Oriental Aromatics (Earlier: Camphor & Allied Products Ltd)

Camphor & Allied Products Ltd. ---- A Case-Study of a Silent Management, Apt in Execution.

Camphor & Allied Products Ltd. (CAP) is a perfect case-study of how an otherwise efficient, ethical and proactive management on business front can keep executing one step after another in the long term interest of the business and therefore shareholders of the company and still remain silent as far as communication with investors/shareholders is concerned.

Why I term it as a Silent Management — in company’s ARs that you read, in AGMs when you interact with them, forget painting any rosy picture, but, they even don’t highlight strongly the strengths and strong positioning of the company in each of its operational segment and infact proactively bring down your expectations in case you try to draw any high assumptions and correct your facts on each of their business segments.

This Silence is :

Despite company’s strong positioning in each of its operational segment —

2nd Largest Indian-origin player after SH Kelkar & overall 6th Largest player in niche Indian F&F Blends segment
counting elite names in its clientle like Godrej, Nirma, Dabur, Bajaj, KeoKarpin, MTR, Pfizer, Abbott, Wockhardt, Wyeth, etc. It is a key supplier of F&F blends to leading Indian brands like Godrej No.1 & Cinthol soaps, Bajaj Almond Drops Hair Oil, Nirma Washing Powder, Mediker Shampoo, etc.,

4th Largest Indian player in F&F Ingredients (Aroma Chemicals) space after Privi, Eternis & Anthea group counting in its clintle key names like IFF, Givaudan, Firmenich, Symrise, SH Kelkar & Agan Aroma, etc.,

Largest Indian player in Pharmaceutical-grade Synthetic Camphor & 3rd Largest player in overall Indian Camphor segment after Saptagir & Mangalam Organics
counting in its clientle key names like P&G, Jhonson & Jhonson, Novartis, JB Chemicals, Association Forum Auditorias (AFA), PZ Cusson, etc… It satisfies 80 % of the camphor requirement for P&G’s most popular ‘Vicks’ brand.

Largest player in Musk – key F&F Ingredient – segment from India enjoying ~30 % Global Marketshare of Galaxolide Musk – the most popular musk in use today worldwide.

This Silence is :

Despite majority of the operational segments having history of good profitability —

78 % of the Revenue enjoys 11 Years’ History of lowest Indicative Gross Margin of 41 % and highest Indicative Gross Margin of 52 %,

13 Years’ Average Consolidated EBITDA Margin at 10.62 %,

13 Years’ Consolidated EBITDA to Operating Cash Flow genration % at 40.5 %

This Silence is :

Despite the current New Promoters running company’s operations most efficiently as compared to that run by Old Management :

8 Years’ (FY09-FY16) Average EBITDA Margin of 10.94 % under New Management


8 Years’ (FY01-FY08) Average EBITDA Margin of 4.81 % under Old Management, and

16 Years’ (FY93-FY08) Average EBITDA Margin of 7.86 % under Old Management

Improvement in EBITDA margin is despite Macros not in favour of New Management wherein :

8 Years’ (FY09-FY16) Average Gross Margin was 31.89 % under New Management


8 Years’ (FY01-FY08) Average Gross Margin of 37.66 % under Old Management, and

13 Years’ (FY96-FY08) Average Gross Margin of 38.08 % under Old Management

8 Years’ (FY09-FY16) Revenue CAGR of 16.33 % under New Management


8 Years’ (FY01-FY08) Revenue CAGR of 4.38 % under Old Management, and

16 Years’ (FY93-FY08) Revenue CAGR of 2.91 % under Old Management

8 Years’ (FY09-FY16) Average RoE = 12.95 % & Average RoCE = 13.06 % under New Management


8 Years’ (FY01-FY08) Average RoE = 3.94 % & Average RoCE = 3.49 % under Old Management, and

16 Years’ (FY93-FY08) Average RoE = 6.69 % & Average RoCE = 10.03 % under Old Management

Now, this is called the Silent Execution. And the effect is, CAP, on a post-merger, fully expanded equity capital basis currently trading at TTM :

EV/EBITDA = 10.90x

EV/Sales = 1.44x

P/E = 15.98x

P/BV = 2.26

So, now, let me give a brief background as well as story as I see unfolding for the company :

Company Background & History :

– Incorporated in 1961, CAP is one of the pioneers in terpene chemistry in India. It was the first company to set-up a Synthetic Camphor plant in India in 1964 with technology from Dupont, USA.

