S H Kelkar and Company Ltd

NSE:SHK

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to S H Kelkar and Company Limited's Earnings Conference Call. [Operator Instructions]

Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, Mr. Poojari.

[Anoop Poojari]

Thank you. Good morning, everyone, and thank you for joining us on S H Kelkar and Company's Q1 FY 2025 Earnings Conference Call. We have with us Mr. Kedar Vaze, Whole-Time Director and Group CEO; and Mr. Rohit Saraogi, EVP and Group CFO of the company.

We will begin the call with opening remarks on the management following which, we'll have the forum open for a question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.

I would now like to invite Kedar to make his opening remarks.

[Kedar Vaze, executive]

Thank you. Good morning, everyone, and thank you for joining us on this earnings call today. I hope you had gone through our results document, which was uploaded to the exchanges earlier. We have delivered a strong performance this quarter, particularly in light of the challenges we faced due to the fire at our Vashivali fragrance facility, which we'll discuss in more detail in the quarter 4 call.

Despite this, we achieved an 11.3% year-on-year revenue growth in quarter 1 with our Fragrance division posting 7% year-on-year growth. However, the fire led to an order backlog of roughly INR 30 crores. Without this impact, our revenue growth would have been even higher. We have been able to resume full service and maintain adequate capacity from our alternate sites in Mulund to meet all customer orders and ensure complete business continuity.

To further support our operations, our Indonesia facility has been ramped up to full production and will cater to the Asian market and export orders. With this, we have now enough capacity to grow our Fragrance business without any disruption.

I would like to take this opportunity to express my appreciation to our team's dedication on the ground, their ability to navigate through this challenging period and deliver this solid performance is commended.

Following a thorough review, we have also initiated plans to reestablish the Vashivali Fragrance facility with the project expected to be completed within 12 months. During this period, our existing facilities will continue to operate in 3 or 3 shifts to ensure we service current and new orders seamlessly. As part of our business continuity plan, the Board has approved a proposal to prepone the establishment of our new fragrance and flavour formulation facility at the company's existing site in [ Vashivali ], Raigad. This was planned in our normal course of business to be built in 2025/'26.

This site, a freehold land measuring approximately 7 acres, is currently being used as warehousing. The new facility will replace our 2 existing factories in Mulund, which are currently operated on lease [ whole length ]. It is expected that the new facility will be operational before the end of this year.

The capital expenditure for setting up this facility is projected to be around INR 80 crores. This outlay will be deployed from internal accruals and reduction in working capital. Our core European segment continues to deliver positive performance with healthy revenue growth and strong growth in EBITDA margins despite the challenges posed by a subdued macro environment.

This resilience reflects our strategic focus on expanding our presence in 3 European markets. Recognizing the scale and potential of the European market, we have incorporated a step-down subsidiary, Keva Germany GmbH to serve as a creative and development center for all our European operations. This hub will enhance our product development capabilities and provide support to customers in the Middle East, apart from Europe.

By onboarding talent of global caliber in creating this world-class fragrance facility, we are well positioned to drive growth through market share gains and to continue delivering robust performance across these regions in the long term.

Moving on to the Flavour segment. We experienced significant growth during this quarter with a 57% increase in revenue year-on-year. The strong performance was primarily driven by revival in the market and an increased engagement with our existing customers. We have excluded NuTaste food and Drink Labs from the figures as the company has entered into a share purchase agreement to divest its majority stake. We will continue to hold 40% stake as a strategic partner in this business. The results, therefore, are like-for-like comparable.

The Global Ingredients segment has continued to demonstrate a strong turnaround in quarter 1, building on the momentum established earlier. Our focus on backward integration and cost-saving initiatives has transformed this segment, reversing the previous losses and resulting in a profitable turnaround, which is on a sustainable basis due to better supply chain.

Moving on to our margin performance. We reported solid improvement this quarter, driven by a stable raw material environment and favorable product mix, which allowed us to enhance our gross and EBITDA margins. As part of the financial impact on account of the fire, we have recorded an exceptional loss of INR 120 crores net of tax during the quarter, which includes damages to plant and machinery, building and inventory.

As we have mentioned earlier, our comprehensive insurance coverage, all-risk policy also includes protection for loss of profit. This insurance, we expect will fully offset the financial losses incurred. We have already filed a request in an interim payment of INR 50 crores with the insurance company and the necessary procedures are currently underway to process the claim.

The demand -- moving on to the demand outlook. Demand outlook for quarter 2 FY '25 remains strong with continued momentum across both existing and new accounts. Significant progress with global MNC account should allow us to continue to deliver strong double-digit growth in H1 itself. Building on the strong start combined with favorable demand environment globally, we are confident of achieving more than 12% growth in FY '25 and with better profitability than previous years.

