S.H. Kelkar Ltd

Hi All,

Please find the takeaways from S.H. Kelkar IPO meet,

The co. has a longstanding reputation in the fragrances and flavours business,its application can be found in every 1 of 3 products that we consume or use. The co. deals with 95% of FMCG cos. in India covering Multinational,National,Regional and even Local cos. Fragrances is mainstay business and Flavours is roughly 1/8 of the total business currently. The business is very sticky in nature,the co. is a sole supplier to Cinthol since 1952 for example. The co. has a range of 9000 odd fragrances and 40000 odd prototypes. Fragrances involve a complex manufacturing process typically requiring 40-80 ingredients and a multi-step process with laser like precision to churn out one fragrance. The co. sources 1500 ingredients in total. Diverse use of ingredients and proprietary processes complemented by unique infrastructure give the co. an edge over competition and makes products impossible to replicate. The co. is very R&D focused and always looking to add new variety of fragrances to its range and for the same,it employs 12 perfumers who design and synthesise fragrances. Perfumers are master-crafters and a real asset to the co.,there are only 1000 odd perfumers in the world. The co. has also developed molecules which help in manufacturing multiple fragrance compounds and is in the process of filing patents for the same. The co. has 4000 odd customers out of which roughly 2000 are shops and distributors with 20000 touch-points. The co. also started retailing of fragrances in small packets which generate 7% of sales currently. 70% of revenues is from made-to-order for a customer and rest is from made-to-stock wherein someone could buy 2-3 fragrances,mix it up and develop a new fragrance an sell in the market. The growth in the past few years has been 16-17% out of which 10% approx. is coming from growth in existing FMCG products for which the co. is supplier,2%-3% from new FMCG products added and rest from price realisation going up. The co. expects to grow similarly going forward or slightly better going forward. The co. spent 200 cr in CAPEX to expand facilities and modernisation in last few years and would require only maintenance CAPEX going forward for a long time. Current capacity utilisation is 40% and current capacity can help treble sales from current level. Requirement of WC won’t be proportional to increase in sales going forward as certain level of raw-material is treated as fixed in nature and it can support even higher sales maintaining the current level. Fixed Asset turns will improve as capacity is utilised going forward. Reduction in WC and improving Fixed Asset turns would give a fillip to ROCE. The management seems decent and there’s a competent guys running the show,Mr. Kedar Vaze.

Link to RHP,


when is their IPO ?? is it worth applying?

Doesn’t they deliver to deodorant companies and also does they have any pricing power in the form of moat ??

Why is it raising capital if there is no CAPEX need for a long time to come?


Capital is being raised to retire debt firstly and give an exit to PE firm Blackstone. Promoters also diluting minor stake in the co.

All in all,its a very good business but not a good investment at the valuation IPO is asking for.

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I stay at Mulund near Kelkar company ( as we call it)

There are many companies situated in that compound (as one can see from sign boards), i m not sure if it is subsidiary of SHKelkar or private entities of promoters (Pls chk related party transactions)

Company has good land, approx around 20 acres, stretched from Balrajeshwar road, till Rmall on LBS marg, i am not sure if land holding comes under SHK or promoters private property.

Request members to please re check before investing

Disc : Not applying for IPO.

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Hi Nikhil,

Thanks for sharing the visit note.

The DRHP is a very good read to understand the fragrances and flavors industry.

The easy part first. Numbers.

As we can see from the stability in gross margins, it’s a pretty good business. I think with increase in capacity utilization, there is a possibility of NPMs going up. But given that the volume growth is at 10-13%, not sure if we can see a big jump in operating leverage.

Market share looks great. Do you have any idea if this is based on production or sales? Usually, this is an approximation of sales, but I have heard that Nielsen also does based on production, especially in a predominantly B2B biz like SH Kelkar.

