing? How are they managed to...

50:42 And we are the market leaders in this space. So what are they doing? Where... How are they are able to grow while... Faster than us? Think we are talking about two different type of companies. One which you talked about Privi. Privi is now at sort of full investment, full growth basis. Its primary business is in India. It is an export based specialty chemical. Given the sort of the ingredient business has seen very good tailwinds given that the China currency versus India currency devaluation, Chinese producers are less competitive or Indian producers are more competitive.

51:39 So we've seen that play out. Privy in specific has done exceedingly well in the last two, three years. So that's a dynamic of ingredient business that the inflation and the shortages have helped them. You talked about another company, I think that I don't have much knowledge on that company. Okay. That's it from my side. Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference back to the management for closing comments. Over to you, sir. Thank you. I hope we have been able to answer your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our team or CDR India. Thank you once again for joining us on this call. Thank you.

52:35 Thank you, members of the management. On behalf of S H Kelkar and Company Limited, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines. Thank you.