On that note, I would now request the moderator to open the forum for any questions or suggestions you may have.

[Operator]

[Operator Instructions] The first question is from the line of Nasir Hussain from Fintrek Research Advisors.

[Mohammed Nasir Hussain, analyst]

Congrats on a good set of numbers. So my question to you would be that I have noticed that you have revised Q1 FY '24 numbers by lower by INR 22 crores. So I just wanted to know why that is?

[Kedar Vaze, executive]

As I mentioned, we have in the quarter to undertake -- to divest the majority stake in our acquisition in NuTaste Food and Drink Labs with a strategic focus to -- focus more on our core business. We have a strategic investor who is coming in on board and taking the next charting the growth of this business in the future. Give you a context, we acquired this business 2 or 3 years ago when it was INR 22 crores in revenue.

Last year, we grew that business to over INR 90 crores revenue. Going forward, that business would need a full investment in plant and machinery, new factory operations and future growth capital. Given the current contingencies in the CapEx planned, we thought it is prudent to divest this business into a strategic investor. That has happened in the quarter 2 this year. To take into effect that, we have changed the numbers from previous years, so we have a like-for-like comparison of our business.

[Mohammed Nasir Hussain, analyst]

All right. I have another question. I have noticed that you have not reported revenue numbers from Global Ingredients. So I just wanted to ask why that is?

[Kedar Vaze, executive]

No. So we have reported -- it will be in the presentation. I can just share with you. The Global Ingredients revenue was INR 19 crores in this quarter 1 as against INR 13 crores last year, and the EBIT number is INR 0.3 crores plus as against to minus INR 3.1 crores last year.

Just a quick additional comment on the Global Ingredients is we did not touch upon that in the opening comment. Again, Global Ingredients as a business has a positive tailwinds due to the situation of chemical industry in Europe and the move -- globally geopolitical and the sort of derisking policies of most large companies to move away from dependency on China. So we are seeing some very good robust contracts on our Global Ingredients. And that is also, again, a sustainable growth story for the company.

[Operator]

[Operator Instructions] Next question is from the line of Harsh Shah from RERA Holdings.

[Harsh Shah, analyst]

Firstly, commendable job on the way you have turned around after...

[Operator]

Harsh, can you speak using a handset, please?

[Harsh Shah, analyst]

Is this better?

[Kedar Vaze, executive]

Yes.

[Harsh Shah, analyst]

Yes, yes. First, it's a commendable job with the way you have turned around the business despite the disruption caused by fire. My first question is on the subsegment of growth. If we have to look at the segments which are doing well, so can you give us some color on which are the segments that are aspiring for you in terms of whether it is the large [indiscernible] which is doing well? Or is it the [indiscernible] business that is doing well for us?

[Kedar Vaze, executive]

So actually, at the moment, we have growth across all the segments, both the smaller accounts as well as the large global accounts and large corporate, all corporate and small accounts are growing well across the region, both in India, Southeast Asia as well as Europe fragrances.

For specific for Flavours, there are a few accounts that have grown much bigger than last year. We see renewed momentum in the Flavour business. So I mean, basically, Ingredients, Flavour and Fragrance, all 3 segments are seeing robust demand, robust growth. 5 quarters ago, we alluded a few steps that we would take to change the trajectory, and we have ensured that all those are fulfilled that has resulted in a continuous growth trajectory and especially Global Ingredients, which was in a difficult situation 2 years ago, we have been able to turn it around. And all the businesses today, there is no specific segment that is lagging. Each one of them is on budget or ahead of budget.

[Harsh Shah, analyst]

Okay. Okay. And if we have to look at the medium-term horizon, then you expect this trajectory to last for at least next 2 to 3 years, this demand environment which we are seeing in India and overseas, how long do you expect this tailwind to last?

[Kedar Vaze, executive]

So I think on the Global Ingredients, that is, to my mind, a structural change that's a movement away from China dependency is not to -- it's not 1 or 2 years trend, it's a longer-term trend, and we will benefit from that. In India domestic consumption also continues to grow. That is a longer-term trend.

Our business, global business, global account and European business is specifically situated where we are looking at good market share gains. Being a small market share in these segments, again, we have a good runway to grow. So I see robust growth across all segments in the next 3 to 5 years in the midterm.

And then we have also established smaller inroad markets like the U.S. and some other Middle East markets, which we will develop over the next 3, 4 years for the growth leg in the strategy subsequent from 3, 4 years from now. So we are starting these markets, it will take 3, 4 years of gestation period for the revenue to start kicking in.