One thing which really stood out for me in the DRHP was below, and wanted to check if you have any insights/can check with the management/IR as you already visited them:

Why did Blackstone choose an unfavorable CCPS conversion (and that too as recently as October 5th)? What was given in return for this unfavorable dilution?

Of course, as with all IPOs, valuations are a bit expensive. But am happy such good businesses are listing in the secondary markets.

Disc: Not applying in IPO

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Hi Kiran,

There’s no clarity as to what the market share nos. are based on but I presume its based on sales because of something Mr. Kedar Vaze mentioned,he said International players in Indian F&F industry mainly sell to Indian and regional (Asia and Middle East) subsidiaries of their international customers and barring these sales S.H. Kelkar’s market share in fragrances stands at around 40%.

Regarding convertible pref. shares,I’ve no clarity. Will ask some friends in institutions to find out if possible.

Saw an ad of Keva Properties Pvt Ltd, (which seems held by promoters, and not SH Kelkar) in mulund area.

Great response in IPO with HNI portion getting obersubscribed 88 times n QIB also 20 odd n attractions some marquee investors.

Interest seems building up, JM financial did a presentation on them in Newyork recently.
Also chk BsE NOTICE lot of institutional investors are being presented this story from April 06 to April 30…
Have small exposure of 2000 shares

Hello All

I have been looking at SHK for some time. I was inspired to create my investment thesis based on the high quality of ideas being shared on this forum. See attached research note I created as I went about reading up on the industry and the business. While not complete by any means, going through the process of reading, assimilating and synthesising and finally summarising the information helped me a lot. I still have some reading up to do but wanted to share this, get feedback, discuss and learn.

Let me know if this goes against any forum rules as it is my first upload.

DISCLOSURE: No holdings in SHK. Actively monitoring

SHK RN 25Aug16.pdf (585.7 KB)


Industry is really interesting and seems to offer good future potential as far as Indian F&F landscape is concerned…key highlight is extremely high entry barriers despite the absence of any specialisation required in manufacturing process itself…it’s the ratio of RM used and the sequence in which they are used to create a particular fragrance which is key USP and is a guarded secret with the creator ; therefore, client normally remains with the creator for the entire lifecycle of the product in which the fragrance is used in case the said product is a success…key strength with the creator to build large and satisfied client base is the number of internal fragrance library generated via internal briefs so that it becomes a partner with the client during any product launch.

Citing below an illustrative Order-Flow process for a ‘Fragrance & Flavour’ player :

It will be also interesting to note the contents of a ‘Fragrance Brief’ to understand why there is such a high level of client stickiness involved in the industry :

As one can understand from above, FMCG companies disclose many confidential datas of to-be-launched product so they need to first build a great level of trust with a F&F company before giving any meaningful contract to them. This is the single biggest entry barrier in the industry as such trust gets built only by multi-years of close association as well as a great credible standing of the management of F&F company in the industry.

Secondly, if the product or the variant launched is a success, its a rare chance that fragrance ingredients and its precise ratio will ever be changed and so the client remains with the F&F company for the entire lifecycle of the product. This is the second biggest entry barrier.

Dearth of new product launches will be a saturation phase for the F&F industry whereas more new product/variant launches will mean growth phase for the Indian F&F industry.

Citing below a broad segmentation of Indian F&F and allied industry :

As far as SH Kelkar is concerned, it is the largest and the best Indian-origin player in Indian F&F space. It’s current valuations are a real dampener for me but considering the low floating stock, it is unlikely to trade at cheap valuations in the near future…If one attempts detailed study of the segment, some interesting facts get unleashed…

– SHK was No. 2 player in Indian F&F space after IFF in 2005…it has slipped to No.4 player now ; first three being Givaudan, IFF and Firmenich in that order…all these three top players are MNCs.

Each of the top player in the industry except Givaudan has lost market share in India over a 10 year period from 2005 to 2015. However, top 6 players remain the same

– in 2005 they were IFF (24.79 % share), SH Kelkar (18.13 % share ), Firmenich (14.62 %), Givaudan (14.58 %), Symrise (14.44 %) and Oriental Aromatics (3.71 %).