– Established in 1974, in huge 40 acre land at Baroda, Malti-Chem Research Centre signifies company’s prime focus on R&D.

– In 1999, company ventured into manufacture of specialty F&F Ingredients (Aroma Chemicals) via in-house developed technology developed at its own R&D Centre.

In 2009, change of promoters/management took place wherein CAP was acquired from then promoters – Dalal Family by current promoters – Bodani Family via their flagship company Oriental Aromatics Ltd.

– In 2013, by using the expertise and reach of new promoters, company undertook a major expansion of its F&F Ingredients’ manufacturing capacity to the tune of 155 % (1.5x) and ventured into production of Galaxolide Musk with Technology & product-Marketing support from Agan Aroma, an Israel based company pioneer in Aroma Chemical industry. It set-up one of the world’s most advanced Polycyclic Musk manufacturing plant and captured ~30 % of the global marketshare of Galaxolide Musk within a span of just 3 years.

– In 2014, company inked a long-term manufacturing and supply agreement with International Flavors & Fragrances Inc. (IFF) – 3rd Largest player in Global F&F industry enjoying 12.50 % marketshare of world F&F market – to manufacture and supply Fragrance Ingredients’ Intermediates and Finished Products.

– In 2015, company acquired certain indentiified assets & liabilities of Arofine Group (Arofine+Vaishnavi) — a group incorporated in 1976 with 4 state-of-the-art specialty F&F Ingredients’ manufacturing plants in Dombivali & Ambernath, Maharashtra for a consideration of INR 17.50. cr. Arofine Group was an existing supplier to leading global F&F companies like IFF, Givaudan & Symrise and had expertise to manufacture ~200 high value specialty F&F Ingredients. Two key promoters of Arofine Group joined CAP as CEO & R&D Head of newly formed Specialty Chemical Division.

– In 2016, company undertook an expansion in F&F Ingredients manufacturing capacity to the tune of 18 % (to be commissioned in Q1FY18) at a cost of INR 40 cr… Expansion is into high value specialty F&F Ingredients (inline with that manufactured by Arofine Group) space – used majorly by MNCs in premium FMCG products’ & Fine Fragrances.

– Also, in 2016, promoters decided to merge their only flagship company – Oriental Aromatics Ltd. – with CAP in lieu of increasing their stake in merged listed entity from current 57.66 % to 74.16 %. NOC from stock exchanges is already received and application filed in Bombay High Court on 26th October 2016 – all formalities expected to get completed by Q4FY17.

– Incorporated in 1973, F&F Blends business (which is to be merged with CAP) enjoys second largest Indian-origin player status in Indian F&F Blends segment after SH Kelkar and overall sixth largest player status in Indian F&F Blends space after MNCs Givaudan, IFF, Firmenich & Symrise.

F&F Blends business of CAP has sustained its positioning amidst onslaught of rising presence of MNCs in Indian F&F space as also emergence of numerous small private players over last 10 years which saw many Indian players getting wiped out completely and loose considerable market-share.

