S H Kelkar Invests for Growth, Eyes 17% EBITDA Margin

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AuthorSimar Singh|Published at:
S H Kelkar Invests for Growth, Eyes 17% EBITDA Margin
Overview

S H Kelkar's 9M FY26 revenue grew 10% YoY to ₹1,718 crore, though Q3 saw a softer performance amid challenging conditions. The company is strategically investing in global markets (USA, Europe) and expanding capacities, projecting a return to 17% EBITDA margins within two years. A ₹100 crore insurance claim settlement is anticipated, alongside rebuilding efforts in Maharashtra.

📉 The Financial Deep Dive

S H Kelkar and Company Limited announced a 10% year-on-year revenue growth for the nine-month period ending FY26, reaching ₹1,718 crore. While the third quarter experienced a softer performance attributed to a challenging operating environment, the company is doubling down on strategic investments for future expansion.

The Numbers:

  • 9M FY26 Revenue: ₹1,718 crore (+10% YoY).
  • Adjusted EBITDA Margin: Approximately 13% (excluding costs from new growth initiatives and elevated insurance expenses).
  • Target EBITDA Margin: 17% within two years.
  • Gross Debt: Around ₹800 crore.
  • Cash Reserves: ₹90-100 crore.
  • Insurance Claim Settlement: Expected ₹100 crore within 6-12 months (related to a past fire incident).
  • Capex for Rebuilding: ₹70-80 crore over 12-18 months for two Maharashtra facilities.
  • European Expansion Outflow: EUR 2-3 million.
  • US Development Centre Investment: $1.5-2 million.
  • Long-term CAGR Guidance: 12%.
  • EBIT Margins (Fragrance): Target 13-14% in 2-3 years.
  • EBIT Margins (Flavours): Steady 20-22%.
  • Blended EBITDA Target: 17-18%.

The Quality:
Management is prioritizing cash flow generation and balance sheet efficiency. Near-term debt increases are anticipated due to significant investments in global markets, including the USA and Europe, and the rebuilding of facilities in Maharashtra following a fire incident. The company expects a ₹100 crore insurance claim settlement to bolster its finances within the next year.

The Grill:
While the Q3 performance was impacted by external factors, the management detailed its strategy to overcome this. The adjusted EBITDA margin of 13% is a key focus, with a clear path to improve it to 17% through operating leverage and gross margin enhancements. The current depression in Return on Capital Employed (ROCE) is acknowledged, with a projection to recover to mid-teens (around 14%) by FY29, a crucial point for investor scrutiny given the capital being deployed.

🚩 Risks & Outlook

The company reiterates a positive long-term outlook with a 12% CAGR growth guidance. Key drivers include expanding global presence, with Europe's capacity utilization at 90% and plans for significant expansion, and increasing capacity in India. The US Creative Development Centre has secured its first customer order, marking a significant operational milestone. Investors will monitor the execution of these growth initiatives, the impact on debt levels, and the timely realization of the insurance claim and margin recovery targets.

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