– in 2015 they are Givaudan (19.24 %), IFF (14.66 %), Firmenich (13.63 %), SH Kelkar (11.42 %), Symrise (9.14 %) and Oriental Aromatics (2.16 %).

{ I am surprised at the absence of mention of ‘Oriental Aromatics’ while citing Nielsen report in the prospectus of SH Kelkar despite it being the second largest Indian-origin player in Indian F&F space. Even Goldfield is mentioned but why Oriental is not mentioned that is a question mark for me !!!}

It’s from seventh position onwards that companies have suffered the most – for ex., Khattri’s market share has dwindled from 3.17 % in 2005 to 0.01 % in 2015, Goldfield’s market share has dwindled from 2.82 % in 2005 to 1.12 % in 2015, Gupta & Co.'s market share has dwindled from 2.03 % in 2005 to 0.72 % in 2015 and likewise…

– MNCs have dominated the Indian F&F space with them still controlling more than 60 % marketshare as at 2015.

– As far as Indian-origin companies are concerned, SH Kelkar & Oriental Aromatics are two dominant players that have sustained MNC onslaught as well as emergence of many small Indian players over last 10 years.

Both these companies have made significant investments in building their capacities and ramping up their R&D infrastructure over last few years and both are at present operating at 45-50 % capacity utilisation.

Mentioned below are the CAGRs of both the Indian-origin companies’ domestic business :

To conclude, to me the industry looks interesting and exposure at right valuations could very well reward us. But ‘Right Valuations’ seems to be the key as Inventory days (SH Kelkar 6 Years’ Average = 143 days ; Oriental Aromatics 6 Years’ Average = 135 days) and Debtor Days (SH Kelkar 6 Years’ Average = 89 days ; Oriental Aromatics 6 Years’ Average = 64 days) are not low and therefore any sudden and significant increase in cost of RM is not immediately passable but is surely passable with a lag.


No Investment in SH Kelkar.
Invested in Oriental Aromatics.


Hello sir,

Company looking expensive

Disc: tracking

@Mahesh Do you own oriental or CAMPALLIED ? Thanks




@Mahesh Have you looked at the valuation of the merger. Does’nt exchange ratio of 1.56 look expensive. If you look at the Avg 3yr EPS ratio its 1.15. Thanks


On what basis you are finding it expensive ?? Kindly elaborate. As per my understanding it’s reasonable if not cheap and this understanding is based on numbers as it is today while ignoring the fact that current numbers are one of the most subdued nos. in the history of OAL.



Just curious if this is the standard procedure for valuation and the weightages are ok. And if Camphor was evaluated with similar formula and not market cap basis what would be the exchange ratio.

Thx Pankaj


Usually, Valuations methods are adopted in such transactions based on promoters willingness so we should not give much credence to these things as future numbers projected as per such methods rarely come true. However, we need to evaluate ourselves whether the valuations at which transaction is done is correct as per our assessment or not. Historical (10 years or longer) numbers are best for this purpose according to me if the business’s future has some potential. Second critical aspect we need to look at is peer valuations based on already listed peers and m&a, PE deals done in case of unlisted peers.

According to both of these parameters, based on FY16 numbers of Oriental, an EV/ebitda of 16 and a p/e of 21 applied based on current appreciated price of Camphor of 650 per share , although not cheap but doesn’t seem expensive either. I am looking at the valuations of peers SHK in listed space and Sonarome in unlisted space which got acquired last year by mnc.

Now, your point of evaluating camphor with similar formulae, it can’t be done as it has two distinct businesses, first ids Camphor business and second is Aroma Chemical business…we need to assign valuations based on each of this segment and then arrive at sotp valuations to assess the correct valuation of camphor&allied…Camphor business will carry lower valuations whereas aroma chemical business will carry a relatively higher valuation.