[Harsh Shah, analyst]

Okay. Okay. And sir, Global Ingredients is currently relatively small percentage of our total business contributing to 4% to 5%, when you see this business 3 to 5 years down the line and currently they are making 1% kind of a margin in this business. So just wanted to get an idea as to where do you see this business scaling up? And what kind of margin can it make once it reaches a decent size?

[Kedar Vaze, executive]

So our strategic focus has been largely on formulations business. The ingredient business is a business that supports our formulation business. We don't expect it to be more than -- at any point more than 20% of our total offering. We don't propose in our strategy to become an ingredient supplier.

We would like to continue our focus on being formulations and proprietary product supplier. The Global Ingredients business, we expect to grow in line with the rest of the business and remain 10% to 15% of our total portfolio.

[Harsh Shah, analyst]

Okay. Okay. Got it. And sir, since the last couple of years, we have been talking about the backward integration that has been benefiting. So I just wanted to get an idea as to what are the capabilities that the company has increased within itself because if I refer to a few of the calls in the past, we have mentioned that most of the backward integration has come through our vendors.

We have shifted from China to some of the Indian vendors and those are the guys who are a key part of your backward integration program. So just wanted to understand what kind of capabilities have you built in for your macro integration? And what kind of capabilities do you rely on your vendors?

[Kedar Vaze, executive]

It's a good question. There are 2 parts of this. One is the know-how and the intellectual property and the other is the actual infrastructure and physical infrastructure capital or factory. So in all our backward integration programs, we are the ones who develop the technology, we are the owner of the IP, and we toll produce it with various vendors.

So the entire value addition or the entire development of such process, detailed knowledge is done by our company and then handed over to vendors to produce so that we don't have -- we are actually utilizing existing surplus capacity rather than doing CapEx to build capacity for these products.

[Operator]

Next question is from the line of Venkat from Mirabilis Investment Trust.

[Unknown Analyst]

First is just a clarification. So this 57% growth that we have reported in Flavours segment, is this adjusted for NuTaste like the base quarter has been removed -- NuTaste numbers have been removed from this quarter?

[Kedar Vaze, executive]

Yes. So this is actual growth in the Flavours segment continuing without the NuTaste business. Last year, we had a fairly muted quarter in the first quarter. So the number of 57% is looking very large, but we have clearly 20%-plus sustained growth in this segment.

[Unknown Analyst]

Okay. So just digging a bit deeper on this. So if we see the domestic [indiscernible] segment or the QSR segment, so those players are experiencing a bit of a slowdown in the demand. So if we look deeper into this growth, which segments are driving this growth, if you could highlight some of the takeaways from the quarter?

[Kedar Vaze, executive]

Yes. So the NuTaste business was handling the QSR and direct service business. We have divested from that part of the food flavour offering. We continue to operate in the flavour and flavoured product formulation business, which is our core business.

[Unknown Analyst]

Okay. Got it. And sir, on the gross margin performance like we have reported some really strong gross margins on the consol level. And if you see the European business has also reported a very strong expansion in gross margins. So what kind of product mix is driving this expansion? And what should we see the trajectory for FY '25?

[Kedar Vaze, executive]

No. So this is a continuing gross margin as what we should be in a normal range at 45% to 47% gross margin. Our European entity, 2 years ago, we had sort of not corrected for inflation in time. And given the market situation at the time, the cost increases were uncertain, what would be the way forward.

So we had a decline in gross margin from the historical average. We have now restored that gross margin to expected levels. We have also rationalized some of our product offering and using our capacity for the right customers to ensure a good gross margin and good bottom line.

[Unknown Analyst]

Any headwinds currently, sir, on the raw material front that we may need to look out for going ahead?

[Kedar Vaze, executive]

I think there are early signs of some raw material prices going up. There are also some shortages or some natural products where there are concerns. We are, in our business, always looking at higher inventory to offset such variations. We expect that our contracts and inventory will be sufficient to counter this volatility.

As of now, I don't expect it to substantially change any of our gross margins across the business. If there are further adverse movements in raw materials, we will try [indiscernible] pass on that additional cost to our customers as is customary. So I don't see any big concern on the raw material situation as of now. But it is not as favorable as, let's say, 3 or 4 months ago when the raw material prices were very low.

[Unknown Analyst]

Got it, sir. And just on the Global RFP rule, if you could share some update on the traction, has that continued or even improved from the levels that we saw in Q4?