Industry Details :

Attached is a pdf file giving almost all the details of Industry of operation of CAP from varied angles. Contents of the file are :

Industry_Details.pdf (355.1 KB)

CAP – Revenue Breakup

Entire F&F Industry Breakup – Key Segments

Entire Industry Cycle – Key Players in each Segment,

Synthetic Aroma Chemicals & Flavor Ingredients – Volume/Value % wise breakup according to RM Sources

Who Manufactures & Why ??,

Key Standalone Manufacturers Important Data (Privi, Eternis, Anthea, CAP)

Musks – What They Are & Their Importance to Fragrance,

Types of Musks,

Positioning in Musks Segment of CAP,

F&F Blends Industry – Why Clients are so Sticky ??

Indian F&F Blends Market – A 10 Years’ Perspective --,

Key Indian Players’ Important Data (Givaudan, IFF, Firmenich, SH Kelkar, Symrise, Oriental),

F&F Blends Industry – Bariers to Entry,

Synthetic Aroma Chemcials & Flavor Ingredients — Barriers to Entry,

CAP – Aroma Chemcials Factsheet,

CAP – F&F Blends Factsheet,

CAP – Synthetic Camphor Factsheet,

Key Indian Players’ Important Data (Managalam, Saptagir, Kanchi & CAP)

Some important excerpts from above pdf file are attached below for ready reference :

Company Details :

Attached is a pdf file giving almost all the key details of company’s businesses from varied angles. Contents of the file are :

COmpany_Details.pdf (182.1 KB)

**Positioning of the Company in Each Segment **

CAGR figures of all the peers of each segment,

16 Years’ Indicative Gross Margin of Key Business Segments,

Strategy Adopted by the Management for Each Segment,

12 Years’ EBITDA & GM % of SH Kelkar v/s Oriental Aromatics,

Land Asset Value & Replacement Cost Analysis,

SOTP Valuation,

** Genuine, Ethical & Efficient Management**

Now, after referring to above two pdfs, some questions, which as an investor I ask myself :

– Won’t this forward integration in F&F Blends space make CAP one of the strongest player, as also, the only second player in the listed space (after SH Kelkar) via which one can have exposure to growing niche F&F Industry ??

In recently presented paper (September’2016) at one of the most popular international F&F event in Italy, --‘Fragranze’–, Indian fragrance market alone is expected to grow at a CAGR of 11.94 % over next 5 years and is the centre of attraction of all International players. SH Kelkar has already given a guidance to grow its revenues over next few years at a CAGR of 15 %.

Top 10 players in Indian F&F Blends space are Givaudan, IFF, Firmenich, SH Kelkar, Symrise, CAP (via Oriental), Mane, Aarav, Goldfield & Ultra International – exactly in the same given order with Givaudan being No. 1 player and Ultra International being No. 10 player. Out of these, Givaudan, IFF, Firmenich, Symrise & Mane are MNCs.

– Isn’t CAP, with its forward integrated business approach better than standalone Aroma Chemical players like Privi Organics which have a backward integrated business approach and are ultimately dependent on players like CAP (Blends business) for growth ??

Isn’t CAP the only play available which offers a balanced exposure to both the high growing segments of F&F Industry – viz., F&F Blends as well as F&F Ingredients — SH Kelkar offers exposure to growth opportunities of F&F Blends space as its F&F Ingredients business (via PFW Aroma) is not a focus area atall whereas Fairchem Specialities (Privi Organics) offers exposure to growth opportunities of F&F Ingredients space (aroma chemicals) with no presence in Blends Formulation.

– Won’t inhouse manufacturing capability of 60 % of RM used make CAP’s blends business much more efficient and will give its clientle much more confidence in it than others. Infact, even SH Kelkar lacks such capability and post Baroda expansion, CAP will likely be the only Indian player which will have such capability. This is not to say that CAP will become superior to SH Kelkar, not atall,-- SH Kelkar has a robust R&D Infra and set-up which no peer can compete with for years to come (in F&F Blends space). However, after SH Kelkar, CAP will be the second best choice for any clientle and with these capabilities, CAP can expect to pitch for contracts directly in competition with SH Kelkar.

– Won’t the Gross Margin of Blends business will significantly improve because of internal procurement of majority of RM.

