Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. We take the first question from the line of Abhijit Akella from Kotak Institutional Equities. Please go ahead.

Good afternoon. Thank you so much and congratulations on an improvement in this quarter's numbers. I was just hoping to dig deeper into a couple of areas. One was on the revenue growth front. First of all, Flavours, as you pointed out, has grown extremely strongly, maybe some lumpy orders this quarter. Would it be possible to share some outlook for the full year in terms of what your budgets are for that business just in terms of revenue growth for the full year, just so we get some perspective of how the rest of the year might be? And then on the Fragrances side, the India piece seems to be a little bit soft, flat revenues year-on-year. But is that mainly because of a high base from last year's 1Q? And if so, how are you seeing trends in the India Fragrance business? And

finally, just on the foreign exchange contribution just given the sharp depreciation in the rupee, could you just spell out how much that might have contributed to revenue growth this quarter? Thanks.

So, I think on the revenue side, while the overall revenue of the quarter is in line with the budget, the internal dynamics of the product mix is skewed more towards flavours being higher than the budget and the ingredient business being lower than the budget. But the overall revenue is in line with our expectation. For the future remaining quarters, we expect aid to catch up as the year goes through and the flavours to normalize, I would say, I think we did Rs. 112 crore revenue for Flavours this quarter and ballpark Rs. 95 crore would be on a normal basis. We expect that 1-odd month or 2 or 3 weeks of preponement of orders by clients given that the lead times and shipping times were not normal. So, we have seen uptick in the orders from some of our clients. However, in July, we do not see any decline in this momentum. So, there is continued demand. But I would look at something like Rs. 95 crore, Rs. to 96 crore of flavour sales of quarter 1 and guesstimate about Rs. 15 crore of preponement through the kind of extra stock buildup in the distribution. Yes. Then you had a question on foreign exchange. I think 9% is the like-for-like growth and net-net 5% is our additional FX sales due to exchange rate. You had a third point.

Yes, fragrance India is soft.

Yes. So Q1 last year was quite a strong quarter in comparison. And we have taken conscious decision, as we pointed out in quarter 4 to exit from some low-margin businesses, and we have kind of held back on our sales to clients and only given what they actually regularly consume and not taken any additional advanced orders as the pricing movement has been happening in the quarter. So, as we increased prices, we have rationalized the margins. We have made sure that we are selling the right products to the right people at the right pricing in a much more disciplined manner and less or more focused on the overall business given that we are not confident of having raw material to service all clients in the first quarter. I think subsequently, with our inventory buildup and the current scenario, we are servicing almost all the clients now.

Thank you. No, that is really helpful. Thanks for that. The other point I just had was on the margins. So, one thing is you have mentioned the possibility of some margin expansion this year, along with double-digit revenue growth. Given we have reported 13-odd percent margins this quarter, any broad range that we might be comfortable sort of offering from a full year perspective? I mean would it be, say,

10% to 12% or maybe slightly higher than that? Anything you might be comfortable talking about? I also just wanted to check, should we expect gross margins to remain around these levels, current levels given all the volatility in the marketplace? And finally, just on flavours, flavours have been reporting extremely strong margins. So, what is a reasonable number, sustainable number to work with going forward?

So, on the flavours front, fast growth has resulted in a very healthy bottom line. We continue to see the growth. So, at the moment, we are quite bullish on how the flavour business is evolving. Quarter 1 is, I would say, very strong. We may not see the same sort of momentum in the remaining quarters, but it is doing exceedingly well. There is repeat demand, new product adoption last year has been good. We are seeing that momentum continuing into this year. So, Flavours will outperform as the current year vis-a-vis the previous year's trend. So, it is in line. To your question on the bottom line, so I think this quarter is not an unusual quarter in any way. So, if there are no big changes, we should look at similar sort of margin and growth. We just remain cautious. I think the demand and the overall geopolitical situation, if it affects different parts of the world and it affects some parts of our business, then that will affect the overall results. But at the moment, we see strong double-digit growth across the board. And if that double-digit growth is sustained and remains there, we should be in similar margin EBITDA level at least in terms of absolute numbers. Probably percentages can vary 1% here and there based on the pricing and the sales momentum. But no way this is a kind of exceptional quarter. This is the baseline normal quarter.

Thank you so much. And just one last thing for me before I return in the queue, if you will permit me. So, just the timeline for your factory rebuild and the other expansion, if you could please just give us an update on that. Number two, on the debt front, should we expect some further increases during the course of this year? And finally, on your tax rate, it seems a bit on the higher side. What is the full year rate we should work with? Thanks a lot.

