S H Kelkar Fundamental Analysis

S H Kelkar & Company Fundamental Analysis: A Dark Horse For Long Term

February 10, 2018 7 Ankit Shrivastav


S H Kelkar is the largest fragrance and flavours company, engaged in research, manufacturing, and marketing of various artificial fragrances and flavours used in variety of products across various sectors. Company manufactures under three brand names, SHK, Cobra, and Keva.

Companys fragrances are used in FMCG sector for soaps, shampoos, personal care products, hair care, fabric care, home care, fine fragrances and blended products. S H Kelkar has also expanded to flavours category, and the products are used in variety of food products such as dairy products, beverages, savoury snacks, baked goods, and pharmaceuticals.

Company has wide portfolio of almost 9,700 products (including both Fragrance and flavours segment) and almost 4,100 clients across the country and around the globe, spread across 50 countries. S H Kelkar currently enjoys 23% market share in fragrance segment while it enjoys 3% market share in the flavours segment.

Company is looking to penetrate deeper in the flavors market because of demand for ready to eat products from urban and semi urban population, and opportunities available in the rural markets. Having understood the company and its business, let us now focus on the past performance of the company.

Financial Highlights:

Company has posted encouraging set of numbers in the past 5 years. Some of the financial highlights of the company are mentioned below in detail:

Revenue Break up:

Company has wide variety of products, which is used by customers in India and abroad. Company’s revenue for the financial year 2017 is Rs.688 cores. Company generates 67.5% of its revenue from the domestic market and 32.5% of its revenue from the exports. To expand its international presence, S H Kelkar has recently established a fine fragrance center in Amsterdam. S H Kelkar is targeting $1 billion revenue in the next decade. Company is also looking to grow inorganically by buying running assets instead of growing and expanding by creating assets.

Net Operating Revenue:

Net Operating Revenue is the Net revenue generated by the business solely from its core operations, after deducting the cost of sales. And other expenses.

S H Kelkar has posted encouraging growth on the Net Operating Profit front, Companys Net operating profit has grown from Rs. 340.76 Crores in 2013, to Rs. 614.46 crores in 2017, a growth of 12.51% CAGR. As per the recent interview of the management, company has planned a series of products in the year 2018, which were held back due to demonetization and GST.

Net Profit:

Net profit is also referred to as bottom line, net income and net earnings. Net profit is the part of company’s total revenue left after paying for operating expenses, taxes, interests, preferred stock dividends.

S H Kelkar has registered high growth in net profit in the past 5 years. In 2013, company posted Net Profit of Rs. 21.38 Crores, while in 2017, it was Rs. 74.31 crores, a CAGR growth of 28.29%.

Basic Earnings Per Share(BEPS):

Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.

Company is growing its earnings at a higher percentage compared to its operating revenue. While operating revenue grew at 12.51% in the past 5 years, companys Basic Earnings per Share grew at 28%, from Rs.1.63 per share in 2013 to Rs. 5.14 per share in 2017.

Net Profit Margins:

Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid.

S H Kelkar has not only maintained high profit margins, but has also been successful in widening them by decisive cost cutting and efficient cost optimization.

The Net Profit Margins of S H Kelkar was 6.25% in 2013, which improved to 12.07% in 2017. In other words, the margins of S H Kelkar have almost doubled in the last 5 years.

Return on Capital Employed(ROCE):

ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.

Company’s ROCE have also improved in the past 5 years, from 6.07% in 2013, to 11.48% in 2017. Improvement in ROCE shows that company is using its capital efficiently and is generating higher profits out of it.

Debt to Equity:

Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds).S H Kelkar is a debt free company, which means it has no liabilities which allows S H Kelkar to pocket all its earnings, retaining all its profits.

Future Expansion Plans of S H Kelkar:

Company has many ambitious expansion plans both its fragrance and Flavours segment. The future expansion plans of the company can be divided into two segments, domestic segment and global segment.

Indian fragrance and flavours and fragrances market is currently valued at $25 billion and is expected to grow at a rate of 10.2% for the next 5 years.

Majority of Indian fragrance market belongs to products such as soaps, shampoo, and detergents. S H Kelkar enjoys 30% market share in this segment, which also contributes 67% to the topline of the company. With rising rural penetration, improvement of standard of living, large population, and change in consumer preferences from economy to premium products presents a great opportunity for the company to upscale its business and introduce fine fragrances in the market.

The global fragrance and flavors market is expected to grow at 5% CAGR. 30% of the company’s revenue comes from export business. S H Kelkar is looking to expand its global reach by growing inorganically, that is by acquiring other companies that add value to the existing products and business model of the company. Taking some strong steps in this direction, company has Commissioned a fragrance center in Amsterdam, where it is researching to develop fine fragrances. S H Kelkar strives to achieve a target of $1 billion in the next decade.