– Tie-up with IFF has so far not contributed meaningfully to CAP financials – so, aren’t Arofine acquisition as well as commissioning of Baroda-expanded capacities the building blocks for this tie-up to start bearing fruits from FY18 onwards ??

– Company has so far refrained from any sort of equity dilution over last 16 years – whether its old management or new one — infact, it is interesting to note that even new promoters’ family have never diluted equity in lifetime of their flagship company Oriental Aromatics Ltd. despite many ups and downs of the industry . So, will the rise in promoter holding to 74.16 % (from current 57.66 %) post merger will act as an incentive to dilute equity going ahead.

– Won’t 74.16 % holding change the silent approach of the management and make them more proactive as far as IR communications goes.

Won’t the extremely successful listing and widespread institutional participation of the only other big Indian peer – SH Kelkar — prompt the management to have proactive talk with institutional investors and therefore improve on IR disclosures.

There are also some questions that arise on risk side :

– What if tommorow Galaxolide Musk is banned ?

– Current demonetisation is surely going to have some sort of impact on Q4FY17 financials (Q3FY17 might not be that impacted as there is usually 30-40 days lag period) since majority of clientle will be getting impacted. However, players like SH Kelkar and CAP will be better placed as they have clientle diversified across all industries ranging from Soap Manufacturers to Agarbatthi Manufacturers to Perfume Manufacturers to Ready-to-Eat Manufacturers.

– Mr. Trump becoming president – will he completely ban imports (a wild guess) and therefore one of the prime market for Aroma Chemicals might be in trouble. However, here too, SH Kelkar & CAP will be least impacted relative to all other peers because of their extremely low exports. SHK & CAP exports as % to sales is at 37 % v/s peers’ 65-70 %.

– Only Listed on BSE & Illiquid nature of company’s stock.

Discl. - Invested in Camphor & Allied Products Ltd. Bought in last 30 days.

Note :- This is part of a general discussion and is not a Buy/Sell/Hold recommendation of any kind. Here, Factual Statistics regarding varied sectors like Aroma Chemicals, Flavors & Fragrance & Camphor are presented and discussed and in no way this should be considered or interpreted as recommendation or advice of any kind. This discussion is to be used only for further analysis purpose of each of the segment discussed and not otherwise.


Dear mahesh first of all hats off to your in depth write up
IMHO yes this would have been excellent buy two three back but at the present CMP what kind of growth we will be getting on our investment because most of the factors which you have mentioned above has been already priced in at the CMP. If you look at from ROI angle it is always far past 5 yrs hovering around 13/15 % and presently the stock is trading at 2 times book value with a earning yield of 7% seems fully priced for the expected growth even if you look at the present enterprise value it is around 430 cr looks a bit expensive for me.
My view is if we are able buy this around 25/30% discount from the present CMP it can give a decent return otherwise at the CMP it is fully discounted for all the postives
Disc. Invested at much lower price

Good work in trying to understand the company Mahesh. Very nice report.

A brief read on the company and competition does not seem very exciting though- The entire market size is 5000 cr big (SH Kelkar investor presentation) and there are numerous MNCs and Indian Players like SH Kelkar.

SH Kelkar’s utilization ratio for its plants in India is about 40% - That tells me that there is a lot of spare capacity in the industry and industry is not going to have pricing power. a 10% CAGR for the industry is not great either.

SH Kelkar seems to be at a very high and steep PE of 40 compared to 15 for CAP. Cheaper P/E could be a reflection of execution and not necessarily a good reason to invest.Not my cup of tea.

Excellent write up!! I suggest that you should start writing a blog :slight_smile:

@indirachitra & @veejoo

I partially concur with both of your’s views as these same questions cropped up while I was analysing this company and thinking of adding it to my pf. I have a habit of concentrated holding so these points are crucial for me. What I will do here is present my point of view.