Okay. Abhijit, when we talk about the factory, we are looking at commissioning Vanvate in the third quarter. Our debt position is expected to remain broadly at the June level, although it may slightly go up in September. But otherwise, when we talk about the mid or long-term, we have a clear path towards deleveraging and reducing debt. So, I do not see that that is going to be the same situation as what we have on debt. You talked about the effective tax rate, Abhijit. So definitely, when we had March 2026, our ETR was very high. And it is going to get moderated as we start making the growth into all other subsidiaries and when we look into the overall profitability. So even today, when we look at June quarter, we are around 31.5% to 32% kind of

ETR. Our target is that should be less than 30%. That is what we are working on that.

Thank you. We take the next question from the line of Pranav Tendolkar from Rare Enterprises. Please go ahead.

So, I understand that you are not giving a quarter-on-quarter similar growth in fragrances. But what is the opportunity set here like in, say, 2 years, 3 years down the line, whatever investments we are doing, whatever relationships we have, and this industry is relatively unexplored, so what is the opportunity set here? Can you just spend some time on evaluating that or explaining that?

So, if we look at the fragrance business market size in, let us say, just U.K. and U.S.A., which are our latest new initiatives, this market is roughly 20% to 21% of the global demand vis-a-vis India, which is 5%. So, we are talking about a market size, which is 4 to 5x bigger than the India fragrance market. It is a different magnitude of size and scale of business. So, we are putting our first, let us say, efforts in that market. We have seen some traction. We will continue to grow that over the next 2, 3 years. So, the market opportunity is very large. It is basically $10 billion of opportunity or market size. But we are new. It will take us some time to keep building the relationships and start to build this. But the overall market size is quite large compared to the Asian market.

And this market size is actually addressable with the skill sets that we have?

I mean, effectively, in the longer term, yes, I think we are targeting the $100 million- odd market in these markets, which is sort of low-hanging or easily addressable by us as we continue to build our R&D capability and customer engagement. So, we have more than adequate, let us say, market opportunity for the next 2, 3 years. On the longer term, we have built the platform around innovation, around patents and processes, which we are able to market. So, it is a sustainable advantage we want to build in the market and continue to grow. So yes, entire $10 billion is an opportunity for us. It will take 10 years to reach that kind of opportunity space. But the capability to reach all $10 billion is already sort of built in with the patents, with the back-end systems and IP generation.

Thank you. We take the next question from the line of Shivam Gupta from Trinetra Asset Managers. Please go ahead.

Hi, sir. Thank you for the opportunity. My question is as customer preference continue to evolve, are you seeing faster growth in premium fragrances compared to mass market product? And how do you expect this trend to influence your product mix over the next few years?

So, I think generally speaking, as customers have higher disposable income, there is a move to premiumization. This is a normal phenomenon year-on-year across the globe. I think in years of high inflation, which we expect this year to be a bit muted on the premiumization because of inflation. But in general, this trend is a normal trend where people go in for a more premium product or up marketing. The brands also bring in better versions and higher spend products. And this is a normal trend. So, it is not disrupting in any way for us. The benefit of working in Europe markets for the last few years is that we have already product developed for the next wave of products that will come in Asia. We are cross-selling previous versions in Europe, which are still in trend in Asia.

Okay, sir. And my second question is like what percentage of your revenue today come from the product launched in the last 3 to 5 years?

About 10% to 11%.

Thank you. We take the next question from the line of Jatin Chawla from RTL Investments. Please go ahead.

Yes, hi, good evening and thanks for the opportunity. My first question is that we have seen a lot of raw material volatility. And given that we have kept some strategic inventory, are we seeing some benefit of that in the gross margin? And going forward, can there be some negative impact on the gross margins once this inventory that we have starts depleting?

So, we have prepared in a manner that we have 6 months visibility on the inventory and our contracts or pricing to the client. So, we have increased the inventory to ensure that for the next 4 to 5 months, I mean, 6 months from July, effectively, we do not have any additional cost pressure on the raw material. So, all the prices are fixed with stock in hand or contracts in place. So, we do not see any big changes in the profile or selling price or cost structure in the next 6 months on the part of the raw material. We will obviously keep updating what is happening on the raw material month-on- month. And we have got, in a way, extra 45 days of inventory in the system to allow us to pass on any big shocks or any big changes to the clients in proper time and not take a hit on the gross margin at our end. So, we have additional inventory to allow us to go back to the clients well in time and ask for and push for the recalibration of the selling prices if required.