[Kedar Vaze, executive]

Yes. So it has almost doubled from the level of Q4. So Q1 is almost double the revenue of Q4 last year. We are continuing to engage with them on other segments. And as we speak, we are picking up additional briefs. And with the Germany center coming up, we will have the capability to drive bigger projects.

[Unknown Analyst]

Should we expect the FY '25 [indiscernible] to be more than -- significantly more than USD 10 million that we had said based on current run rate?

[Kedar Vaze, executive]

It is difficult to judge the full year because as the adoption of the product is phased in, we probably see some uptick towards the end of this year. If it comes in the fourth quarter, we will see that in this year; if it's the first quarter next year, it will come in that year. So there is definite traction. There is a continuity on the engagement. So I would not like to comment on a year-on-year growth beyond the [ $10 ] million that is already contracted. But there is traction, there is business wins, and we continue to grow that account.

[Unknown Analyst]

Got it, sir. Just lastly, if I may, on the net debt that we are currently at around INR 540 crores, INR 550 crores. And we have plans to spend around INR 80 crores on the new facility. So should we see this [indiscernible] further towards maybe INR 600 crores by the end of the year? Or is there the peak that we expect?

[Kedar Vaze, executive]

I think our peak net debt, as you mentioned, could be around INR 600 crores, INR 610 crores, INR 620 crores that range. Obviously, we have over INR 100 crores of inventory, which we have replenished in this quarter, and there will be an effect of that to the working capital cycle. We are expecting and hopeful that we get covered from the insurance at least partly, if not fully, so I would still think of INR 600 crore maximum net debt level. We have a strong robust operating cash flows, and we expect that the insurance return or insurance recoveries should start to come in, in this quarter and then we should be able to balance our CapEx through internal accruals.

[Operator]

Next question is from the line of Nikhil from SIMPL.

[Nikhil Upadhyay, analyst]

Congrats on good set of numbers. One question, Kedar, see, if we understand correctly from demon to post-COVID, the smaller players or the mid segment for the key customers for us was under a lot of pressure. Now for last 4 quarters, we are seeing -- we are hitting a double-digit growth, and there are -- there is also a combination of the new business which is coming from the MNCs.

But if you remove that business and if we only talk about the business from the smaller customers, is that business also growing in a similar level? Are they returning to growth trajectory, which was the -- seen previously? Or how is the trend there?

[Kedar Vaze, executive]

Yes. So I think the churn in the business due to the various effects, as we mentioned, GST, demon and COVID, a lot of small customers changed their business model. Some of them stopped completely and others grew fast.

So this entire chain of events has already turned the marketplace in terms of sort of winners and losers and people who decided to grow the business, people who decided to sort of keep the business at a smaller level or completely exit the business. So this churn has already happened. We have our new baseline since '20, '21, '22 after the pandemic. And we see good traction across all segments, small, mid as well as retail and large customers.

We also see that there is new customers being added at all the levels. So on the Global MNC, we are adding new customers. And also at the new startup e-commerce or similar, Tata brands, premium brands, niche brands, we see a lot of traction in those businesses as well. So across the board, there is traction. I would just say that in general, there is a movement towards new and new launches, new segments and some of the very traditional segments are experiencing lower growth.

So if I look at traditional businesses in personal wash, soap and some of these penetrated -- fully penetrated businesses, they are doing 3% to 5% volume growth. But the other segments and the new upcoming product portfolio is compensating and giving us higher than industry growth rates.

[Nikhil Upadhyay, analyst]

Okay. And would it be right to say that our market share in this new segment versus the traditional segment is higher? Or are incremental wins are better than what it was previously with the older segment?

[Kedar Vaze, executive]

No, it is very difficult to make that judgment. Our win ratios have been strong throughout all this period. There has never been a year where we have not been winning business. There has been -- so the new business trajectory and trend is consistently there. There is no change there. What happens is the existing business growth has been affected by these macro changes. So existing customers, which is almost 90% plus of our business that reflects the actual number. New win trajectory has been strong, and it continues to be in a good situation.

[Nikhil Upadhyay, analyst]

Okay. And last question. You mentioned that because of this fire, we had a sales deferment of INR 30 crores. If I remember in -- I think 2 years back, there was a flood in Raigad and our facility was impacted. And -- but at that time also, there was a deferment, but eventually, that business was lost. So this INR 30 crores of deferment business, is this a business lost for us? Or would you say that it will be recovered in the next 3 quarters?

[Kedar Vaze, executive]

No, I think even in the earlier instance, we did not lose the business. The deferment was there. We shifted to our BCP plan and manufactured in China for a period of time. And we had a full recovery of the business. And so if you see the Global Ingredients business today, it is stronger than the business last year and the year before.

