Equity Research - S H Kelkar & Company Limited

Summary

Keva holds the position of being the largest Indian origin player which is most adoptable to evolving consumer needs.

S H Kelkar & Company Ltd 

Company Profile :

1. S H kelkar & company ltd is a fragrance manufacturer in India. The company operates in two segments: Fragrances which manufacturers/trades in fragrances and Flavaours which manufacturers in Flavours.

2. The company is engaged in the manufacture, supply and exports of fragrances and Aroma Ingrediants.

3. The company has an established clientele across industries such as fast moving consumer goods (FMCG), Diary, Beverages , Pharmaceuticals and Tobacco with over 4100 customers.

4. The Company has 6 manufacturing units 4 of which are located in India while the remaining 2 are abroad and 5 creation and development centres.

Market Statistics: 

Market Cap : Rs. 1928 Crores

52 High / Low : Rs. 207/126

Book Value : Rs. 73.20/- 

Face Value : Rs. 10/-

P/E Ratio : 12.97

P/BV Ratio : 2.02

Dividend Yield : 0.55 

Source: www.screener.in

Shareholding Pattern :

Source: www.bseindia.com

Returns:(%)

Source: www.bseindia.com

Global Industry Outlook:

The global flavours and fragances market is poised to grow by US$ 10.98 billion during 2020-2024 approximately at 6% CAGR according to Technovio. The rising demand for personal care products, food related products, growing dietary supplements and nutraceuticals market and rising demand for natural flavours and fragrances market. The changing taste and preferences of consumers and their willingness to try and experience new varities are some of the factors that will increase the demand for flavours and fragrances among different end users.

successful new product launches help in increasing the revenue inflow of vendors and also provide multiple otpions to buyers driving overall growth of the market.

The Indian Flavour and Fragrance Industry :

Owing to the sheer size of the population, India and China are the fatest growing consumption as well as production markets in the fragrance and flavours industry. The industry is an ancillary industry to FMCGs , food processing and pharmaceutical industry.

There are over 1000 small, medium and large size enterprises operating in this industry both in organized and unorganised sector ranging from multinational companies, large Indian Industrial houses to small scale industrial units and local manufacturers.

An estimate 70% of the organised market in India comprises international players while remaining market is catered by domestic players. The market is fairly consolidated with the top 5 players accounting for 65% of the total market share. The market is dominated by MNC players, with 4 global majors featuring in the top 5 along with Keva.

Keva holds the position of being the largest Indian origin player which is most adoptable to evolving consumer needs.

India is approximately 3% of the global fragrances and flavour market despite having 20% of the world population. The growing demand for foods, cosmetics, personal care and household care products is expected to be major driving factor for the growth of aroma chemicals market.

Fragrance & Flavour Industry In India (USD billion):

Industry Challenges :

One of the major challenges for players in this industry is to address constantly changing flavour and fragrance usuage is on the rise, the availability of quality essential oils for fragrance creation is not sufficient to keep pace with the increasing demands. The Covid 19 pandemic promoted several challenges to the industry due to disruption in manufacturing during lockdowns but the demand post lockdowns and the added importance to hygiene has boosted overall demand for fragrances and floavours.

Detergents, soaps , deodorants and incense sticks continue to be very much in demand. Fine fragrances remained the worst hit category as most of these are sold in the duty free stores which have been shut owing to the pandemic.

Growth Drivers for the Company:

1. Rising brand awareness.

2. Growth in use of personal care products.

3. Rapidly emerging newer categories stationery, toys, fabric, household care.

4. Upscaling of lifestyle of the middle class population.

5. Growing popularity of naturals segment.

6. Incrasing disposal income.

7. Increasing product affordabillity led by low priced perfumes and deodorants.

8. Rise in the demand for unique flavours.

9. Natural flavours emerging as the new favourite in all categories food, oral care etc.

10. Evolving consumer plate due to growing awareness and availability of options.

11. Growing awareness of health and nutritional needs.

Source: Company Annual Report

Financial of the Company :

Balance Sheet : Rs. in Crores                                                                          

Profit and Loss Account (Rs. in Crores):

Cash Flows Statement (Rs. in Crores):

Peer Comparison :

Source: www.tickertape.in

Conclusion : 

on the basis of the discount cash flow valuation method we are recommending 'Buy' for the stock. Since the stock  offers good opportunity, we initiate a 'Buy' signal on the stock with 12 month price target of Rs. 182/- share an upside of 30.71% from current levels.