Got it. Got it. A related question to that is that if we are confident that our gross margins can be maintained, then should not our EBITDA margins go up as the revenue scales up because your CBC investments are largely done now, so that fixed cost absorption should improve going forward?

Yes. Your comment is absolutely right. We are just not in a sort of position to anticipate or predict the demand structure or demand situation for the full year. As of now, things look quite in normal range. And as we grow double-digit plus, our margins will improve. But for the full year, we are not confident to predict beyond 2, 3 months' time. So, it is a bit early. It is too uncertain what is happening. So, we do not want to put out a number which we really do not know. And if the growth remains as it is, yes, your comment is absolutely right. If we do double-digit growth, our margins will be better than the first quarter in the full year. But at some point with the currency, with exchange rates and/or growth faltering in any part of the world, then if it has a significant effect on the overall number, then we will have a little bit muted result as a basis.

Thanks. My second question is on the capacity expansion. So, the capex plan for this full year, how much was done in 1Q? And if you could kind of split it between Europe and India, that would be useful.

About Rs. 25 crore was done in Europe in the quarter 1. European capex is now completed. The plant is operational since May. Our quarter 2 capex will continue on the Vanvate and Vashivali India Fragrance projects. We expect bulk of this investment capex to happen in basically before end of quarter 2 and the Vanvate factory to be operational in quarter 3. And then we have an opportunity based on how things are running and demand scenario to either put out the last Rs. 25 crore of capex in the quarter 4 or defer it to quarter 1 next year for the Vashivali plant upgradation.

And in 2Q in Vanvate, how much do you plan to spend?

In Q2 in Vanvate is about Rs. 25 crore.

Okay. So, Rs. 25 crore was spent in 1Q, Rs. 25 crore in 2Q and remaining Rs. 25 crore, you will decide whether to do it this year or next year?

No, remaining around Rs. 50 crore, this is the 3 plants in India.

Thank you. We take the next question from the line of Tanish Jhaveri from Boring AMC. Please go ahead.

Yes. So, I just wanted to ask more on the CDC front. By when can we expect a ramp- up in the European subsidiary? And what kind of a revenue stream can we expect from it and an incremental ROIC, what are you expecting the return ratios for our investment in Europe to be?

So, on the longer term, we see ROCE of around 17% to 18% in the European business. We have just invested in a large center in Germany and with the new factory in Almere. So, we are at the sort of full capex cycle. It will take 3 to 4 years

of growth to come back to the normal trend line. Opportunity space, we are investing roughly $3 million a year additionally in R&D. And as I said earlier, the markets which we are addressing are quite large. We have more than $4 billion to $5 billion of new areas where we are operating in Europe. It is not that $4 billion, $5 billion will happen tomorrow morning, but effectively, opportunity space for us is quite large. So, we are confident of growing extremely fast in these markets because we have a very small base.

Okay. Thank you. And on a group level, what kind of ROE and ROCE do we have in mind in the longer term, like 2, 3 years down the line?

So, I think we should have excess of 15% ROCE as our target. Our long-term target is 20%. But at the moment, we will see 3 to 5 years of slow traction towards the 15%. And then as the sales ramp up in the new initiative areas post breakeven and EBITDA plus and then we will reach that 20% ROCE level.

Thank you. We take the next question from the line of Adwait Javkar from EquiPoise Capital Management. Please go ahead.

Yes. Thank you for the opportunity. I have one question about the recent heavy rainfall and flooding in the parts of Gujarat, including the Vapi region. Have any of our manufacturing facility or supply chain operations been impacted because of this?

No.

There is no impact or there is no shutdown we are expecting from this?

So far, we had no impact.

Thank you. We take the next question from the line of Ashwin Patil from Intelligent Prosperty Solution. Please go ahead.

Thank you for the opportunity. My question is your capex cycle largely completed. If so, what depreciation expense should we expect in FY27?

Right now, we are at around Rs. 35 crore per quarter. And once we do Vanvate capitalizations we will move into that, we are expecting somewhere Rs. 38 crore, Rs. 39 crore per quarter kind of a run rate.

Thank you. We take the next question from the line of Sajal Kapoor from Antifragile Thinking. Please go ahead.