Similarly, for Fragrances, I think only on the timelines, we have been able to recover faster as the movement close to other plants within the country. We have successfully -- and as I alluded at the beginning of the call, the team has really stepped up and ensured that we have a transition to the new manufacturing plant. And accordingly, we are servicing all our clients without any delays or any service concerns in this period. And I think this INR 30-odd crores backlog also should be covered in this quarter and we should not have any concern thereafter.

[Nikhil Upadhyay, analyst]

Okay. And one thing, see, if I add this INR 30 crores, our sales growth on an inquiry level or what we should have reported seems to be almost 18%, 20%. So do you see -- are you seeing such kind of an activity level or inquiry levels and project to sustain this growth?

[Kedar Vaze, executive]

If you see our growth trajectory in the last year also, the third and fourth quarter was stronger revenue numbers than the first and second quarters. There is some amount of timing as well. But we are seeing that kind of run rate. So we have done more than INR 500 crores in the quarter 3, quarter 4, and I would expect that we are in INR 500 crore-plus revenue run rate quarter-on-quarter going forward as well.

[Operator]

Next question is from the line of Bharat Sheth from Quest Investment Advisors.

[Bharat Sheth, analyst]

Congratulation on successful turnaround. Kedar, see, you in the initial remarks, you said that we are preponing the CapEx [indiscernible] new facilities. So can you give some more color, I mean, this preponement as well as our Vashivali will also come back on the -- by -- in next year beginning. So are we seeing such a kind of, I mean, growth that we need to really build up a large capacity?

[Kedar Vaze, executive]

So if you look at the event, we have a capacity of roughly 10,000 tonnes, which is Vashivali plant, which has been -- which is not operational at the moment. So we have moved that to 2 other plants, which are roughly 3,000 to 4,000 tonnes capacity, and we are able to continue that as Vashivali was not fully utilized.

What we are proposing is to -- so the original plan and we have the factory permissions and this is a factory built in 1980. So it's really an old facility. We were to update it in 2025/'26 financial year as per our original long-term strategy. We are just preponing that by 2 years.

We see that the growth for this business is quite robust. We are continuing to see 15% levels of growth vis-a-vis last year to this year. And we have an opportunity or the kind of timing effect where this plant can be ready in 6 months, Vashivali will take longer than 12 months to be fully operational.

So we will fall short of capacity in a year or 2 years' time if we do not build this facility. If Vashivali facility was fully operational that had additional capacity to take over from the smaller plants. So I think at this moment, we need to build that extra capacity. We are seeing robust growth, in fact, very strong growth signals from all our clients and all our segments, so we would proceed to build this factory.

As a result of the fire, we have now 2 factories in Mulund, which are on lease basis. So the cost savings will offset the CapEx in terms of, I would say, if I compare interest and other benefits, and we will have the capacity for future growth preponed by 2 years.

[Bharat Sheth, analyst]

Okay. And second on this Global Ingredients, you are talking, I mean, a good growth, I mean as well as we were in -- which once upon a time, we were, I mean, kind of a thinking or continuing only for because of our commitment towards the plant. Now where do we see the margin in terms of -- I mean, for this Global Ingredients business?

[Kedar Vaze, executive]

So I think the Global Ingredients business in terms of gross margin as we -- has been kind of in that 35% ballpark sustainable margin level like any other specialty chemicals. And as you see from this year's first quarter result, it is in a positive EBITDA territory. As we continue to derive benefits from further growth in volume and optimization of the backward integration, we will realize better margins and better growth in this ingredient.

[Bharat Sheth, analyst]

So without putting any specific number, could it be in a high single digit or low double digit kind of from next year onward do we expect?

[Kedar Vaze, executive]

You see, historically, this business was roughly INR 95 crores revenue as a business. We had a fairly higher market share before the Chinese competition came in 3, 4 years ago. So the potential of this business is roughly INR 95 crores to INR 100 crores at this moment without any increase.

So that we have now realized around INR 20 crores in the first quarter. So we expect to have about 80% of the market share. This is as far as the product currently being produced and marketed. We also have a pipeline of ingredients that we are making and which we have filed for patent for which we are growing. Although they will be smaller in current revenue, we expect those to grow as well as we go ahead on the expansion.

[Bharat Sheth, analyst]

I'm talking about margin, if you can give some color on going -- not in this year, next year onward. And overall, that will be -- say, would be saving in the -- these strategies as well as new factory more efficient. So how do we see...