First, some corrections on your points,

EV at CMP post giving effect to merger will be ~680 cr. and not 430 cr. as you mentioned.

Secondly, on @indirachitra point asto what kind of growth we are looking at going ahead — what I can see as of today is company’s F&F Blends business reaching a scale of 175 cr. by FY19 with 15 % EBITDA margin, F&F Ingredients business reaching a scale of 280 cr. by FY19 with 14-16 % EBITDA margin, Specialty Chemicals reaching a scale of 18 cr. by FY19 with 14 % EBITDA margin and Camphor & Byproducts maintaining a scale of 170 cr. till FY19 with 8 % EBITDA margin.

So, by FY19, we are looking at a consolidated scale of ~640 cr. with 81-87 cr. EBITDA. Now, the beauty is, in these three fiscals, we will have a cumulative operating cash generation of ~120 cr. out of which to reach the said ~640 cr. scale, hardly 30 cr. will be expensed out and post the supply of initial quantities of high value specialty aroma chemicals to IFF, in all probability, capacities of some particular chemicals will be expanded, much the same way Galaxolide Musk capacities were expanded in 2013 after supply of initial quantities to Agan.

When F&F Blends business is approaching a scale of 200 cr. per year and F&F Ingredients business is approaching a scale of 300 cr. per year with market dominating position in many of the products, investors don’t value the stock cheaply like 6.5-7x EV/EBITDA, 0.90xEV/Sales and 11-12x P/E.

What as an investor, I need to assure myself of is —

(1) Is the business scalable — even a 10 % CAGR for next 5-7 years is fine on a 500 cr. scale.

(2) Is the business going to remain profitable — even a 12-13 % EBITDA on a consistent basis is good.

(3) Is the business going to generate cash — even an average 30-40 % EBITDA to Cash generation is great.

(4) Is the positioning of the company in its business segment prominent and sustainable ??

(5) Is the business segment in which company is present offers a growth visibility by itself ?? A 10 % CAGR visibility for the industry itself is quite comforting – forget here, vast untapped export market.

(6) Is the company over-owned or under-owned ?? A 0 % institutional holding at a 500 cr. scale of operation with 12 % + EBITDA margin is the holding structure I love to own.

(7) Are promoters going to loose more than minority shareholders in case of a failure ?? With a 74.16 % promoter holding post merger, promoters themselves can’t afford to get things wrong.

Now, if the answer to all above is YES then what I am doing is securing downsides to my capital invested – which is crucial for a concentrated pf strategy whereas upsides normally come as and when more and more investors find the company non-ignorable.

To me, the best valuation for investment is:
not when a company is trading too cheap (except exceptional cases of general meltdown) as at that point there is huge question mark on company’s future ;

nor when a company is trading too expensive (except exceptional cases of robust high-pace growth visibility) as at that point, story is already widely known and positives are more or less discounted and company at that point needs to continue to execute well as widely anticipated otherwise loss of capital invested gets significant ;

Its the reasonable valuation, which is not too cheap nor too expensive, which is the best valuation of investment for me as at that point, story is still evolving with judicious mixture of positives and question marks priced in but not fully on each side – which leaves ample scope of safe capital appreciation in case positives outweigh question marks during execution and in case question marks outweigh positives, there is no significant capital loss involved.

Now, on the tiny industry size as mentioned by @veejoo — yes its a ~5000 cr. tiny industry size (blends business) but what is the structure of the industry ??? Even on a global landscape, 10 players control 70 % of the market and the same is the scenario in every pocket where F&F Industry flourishes.

– Why aren’t we looking at another side of coin wherein industry is likely to become a 7500 cr. industry within 3 years — a 10-11 % industry CAGR is not enough for our investment at 10x EV/EBITDA and 15 P/E ??

How many new players are likely to emerge in the industry and how easy for them is to succeed ?? Already have enlisted entry barriers of F&F Blends industry in my Industry_Details file —

An industry where you own the IP of your creation and client is completely dependent on you — how many industries gives this opportunity ?? How crucial you are to your client in such a scenario ??