Yes. Thank you for the opportunity. Hi, Kedar. A couple of questions from my side. First is, what has to be true 3 years from now for you to say the investments that you have been making in the operating system improvement of Keva that you have

made over the past decade were all kind of successful? So, you mentioned we can probably look at 17% to 20% ROCE over the long run. But what will give you an early indication of the fact that we are trending in that direction?

So typically, we have 3 large new market bets, which is Germany, U.S.A. and U.K. In the last 2 years, a little bit more than 2 years, we have invested quite heavily in these 3 development centers with sales, marketing and the whole teams. We see traction in each of these. And what we are looking at is each of these investments to breakeven on a year-on-year basis in the year 3. This is our milestone. So, Germany, which has come first, we should look at somewhere between this year and next year to have a breakeven position that we have generated enough business that covers the cost, a year later for U.S.A. and a year later for UK. So, if we track in 3 years on this line where we have an EBITDA breakeven on the investments, then we will grow from there in our longer-term basis.

Helpful, helpful. Thank you. And today, if you could remove just one constraint to double Keva's earnings over the next, say, 5 years, what would that constraint be? Just one.

So, revenue doubling in 5 years, you are talking about?

Yes. Yes, what is that one constraint that if you take care of that bottleneck or limitation, you could double the earnings

I think main sort of concern for us is major disruptions on the global macro. Our business and nature of business is quite annual, repeat annuity basis. So, once we have a business, it grows, it sustains. The moment we have a macro like we had the pandemic or something like this, then it is affecting not only the year in which the pandemic happens, but also the pipeline for product launches in the subsequent couple of years. So, what we have underestimated is the effect of subsequent year growth is also dependent on the previous year product adoptions. So, as long as we have a consistent macroeconomic situation, even whatever is the conditions today, they remain as it is for the next 5 years, we will be in a very good position to double our revenue and go on the track that we have outlined. So major changes affect our business. It is a very complex business, the kind of momentum building, and we are not able to cut down R&D and put it back in time. So, if there are quick fluctuations, we lose out on that area. This is the main concern or constraints. So, if there is a stable environment, even right now, it is not a very positive global environment for growth. But if it remains like this, stable, we have more than adequate

opportunities and spaces where we can continue to grow and double the revenue and go on our path.

Thank you. We take the next question from the line of Ankur Agarwal from RC Business House Private Limited. Please go ahead.

Hello. How much promoter holding place at present?

I think 50 lakh shares, something like this. Rs. 30 crore is the value of the borrowing against the shares. I think it is 50 lakh shares.

Okay. And what is the planning to reduce the debt for next 1, 2 years?

As Jagdish mentioned, the debt level will remain high for the next quarter at the similar levels as we continue our capex this quarter and next quarter, I think from the third quarter, it will start to reduce. And our expectation is that every quarter, we will continue to reduce by approximately Rs. 25 crore quarter-on-quarter thereafter.

Thank you. We take the next question from the line of Amit Kumar from Determined Investment. Please go ahead.

Yes, thank you. Sir, my understanding of the business, typically, you fix your pricing with customers at the beginning of the year. Now given the disruption that we have seen on the raw material side, I mean, certainly pricing, you were sort of talking a little bit about availability also, definitely a fair bit of pricing disruption between March to July.nSo, I just wanted to get a sense, given the kind of disrupted raw material environment, have you sort of taken any further pricing actions during this time between March till now? I mean, given that it is a B2B business, I mean, how much of this has been accepted by your customers?

So, we have corrected the pricing to our customers based on the cost inflation that we have ourselves received as a result of the geopolitical effect. We have passed it on. I think almost 95% plus of the clients, we were able to get reasonable price corrections. And we have implemented that across the board. Where certain clients were reluctant, we have not supplied till the negotiations were completed. And if you see that is part of the reason the domestic fragrance sales is a bit lower than same quarter last year. But we have been successfully able to pass on the costs, and we have also increased our inventory. So, we are not exposed to future shocks. We are basically committing to the clients' delivery quality and supply certainty with the inventory in hand.

Hi, Kedar. Thanks for the opportunity. A couple of questions. One is on the Global Ingredients business. So, you mentioned that it is been under watch, but turnaround which we anticipate over the next few years in this segment?

We did not hear quite which business you were talking about.

About the Global Ingredient business.

Global Ingredient business. So, the Global Ingredient business, obviously is much more directly affected by supply chain disruptions in the recent situation. We have muted growth for the first quarter. We will resume the growth, and we have taken steps, as we mentioned a few years ago on backward integration and complete away from China supply chain. So those are in place. Unfortunately, the disruptions have created a supply gap in this period. So, we are not in a strong position to push the Global Ingredient growth. But it is a stable business, and we continue to see a recovery in the second half of the year.