[Kedar Vaze, executive]

Yes. If you look at this quarter, we have excess of 16.5% -- 16.6% EBITDA on revenue. If we take into the additional cost, which we expect to be reimbursed through the loss of profit, we will be in well over 17.5% EBITDA for this quarter.

We expect that we should be around these levels going forward with good strong sustained growth at 12%, 12.5% plus revenue growth year-on-year. We will see some stabilization, and we will look at also the European fragrance business at some point where we'll need investment for the capacity expansion. At that point, we will see some flattening of the, let's say, EBITDA percentage by half of 1% when we move to the new facilities in the next near term. But 17% to 18% EBITDA level and 12% to 13% CAGR growth, we are confident of delivering, and we continue to be on that trend line.

[Operator]

Next question is from the line of [indiscernible] from SaaS Capital.

[Unknown Analyst]

Kedar, congrats on good set of numbers. I had a couple of questions. So what is going to be our total CapEx between Vashivali and the new facility?

[Kedar Vaze, executive]

So I think the CapEx for the new facility is outlined at INR 80 crores. For Vashivali facility, the CapEx is not specified as that will be covered through the insurance. We will not have additional spend for that. That detailing -- detailed work is underway at this moment.

What we are proposing to do is to build -- so instead of 10,000 tonnes in one location, we will build 7,000 or 6,000 tonnes or 5,000 tonnes in 2 locations. We are working that out. And then we have additional Phase 2, which we can build subsequently once the ramp-up of the demand has reached that level.

So instead of reinstating Vashivali to the full 100% capacity immediately and operating it at 30%, 40% capacity usage, we will build a slightly smaller capacity in the first phase and build a new factory, which we have already initiated to build. The total CapEx will remain INR 80 crores in this -- both the factories. So there's no additional CapEx in Vashivali envisaged.

[Unknown Analyst]

Okay. So in that case, we have, at this point in time, a robust cash flow and we're through largely with our European investment. So I was just wondering why would the debt level rise then?

[Kedar Vaze, executive]

The debt levels actually are rising because the inventory losses in Vashivali factory of over INR 100 crores. We have replenished those inventories in May and June, and those payments will be due in this quarter. So it is only a timing effect. It is not a structural issue. We are hoping to the insurance claim well in time that we don't have an effect on the net debt going up substantially. In case there is a delay on the insurance payout, then there might be a small increase in the net debt in 1 or 2 months before it comes back to a normal level.

[Unknown Analyst]

So I'm just saying that if you receive the insurance claim because as of now, we are generating cash at the rate of about INR 200 crores a year, so we...

[Kedar Vaze, executive]

If you go back in earlier calls, talked about reducing the debt every quarter by INR 25 crores, INR 30 crores. We are on track in terms of operations in that line. We have this additional INR 100 crores working capital as a result of the inventory replenishment. If the insurance money comes in back, we will reduce our debt by about INR 100 crores on an immediate basis.

[Unknown Analyst]

Got it. And just one last thing. So then what happens to our Mulund facility? I mean, are we in a position to monetize that?

[Kedar Vaze, executive]

So the Mulund facility is not owned by the company. That is on lease building and land. So we will terminate the lease in 2025 once the new facility is built. We also need to take into account that we had 4 factories. We had 2 factories for Flavours. So one factory for Flavours has been also reduced in this reorganization of production.

So we will either retool the Mulund factory back to Flavours or then look at alternatives for flavour BCP export unit as export is also growing fast in Flavours. So this is what we are proposing at this point, just kind of our lease rental agreements are expiring in 2025. We had planned for '25, '26 to relocate the factory.

We will do that in parallel. So that 5, 6 months, there will be a double factory in that scenario. But without the Vashivali factory, I think it will be prudent to build that capacity ahead of demand because we are now at more than 85%, 90% capacity utilization. Maybe if you look at it in technically, probably 100% capacity utilization.

[Unknown Analyst]

Sure, sure, sure. Just one last, if I may squeeze in. So our Domestic Fragrance is actually flat this quarter. So that is because of the fire incident because if you see in the presentation, your rest of the world, Fragrance has grown at 63% and [indiscernible]

[Kedar Vaze, executive]

Absolutely right...

[Operator]

[ Jayesh, ] sorry to interrupt you, your audio is not clear. Can you...

[Kedar Vaze, executive]

Domestic Fragrance also is flat because some of the business was supplied in the early weeks of July, instead of last week of June. So that deferment -- 10 days deferment has happened in the last quarter at roughly INR 25 crores to INR 30 crores of revenue, which would slip to the second quarter.

[Operator]

Next question is from the line of Pradeep Rawat from Yogya Capital.