SWOT Analysis of S H Kelkar:


S H Kelkar is the largest manufacturer of fragrance and flavours, and is one of the few organized players in the segment.

Company has ?a diversified customer base from various categories such as FMCG, bakery, confectionery and pharmaceuticals.

Company has a large number of customers spread across the country and the globe.

Company has large number of clients domestically and globally, which means it is not dependent on a single client for its business, because of which there is very low risk of losing significant amount of revenue.


One of the major weakness of the company is that it requires almost 1,500 types of raw materials in order to manufacture its products. Managing such a variety of raw material, while ensuring the quality is a challenge. Secondly, the timely availability and supply chain constraints may also be a hurdle in frictionless functioning of the company.

Company is looking to grow inorganically, which means that it is looking to acquire running companies and their assets that will complement the current business model and growth plans of the company. Acquiring new assets may prove to be a challenge as it involves lot of complex and regulatory challenges. Despite successful acquisition, it does not guarantee successful integration of people, process and product. In other words, growing inorganically may backfire.


India is a rapidly growing consumer market with expected growth of 10.2% in the next 5 years. With increasing rural penetration in India, premiumization of products, and lack of organized players in ?this segment, company stands to gain a lot from the domestic market.

Globally, company generates 30% of its revenue from exports, and with commissioning of new fragrance center in Amsterdam, company has a great opportunity to expand its global footprint which will boost its revenues and profits.

Recent budget also announced hike in custom duty on imported perfumes from 10% previously to 20%, which means importing perfumes from outside the country would cost more. This presents a great opportunity for the company to capture the domestic market and expand its business in the rural areas as well.


Since fragrance and flavours are an important part of our daily life, it is important to make sure that the chemicals used in making these products are of high quality and have no significant threat to human health and environment.

The sector in which S H Kelkar operates has to go through lot of regulatory and environmental clearances before the product is ready to launch, this pose a great threat to the company as a product has to go through stringent norms, which requires a lot of time and effort to develop. Company may lose a big market opportunity if the product prepared fails to clear the hurdles.

As already mentioned above, company caters to more than 4,000 customers. Company may not be able to cater to each customer as per his specific needs , on time and with the quality of service expected. This may lead to a negative feedback and company may lose its trusted client.

Should I Invest in S H Kelkar & Company At Current Price?

Looking at the business fundamentals, company has strong business model, is one of the market leaders in its segment, has posted strong past performance and has ambitious future expansion plans. The current Government policy to hike customs duty on imported perfumes works in favor of the company and will help expand its domestic market. Rising population, young population, improving lifestyle and higher rural penetration also presents great opportunity for domestic business growth and expansion.

S H Kelkar is currently trading at a PE of 40.8, which is close to Industry PE of 42.84, which means that S H Kelkar is fairly valued, at par with Industry PE. From a fundamental view, company has some growth potential, but is slightly expensive.

From technical point of view, S H Kelkar has recently seen a small correction in price and is trading near its support levels of Rs. 275. Once this level is breached, the stock may correct to Rs. 255. If you are a long term investor, a breach in the current support will present a good buying opportunity for long term investors. For short term investors, it is better to wait for the level of 260-255, and and start buying at these prices for a period of 3 to 6 months.

Total Comments ( 7 )

  1. PRAVIN D says:

    excellent analysis


    Boss Ankitji,
    Today I entered in S H kelkar@ RS. 249/- .
    Where to exit? 3 month target please.
    I have some comment in Skipper LTD. But no reply from your end.



    Why going down ? Where should I average or add more?

  4. rudrkov says:

    why it is coming down daily have invested at 270 levels and it has come down to 218 any idea or guidance what has to be done here

    • Ankit Shrivastav says:

      S H Kelkar has seen decline in profit in its latest quarter from Rs.27.19 crores in Dec 2017 to Rs.19.73 crores in 2018 on a consolidated basis.

      However, if you look at the long term fundamentals of the company it has done well.

      S H Kelkar has also made many acquisitions both in domestic and international market to expand its business inorganically.

      Company has recently acquired Italy based Fragrance company called Creative flavours and fragrances. SH Kelkar has acquired 51% stake for approx Rs.94 crores and rest will be acquired over a period of 3 years.

      In the domestic market, company has made two acquisitions in the past one is Mumbai based VN creative chemicals, and second is Gujarat based Gujarat flavours Pvt Ltd.

      Overall, the long term fundamentals of the company look great and all the acquisitions will payoff in the next 3-5 years.

  5. Kishan Shah says:

    What about competitors of SH Kelkar. I think Oriental aromatics is the closest competitor. Are there any other?
    Any analysis of Oriental aromatics, if you have, please share.
    Thank you.