40 % capacity utilisation is by choice and not by compulsion ?? One where demand is not there and so capacity utilisation of the industry is 40-50 % – that is a scenario which will see crash in prices and therefore margin of players involved ----however, a scenario where you are investing beforehand and building a warchest to secure more and more lucrative orders in future – prices will be maintained and with improving utilisation, your margins will further improve.

Second is the case with F&F Blends players like SH Kelkar and Oriental — whereas SH Kelkar is working at 45 % capacity utilisation, Oriental is working at 55 % capacity utilisation – however, both have invested beforehand to secure long-term contracts and penetrate MNC clientle.

Is the entry in the industry so easy wherein you need to maintain ~170 days inventory, your debtor days are ~80 days and you need to handle thousands of clients — whereas SH Kelkar handles 4000 + customers, Oriental handles 1500 + customers.

– Whereas in one F&F Blend, 500 different ingredients are used – even a cheap 1.5 lakh per MT priced ingredient is used and an expensive 20 lakh per MT ingredient is used — whereas a cheap 1.5 lakh MT ingredient is available abunduntly because of production quantities involved, expensive specialty ingredients are produced in hardly 100s of tons quantities p.a. worldwide – so, how many new entrants wil have the capability to set-up production base for such high value specialty ingredients and therefore ensure hold on supply and quality of the said ingredients ??

– It is very important to understand the industry to assess its opportunity w.r.t. its size — this is the reason why I gave market-share details of 2005 as well as 2015 — whereas new players enter every industry, whether big or small — only strong players sustain — and the industry is going to remain dominated by top 10 players — if you observe closely, strong players of yesterday like Khhatri are non-existent today in top 10 and players like Goldfield have shifted their focus to export market as they were unable to sustain in Indian market.

– Secondly, and most importantly, 5000 cr. industry size that you are seeing and is mentioned in SH Kelkar presentation is for 24 % of the revenue of Camphor & Allied (Blends business) — what about other business segment industry size ?? Synthetic Aroma Chemical industry alone is worth ~25,000 cr. worldwide and add to that Synthetic Camphor business size too. So, its actually ~40,000 cr. market size the company is catering to and one can’t look in isolation.

Just refer here following table :

If we look at crucial business parameters, Oriental is consistently having better inventory days, better Debtor days and inferior Creditor Days than its peers whose valuation we have considered for benchmarking.

Now, if sustainable EBITDA of Oriental improves to 15 %, why should market value this company too cheaply as compared to peers ?? And with commissioning of Baroda expanded capacities, exactly this I feel will happen.

When I invest I own a business and therefore I like to study the industry as well company strategy inside out before taking my investment decision. It is afterall future when becomes present is going to value a company appropriately at that time – Whereas promoters could very well have some other thing in mind than what I am thinking, what I am doing is making certain logical assumptions and securing my downsides by doing a thorough homework – else is upto promoters to execute and if they don’t, they will be the major looser since they own 74.16 % shareholding and I have not seen many companies with such a high promoter holding faltering in execution.

This is my personal point of view on which I have based my investment decision and I can be completely wrong in my point of view. Here, I have not tried to convince anyone regarding my hypothesis – please don’t take it that way — its just I have presented my point of view while respecting others’ point of view.


Discl. – Invested

Note – This is part of a general discussion and not any sort of recommendation of any kind.


Camphor & Allied AGM Key Takeaways for members’ Ref. -


Arofine details :

Its into high value low volume products.

Produces 200 out of total 3000-3500 of such products in existence.

Margins around 18%.

Acquisition is mainly to reduce formulation cost.

No rev figures given.


Oriental Aromatics FY16 numbers :

On everything on oriental they said they have not audited the results so cannot give numbers.

But off record they said 115-120cr topline and arond 14-15% margin (not sure about margin they just noded when someone put this number to them).

