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,
http://www.capitalmarket.com/pub/dp/dp23313.pdf

Good point.

Yes, until 2014 the milk prices are on an uptrend, quoting a sentence from the indianexpress link in my above post:

"Between May 2010 and May 2014, retail prices of toned milk in Delhi went up from Rs 23 to Rs 38 a litre — a 65 per cent jump in 4 years. But since then, there has been no rise and the scope for it is also limited in the “near future”, according to R S Sodhi, MD of Amul, which last raised prices on May 9, 2014."

Now some important points on why Virat now is different from Virat during 2010-2013 (based on posts in this forum itself by other members):

1. Virat had fake products issue (not that it is not there any more) but I think as we go along this issue will gradually subside.
2. The product went off the shelves due to dealers network and not so much from the company itself

When the above problems subside gradually, the revenue will see better growth (we are still on a very low base so lot of scope here)

So yes, the majority of revenue growth would have come from price increases.

However, as per the latest annual report (latest AR has better information in management discussion and analysis section compared to past reports) -

1) Management is proactive in generating revenue growth where they mentioned they want to expand to other geographies, new plant in Orissa to cater to Eastern states, brand extension.
2) As a logical extension to this low milk prices, revenue growth from 'price realisation' might be less as you rightly said, but this could be to some extent offset by point 1 as above.
3) However, the margins should get a boost and hence better RoE etc.
4) I think there might be 'natural' revenue growth owing to better GDP numbers during 2015-2018 as compared to 2010-2014 (at least this assumption should be made, if not, there are a lot of other sectors that will also get impacted like housing, consumption etc. and you cannot be in equity market
5) The whole 'consumption theory' picking up on which many other stock prices are at high PE (Hawkins, Whirlpool, Paints etc. etc.) while Durga is quoting at benign PE, so there is a very good scope of PE re-rating if the story pans out as expected.

2 new clients additions ...reduction in debt and the US launch....surely they will do better than Q3 & Q4 last year...even if Q3 & Q4 remains same we are looking at march 2016 topline of 550 crs. if they maintain the operating margins and net margins at 35% and 20%.....is it sustainable is the main Q? where do we see Kitex going?

friends look forward to your views

Vinati Organics forms more than 10% of my portfolio. In my opinion, this stock may not be a multi-bagger within a year but once the capex which the company initiated in last 1-2 years starts kicking, it should improve its earnings on a consistent basis for next 3-4 years.