Sure. With respect to the insurance claims, so I think we have received somewhere close to Rs. 30-odd crore within the quarter. What is the estimate with respect to like how much we have processed for the rest of the year?

I think Rs. 50 crore to Rs. 55 crore, Rs. 60 crore is the claim amount pending. So, we will continue to chase the insurers to fulfill the claim in this year.

Thank you. We take the next question from the line of Bharat Sheth from Quest Investment Managers Private Limited. Please go ahead.

Hi, Kedar and Jagdish, and congratulations on good set of numbers. So Kedar, my question is related to, first is on this Unilever business that we have. So how that is ramping up is happening? And are we getting more RFPI from the same client or I mean introducing new clients, are we getting any kind of RFP from new clients? That is one part. And second, on U.S.A. and UK, you said we are seeing some traction. So, if you can give some colour because last year in Q4, we had also started supplying to U.S.A.

Yes. So, like I mentioned, let me answer your 2 parts. So, Unilever and global accounts, we are continuing to engage not only Unilever, but others. There is a continuous stream of projects and developments which are happening at the moment. We do not have any large breakthrough significant additions to the existing portfolio in that scenario. But work is happening and things are a bit changing at their end as they are also facing pricing pressures on their commodity and their sort of new product development or launches are not on the full swing, especially in India.

Then we have talked about the new initiatives with Europe, Germany, then U.S.A. and UK. And Germany is now kind of truly on its way. We have seen regular traction on the developments that are happening there and the sales out of that. U.S.A., we have just started traction in the fourth quarter last year. We expect to do about 1.5 million to 2 million minimum revenue for the year in the U.S. So that is a good development. And UK is early days. We have just started this year. So, we need to wait at least 12 to 15 months before substantial businesses are materializing.

Okay. Great. And second question, I mean, related to Flavours, so that side also we were talking with larger global account. So, any update on that, how that is playing out? And secondly, Flavour business Rs. 95 crore kind of a run rate that we should expect from Q2 onward. Is that fair understanding?

I think Q2 may be even stronger than Rs. 95 crore. And my guesstimate, now nobody has an exact number because client purchases have happened. We have done Rs. 112 crore in the first quarter. My guesstimate is that about Rs. 10 crore to Rs. 15 crore out of this would be sales, which is extra stock, not actual final consumption. So, we may not get that Rs. 15 crore quarter-on-quarter every quarter. So, it is higher inventory buildup particularly in the export markets and also in domestic because of the disruption in the supply and the price increases, people would have stocked up their inventory level with the old price benefit. So, there is additional guesstimated Rs. 15 crore in the Rs. 112 crore, so Rs. 97 crore, Rs. 95 crore is the actual regular business if there was no big disruption. This is our guesstimate. So base is Rs. 95 crore, Rs. 96 crore, quarter 2 will be better than Rs. 95 crore, Rs. 96 crore and quarter 3 will be better than that and so on and so forth. We do not expect Rs. 112 plus growth in the quarter 2. That is not our expectation.

And second, I mean, any global accounts that we were working on? So, any update on that?

Nothing large. I think businesses have started with some global nutrition companies and things like this, but nothing is substantial, significant at this moment. Typically, in Flavours, products are normally new introductions. It takes 3 to 4 years for significant value to come.

Right. And in Q1, apart from this Rs. 15 crore, which business style like personal care, beauty and food and beverage, so which business has been driving large part?

No. So, I think across the board, it is pretty much business as usual. Global Ingredient business has been lower than expected. We have curtailed the supplies. We have no certainty in this period on the raw material side. So, we have sort of controlled and made sure that we service all our existing clients.

And on the Flavour side, we have higher than budgeted or higher-than-expected sales, which I believe will kind of normalize in the quarter 2 onwards. There is no segment, new segment and nothing out of the normal. It is very much a normal quarter with kind of, if I would summarize, a normal business, double-digit growth, Flavours outperforming AID, Global Ingredients below budget, but overall on budget.

Thank you. Ladies and gentlemen, we take that as the last question and conclude the question-and-answer session. I now hand the conference over to the management for their closing comments.

Thank you. I hope we have been able to answer your questions. 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 taking the time to join us on this call.

Thank you. On behalf of S H Kelkar & Company Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. -End- This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility for such errors, although an effort has been made to ensure a high level of accuracy.