Oriental has grown by 15% historically for last 4-5 yrs. they expect to maintain same rate in next year and going forward.

80 % revenue comes from Fragrance and 20 % from Flavours.

90 % domestic revenue and 10 % Export.

In Fragrance clients are like Godrej, Nirma, Dabur, Bajaj, Keo Karpin.

In Flavours clients are like Pfizer, Abbott, Wockhardt.


CAPEX Plans :

Capex 40cr is for Vadodra plant. Once it operates at full capacity consol rev will increase from ard 450 crs now to 550cr in 2 years.


Inorganic Moves :

No plans to go inorganic,

they plan to develop products internally and grow via organic route.

Plan to spend 5% of rev on R&D. 10%-15% of current raw material requirement of Orientalal is sourced from Camphor.

Plan to do more after amalgamation.


14 % + EBITDA margins sustainable of current Camphor & Aroma Chemical business :

EBITDA margins they expect to maintain at 14-15% level for next two years.

But later md and cfo highlighted that new vadodra plant will do all value added stuff and (cfo said) they plan to produce products with only 18%+ EBITDA margin.

But he said real pic will emerge once they start producing. Plant to start from Feb 2017.

Dharmil repeatedly said focus on value added stuff going forward.


Resolution to borrow 1500 cr. :

Its just an enabling resolution and D/E will not exceed 2.


Listing on NSE :

No immediate plans to list on NSE.

Other Takeaways :

In Camphor business CAP has 25-30 % maerketshare. It has only 2 or 3 major domestic competitors for this business

Sir with all due respect on bse and company website promoter holding is 57.66% wit total no. of shares of 2960280. http://www.bseindia.com/corporates/shpSecurities.aspx?scripcd=500078&qtrid=91.00

Post merger with oriental aromatics, equity capital will expand from current 0.513 cr. Equity shares to 0.8413 cr. Equity shares and promoter holding is going up from current 57.66 % to 74.16 %. You can refer scheme documents from company’s website.


1 Like

In the first post only Mr. Mahesh has clearly mentioned that promoter holding will increase from 57.66% to 74.16%,post merger with parent company .

Dear Mahesh - Hats off for in depth analysis . What could be the reasons for CAPL commanding low PE viz-a-viz S H Kelkar ? Does it not indicate under valuation and possibility of good gains ?


– First & Foremost, remember one thing that SH Kelkar has ~76 % revenue coming from ‘Fragrance & Flavor Blends’ segment v/s Camphor & Allied (CAP)'s 24 %.

– Secondly, a leader of the segment will always command premium valuation.

– In addition, SH Kelkar has a great proactive management which has foresighted many things very well and invested upfront for that and so it will play a significant part in company’s valuation commanded.

Now, coming to CAP’s valuation, instead of thinking whether CAP deserves to trade at such a significant discount to SH Kelkar (which, in a way is its key peer post merger), it is important to think whether CAP deserves to trade at a discount to even its vendors like Privi Organics ??? Its like Dabur or Godrej trading at discount to SH Kelkar or packaging companies like TCPL or Hitech Plast trading at a premium to their key clientle which to me is completely irrational and is exactly what is going to happen with CAP post merger in Q4FY17.

To me, post merger, CAP’s valuation lies in between valuation commanded by Privi & SH Kelkar – wherein it has to trade at slight premium to Privi but at a significant discount to SHK. Quantification of ‘significant discount to SHK’ will purely depend on margins of F&F Blends business which is getting merged, asto how quickly CAP can improve its margins of Blends segment post merger. But, this is my personal thinking and I can be completely wrong.

According to my experience in capital markets, each company :

– which has strong positioning in its operational segment (wherein it is in Top 5 in each segment),

– its key operational segments are likely to exhibit strong p.a. growth in double digits or high single digits in foreseeable future,

– its scale of operation is approaching 500 cr. p.a.