[Pradeep Rawat, analyst]

So I have a few questions. First question is regarding our customer concentration. So how much revenue do we generate from our top 5 customers?

[Kedar Vaze, executive]

It's less than 15% of the total.

[Pradeep Rawat, analyst]

Okay. And my next question is regarding our total addressable market. So can you highlight upon that? And what is the growth rate for the addressable market?

[Kedar Vaze, executive]

So our total addressable market is in excess of $10 billion with the European expansion and inroads in Southeast Asia that we are making. So there is a huge market share gain that we see going forward. So there is no demand issue in the next 4 to 5 years on our current business where we are operating.

[Pradeep Rawat, analyst]

Yes. So my purpose for asking this question is like we are going at a pace of 10% to 12%, so is there any headroom for growing like in high double-digit growth or something like that?

[Kedar Vaze, executive]

So what happens is that some of the traditional or the older businesses have a smaller volume growth, so 4%, 3% or similar. So when we look at 12% average, we are also talking about the existing business, which has, let's say, 30% of the business growing at 3% to 4% and the net average of 12%. It means the newer businesses and new businesses are growing over 15%, 18% per annum.

[Pradeep Rawat, analyst]

Okay. Understood. And my last question is regarding the contract duration. So what is the average contract duration that we have?

[Kedar Vaze, executive]

We have -- strangely enough, we don't have long-term contracts, very few contracts beyond 1 year. But in terms of our stickiness in terms of our business, more than 95% of our business is repeat business year-on-year. And if I take even beyond 5 years, beyond 10 years, almost 90% plus of our business is repeat business.

So while the contracts are short term, the contracts have been renewed year-on-year for many years on a continuous basis. So as a business, the demand is generated by the end product and the customer and us work together to make sure that we get the best solution for the consumer. And very often, once it's a running brand, we are not seeing any change or churn. We have many clients who are 60, 70, even 90 years of continued purchase from us.

[Pradeep Rawat, analyst]

Okay. Great. Great. Understood. And my last question...

[Kedar Vaze, executive]

[ 90% ] of our business is proprietary business. We are owner of the IP. We have the know-how and we have good relations with our clients and service, their requirements. So there is a very strong stickiness to our business, which is not contractual, but in actual reality. It's not that we have to supply them for 10 years because there is a contract. We are supplying because the product is successful and the consumer and the customer wants that product, and we are producing that product at a very reasonable offering in terms of price service. So it is a long-term relationship-based business and not a contract-based business.

[Pradeep Rawat, analyst]

Yes. Understood. And my last question is regarding our CapEx. So after completing both the CapEx, like first one of Vashivali and other CapEx? So what would be our peak revenue potential after those CapEx assuming our current prices and product mix?

[Kedar Vaze, executive]

So we would be in a position to [ replicate ] our current volumes. So we should -- I mean, if we reestablish Vashivali, Vashivali was capable of making 20,000 tonnes in a year on [indiscernible] basis, so we could easily produce 5x as much as the current operation level. In the new rebuild of Vashivali, we may plan to do it in 2 phases and build only half the capacity initially and then the other capacity is offset with the new facility we are building now.

So we have to -- a bit of scenario planning for the next 5 years, we'll redo that based on the new situation. But we will -- as both the factories coming on stream, we will have enough capacity for the foreseeable future, probably foreseeable future decades.

[Pradeep Rawat, analyst]

Okay. Understood. So our current -- like what we have right now, we will be having that only after these both CapEx but renewed?

[Kedar Vaze, executive]

Yes, we would have basically the same capacity but renewed. I would also like to point out that we have built one more factory in Indonesia. So part of the export that is happening from India will be shifted to -- has been shifted to the Indonesia factory. That will add another 10% capacity to the existing plant. And thereafter, I mean, as an overall capacity in Asia, we would have increased by 20% the capacity post the Vashivali and new facility coming on stream.

[Pradeep Rawat, analyst]

Yes. And so what would be our utilization currently if we have operational -- like if you have Vashivali and other facilities operational? So what would be our current utilization?

[Kedar Vaze, executive]

So when Vashivali was operating prior to the incident, we were operating at around 40%, 45% of capacity utilization.

[Pradeep Rawat, analyst]

Okay. Understood. Understood. Okay...

[Kedar Vaze, executive]

We have also improved our productivity in terms of the changeover and found better processes, better methods to complete or to have a productivity gain, I would say, almost 30%. So the same plant, which was earlier producing certain tonnage, we are in a position to produce 20% to 30% higher tonnage with the new way of working.

