SH Kelkar IPO – Should You Smell this Fragrance?

SH Kelkar IPO – Should You Smell this Fragrance?

The company’s name may sound unknown, boring and most of us may not even recall using the company’s products. But there is a very high probability that we could have almost daily felt its fragrances in umpteen FMCG products that we use. This company is coming out with an IPO; read on to know whether the chemistry of the company’s fragrances augurs well for the arithmetic of your portfolio.

Business Summary  

SH Kelkar& Company is one of the top 5 largest fragrances and flavors company in India – It is the 3rd largest (20% market share) and 5th largest player (2%) in fragrances and flavors segment respectively in India. (Source: Nielsen Dec, 2013 report). These fragrances find applications in soaps, detergents, cosmetics, hair care, fabric care, etc while flavors are used in beverages, bakery, dairy, snacks, etc. The company also exports its products to 52 countries. The company is a Business-to-Business (B2B) supplier of its products to leading FMCG companies and re-sellers/ producers of fragrances and flavors.

Investment Arguments

  1. Presence in Growing & Recession-Proof Sector

SH Kelkar caters to the recession-proof FMCG sector which is a relatively stable and growing sector owing to India’s favorable demographics and accompanying consumerism.

  1. Large Recurring Business, Strong Customer Relationships

Consistency of fragrance and flavors in FMCG products is of utmost importance which requires standardization of blend and quality. This coupled with preferred entry at FMCG product development stage, conforming to delivery and payment schedules of FMCG companies sets up formidable entry barriers and results in a large portion of recurring revenues for SH Kelkar.

SH Kelkar has a large granular base of 4,100 customers while no customer contributes to more than ~5% of its net sales. Marquee FMCG companies like HUL, P&G, ITC, Britannia, Dabur, Emami, Loreal, Coke, GSK, Parle, Vadilal are some of the customers of SH Kelkar.

  1. Scope for Operating Leverage

As on FY15, the company operated at a mere ~40% capacity utilization. This combined with sales growth and reduction in debt through IPO proceeds could lead to increase in profitability.


Rs. crores FY12 FY13 FY14 FY15
Net Sales 570 666 761 837
EBITDA 105 118 137 119
PAT 41 62 79 64
Key Ratios
Debt/ Equity 0.6 0.4 0.4 0.5
RoE 11% 15% 16% 13%
RoCE 11% 15% 14% 11%

Source – RHP

GreenEdge Wealth Services’ View

With over 90 years of experience in the fragrances segment, SH Kelkar has developed a large product basket, sticky customer relationships and strong distribution network. At the higher price band of Rs. 180, the stock will trade at ~30 times FY16E earnings. Though the IPO issue is valued steeply, we recommend our readers to subscribe to the issue as the robust operating model of the company puts it in a sweet spot to capitalize on the consumer growth in India and other emerging markets.

Issue Details

Issue Open Date 28th Oct, 2015
Issue Close Date 30th Oct, 2015
Issue Size (Rs. crores) Rs. 496 to Rs. 507 crores
Issue Price (Rs.) 173 to 180
Type of Issue Fresh Issue of Rs 210 crores & remaining Offer for Sale
Market Lot 80 shares
Objects of Issue Repayment/ pre-payment of debt, investment in subsidiary & general corporate purposes