– its key senior management/promoters (MD & Jt. MD) are in their 40s and 30s age group,

– its management is active and taking right steps to try to improve topline growth as well as profitability margins of the business,

– has strong legacy behind it – not only listed CAP has a history of existence of 5 Decades – 55 Long Years but, the entity which is getting merged – Oriental Aromatics – has even a longer history of existence of 6 Decades – 61 Long Years,

such companies normally go through a wealth-creation cycle and with 0 % institutional holding, low equity capital with nil dilution history, thinly traded nature of company’s stock, only-BSE listing, promoter holding getting enhanced to maximum near 75 % mark and no other business interest of promoter apart from listed entity — we seem to be probably at the first stage of such wealth-creation cycle.

– Now, such wealth creation cycles can be multi-year and initiation or progression pace of actual significant quantum of wealth creation by the company could purely depend on how quickly the further steps management takes — it could initiate in 6 months, 1 year or might take longer than 2 years. Key in such cycles is protecting downsides and waiting for upsides and riding the main portion of upsides with patience.

– With CAP’s business post merger generating 35-40 cr. cash per year from operations and its 25 % of the business enjoying Gross_Asset turns of 4.5-5x and remaining 75 % business enjoying Gross_Asset turns of 2.5-3x and current capacity utilisation at ~60-65 %, one can just make his own calculation and arrive at the downsides and let the markets decide on the upsides.


Discl. - Invested in Camphor & Allied Products Ltd.


@Mahesh any other listed player apart from CAMPHOR N SH KELKAR?


In F&F blends space only two players will be listed in India — CAP and SH Kelkar …MNCs like IFF and Givaudan are listed in international markets

In pure play aroma chemical space apart from CAP, Fairchem Specialty (Adi Fine-Privi Organics) is listed n India

In synthetic camphor space apart from CAP, Mangalam organics and Kanchi karpooram are listed in India



just some rough calculation not a recommendation not any target …
Disclosure not invested.
@mahesh shah

The revised equity of 62.4 lakh shares considered in the calculation is promoters equity. The total equity after the merger would be 84.13394 lakh shares. Considering the fully diluted equity, the EPS would be about Rs.34 and the expected price considering the PE of 14.80 (the net profit and PE as per above calculation) would be Rs.503. Please correct me if I am wrong.

Thanks for correcting me . @nagesh_reddy

If the fully diluted shares are 84 lakh, then the EPS would be INR 32.2 crore (23 crore + 9.2 crore) divided by 0.84 crore shares = INR 38.30 per share. At current EPS of 14.8 this would translate into INR 566.8 per share.

Also, has anyone considered some fairly simply synergies that may occur due to the merger? I’ll take a very obvious example - Other Expenses. In the results dated 31 March 2016, the other expenses for CAPL is 15.6 crores for the entire fiscal. I do not have the figures for Oriental as this would entail getting the financials from MCA.

I assume the merged entity would be able to achieve some synergies with respect to the other expenses, which are currently as follows:

I assume that Oriental Aromatics Limited would have similar but proportionately lesser other expenses. I would posit that the merged entity may see an annual benefit of a few crores on this account alone. This is of course discounting other synergies of merger that may not be immediately apparent in monetary terms. However, the fact that CAPL and OAL have complimentary products would definitely lead to cost reductions at some level - possible on account of reduced freight, better margins (elimination of current arm’s length pricing that is required to be followed between related entities) and reduced employee requirement.

More structured thoughts on this are welcome - these are just fly-by-night ideas I am throwing out there as I am still analyzing the company and the merger.

1 Like

Latest Credit Rating Rationale dated 22nd December 2016 for CAP & Oriental :



Oriental :



1 Like

Mahesh just for sake of knowledge can you please arrive at fair value market cap for camphor and oriental separatly and what would be the price say at less than 8 EVEBITA. This would be highly helpful.

FY17 Q4 and Annual results tomorrow: