S H Kelkar Navigates Strategic Investments Amidst Global Ambitions in Q3 FY26

S H Kelkar and Company Limited (SHK), India's largest home-grown fragrance and flavour company, has released its unaudited financial results for the quarter and nine months ended December 31, 2025. The company reported a consolidated revenue from operations of Rs. 1,718 crore for the nine months, marking a 10.4% year-on-year growth. While the top-line growth indicates resilience, the period was characterized by strategic investments impacting profitability, with EBITDA standing at Rs. 182 crore. This reflects a deliberate phase of expansion and capability building aimed at long-term sustainable growth, even as the company navigates a subdued operating environment in certain markets.

The company's performance during the quarter was described as relatively softer, influenced by a slower ramp-up in specific product categories and broader market conditions. Despite this, demand remained resilient across core categories, supported by consistent engagement with both existing and new customers. Gross margins remained broadly stable, but EBITDA margins were affected by costs associated with scaling strategic initiatives and strengthening organizational capabilities. On an adjusted basis, excluding new growth-led investments and high insurance costs, the EBITDA margin stood at approximately 13%. This strategic trade-off highlights management's focus on future growth over immediate margin optimization.

Segmental Performance and Strategic Focus

SHK's business segments presented a mixed but strategically aligned performance. The Fragrance division, excluding Global Ingredients, reported revenues of Rs. 1,488 crore, growing by 8.9% year-on-year. This segment continues to be a cornerstone of the company's operations. The Flavour division demonstrated robust growth, with revenues increasing by 37.9% year-on-year to Rs. 177 crore. This strong performance was primarily driven by increasing demand in international markets and deeper engagement with existing clientele, validating earlier investments in this segment.

In contrast, the Global Ingredients segment experienced a softer performance, with revenues declining by 13% to Rs. 46 crore. This was attributed to persistent geopolitical headwinds. However, management remains optimistic about the medium to long-term growth prospects for this segment, supported by structural shifts in global supply chains.

Geographically, India remains a significant market, contributing 57% of Fragrance revenue and 56% of Flavour revenue. The company is actively expanding its footprint in international markets. Europe accounted for 24% of Fragrance revenue, while the Rest of the World (RoW) contributed 19%. In Flavours, RoW accounted for 44% of revenue. The company's strategic investments are particularly focused on expanding its presence in the US, UK, Germany, and UAE, which collectively represent a substantial portion of the global fragrance market.

Investments for Future Growth and Financial Discipline

Management commentary emphasized that the current phase of investments is a clear strategic choice to build the company for its next leg of growth. Mr. Kedar Vaze, Whole-Time Director & CEO, highlighted the strengthening of global Creative Development Centres, capacity expansion, and investment in capabilities to enhance innovation, execution, and customer engagement across markets. These initiatives are designed for sustainable and profitable growth over the long term, with benefits expected to accrue progressively.

A significant development is the progress in the US market, where the US Creative Development Centre secured its first customer order and began generating initial revenues. This marks an important early milestone in the company's entry into the world's largest flavours and fragrances market. The company aims to achieve $2 million to$2.5 million in business from the US by the end of next year. Total investment in the US development center is approximately $1.5 million to$2 million.

On the financial front, Mr. Jagdish Agarwal, Group CFO, outlined key priorities, including sharpening the approach to cash flow and balance sheet management. He acknowledged that debt levels might see a near-term increase due to strategic initiatives and capacity expansion plans. However, he stressed the scope to improve working capital efficiency, which will be a critical lever in reinforcing balance sheet strength and moderating leverage over time. The company is also focused on enhancing cash conversion and improving the translation of operating results into bottom-line outcomes through cost discipline and tighter capital allocation.

Capacity expansion is underway in both Europe and India. The new facility in Europe is expected to be operational by the end of Q4 FY26 or Q1 FY27, with capacity doubling or increasing by at least 1.5 times. In India, the company plans to add another 9,000 tons of capacity in Q1 FY27 and an additional 15,000 tons thereafter, alongside rebuilding fire-affected facilities in Vashivali and Vanavate with an estimated capex of Rs. 70-80 crore over the next 12-18 months. These new facilities are expected to replace older ones, leading to operational savings.

Outlook and Investor Confidence

Management expressed confidence in achieving an adjusted EBITDA of 17% over the next two years, up from the current 13%. They also reiterated a long-term CAGR growth target of 12%, with next year's growth anticipated to be even faster. The company expects Return on Capital Employed (ROCE) and Return on Equity (ROE) to reach around 14% within two to three years as the new initiatives start generating cash break-even. The management's proactive approach to market trends, such as the consolidation in the global fragrance industry and the rise of smaller, e-commerce-driven brands, positions SHK to capitalize on new opportunities.

Despite the short-term pressures on profitability due to significant investments and the lingering impact of past incidents like the fire, S H Kelkar and Company Limited is clearly executing a well-defined strategy for global expansion and operational efficiency. The focus on strengthening core capabilities, disciplined capital allocation, and tapping into new markets underscores a confident, forward-looking stance designed to drive consistent value creation over the medium to long term.