[Operator]

Next question is from the line of Ganesh Shetty, individual investor.

[Ganesh Shetty]

Yes, congratulations for great set of numbers in a very difficult time. I just want to understand how the domestic FMCG market is panning out and how the demand is rising over there and what opportunities -- additional opportunities are you seeing in the market?

[Kedar Vaze, executive]

I think the domestic FMCG obviously, is growing well in totality. There is, as I mentioned, traditional or some of the mature penetrated product growth is flattening out. But new products and start-up products or new segments are catching up fast. So in total, I believe that the FMCG business would do in the fragrance side in India, 8% revenue growth on an average.

But it will be new players, more disruption in terms of new brands, new products rather than existing product, existing product formats. So e-commerce is -- brands are growing, many startup brands, many niche brands are growing. The value growth is there. The traditional FMCG growth versus last year to this year in terms of volume, there will be a slowdown relative to previous years.

[Ganesh Shetty]

Sir, my second question is regarding the R&D spend on new products? Are we getting R&D [indiscernible] for R&D activity, if so how we are capitalizing on it and the new products in which you have been manufacturing on the basis of R&D activities, are they showing good robust growth in the market?

[Kedar Vaze, executive]

Yes. Both the -- 3 questions, the answer is yes. R&D products are being used. They are now helping us to grow faster. In addition, all our development work, we are getting new wins in proportion to our investment. So that is going well. On the RFQ, as you mentioned, also the business is running well. We are expected to double that from last year. We may do better than double. It depends on the adoption of new businesses in terms of the time lines, but we are doing well on both the fronts.

[Ganesh Shetty]

And sir, it is clearly commendable that in spite of fire at our one of the prime manufacturing unit, we have rearranged our business model and increased the capacity and seen that our business is not lost and this impact made us more efficient in operations as well. So I once again congratulate you for this.

[Operator]

Next question is from the line of [indiscernible] from Arita Capital Partners.

[Unknown Analyst]

Let me first congratulate the entire team for handling the fire incident with minimum disruption.

I would like to ask you one question. You sounded quite optimistic about the China [ plus ] that is happening right now in the world. So could you quantify? Because are we seeing any shift in terms of our orbit, say, in the next couple of years? And what kind of proposals are we getting? What size is that we are talking here? Just trying to understand the positivity that is surrounded right now. And -- but is there a way you can quantify that actually?

[Kedar Vaze, executive]

So let me quantify that. Firstly, this China or away from China movement will only affect 10% of our current business, which is the Global Ingredients business, which will benefit as a result.

If you see last year to this year, first quarter, we have already grown the business by about 50% over the same period last year. This is a sustained growth in a profitable EBIT level growth. We see this playing out. We have good inquiries that under total context of the company together with the Fragrance and Flavour formulation business, it will be only 10% of the total business, which we'll see tailwinds in this business.

But we have a strong traction of inquiries, new product requirements or requests and the R&D team has the capability to turn it around. I expect that will give our Global Ingredients business a regular sort of product pipeline and continued growth of 10% to 12% year-on-year. It's not going to be substantial in terms of the overall context of our group business. But the Global Ingredients business will definitely get a fill up on additional volumes and additional products.

[Unknown Analyst]

And I see the MNC client that we have one, are we also now -- at what stage are we with some other large MNCs or global players in terms of supply arrangements?

[Kedar Vaze, executive]

So we are supplying to other global MNCs as well. So the number of global MNCs that are our clients is increasing year-on-year. But it's a slow process. So I don't want to jump the gun and comment on that. But we are engaging with almost all the large global FMCG companies.

[Unknown Analyst]

So has there been a shift in terms of the -- how they perceive us, say, over the last 2, 3 years? We have been putting a lot of efforts also for many years. So has there been a shift in the way they perceive us as a supplier?

[Kedar Vaze, executive]

We have to ask them this question. I cannot say if there is a shift. All I can say is that there is more engagement. We are getting more briefs, so that is a good sign that we are moving in the right direction.

Now it's not like overnight, there is an on/off switch in the perception. Perception is improving that I can definitely see, what is the direction is very positive in the right way. It's not like a shift. It's not an on and off. It was not there and now it is there. It's just a gradual improvement in the business relationship and the actual business.

[Operator]

I now hand the conference over to the management for closing comments.

[Kedar Vaze, executive]

On that note, I would now request -- thank you. I hope that we have been able to answer all your questions satisfactorily. Should you need any further clarification, would like to know more about the company, please feel free to contact our team or CDR India. Thank you once again for joining on this call.

[Operator]

Thank you very much. On behalf of S H Kelkar and Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.