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S H Kelkar and Company Ltd
Earnings Call Analysis
Q2-2025 Analysis
S H Kelkar and Company Ltd
S H Kelkar and Company reported robust revenue of INR 1,013 crores for H1 FY 2025, marking a meaningful achievement despite challenges in the domestic FMCG market. The growth was primarily driven by strong demand from small and mid-sized customers and successful execution of orders from multinational clients. This strong performance, up from subdued figures in previous quarters, is poised to position the company favorably for the future.
Despite the impact of a previous fire incident, the company managed to enhance its margins in H1 FY 2025, achieving an EBITDA margin of 16.8%. This is attributed to a favorable product mix and cost management strategies, although margins have been impacted by ongoing investments in new development centers in Europe and America. The company projects that margins will remain stable in the second half, with expectations for similar performance, possibly showing a slight improvement.
S H Kelkar is making strategic investments to fuel future growth, including the establishment of creative development centers in Germany and the UK. These centers are expected to enhance innovation capabilities and cater to key markets. The investment is projected to cost around INR 20 crores for operational expenses in the first year, setting the stage for revenue growth in subsequent years. However, the immediate revenue impact from these investments is not expected until at least 6-8 months from their establishment.
Looking forward, the company anticipates a stronger second half, aiming to achieve revenue in the range of INR 2,100 crores, which implies a growth rate exceeding 12%. The management is optimistic, reflecting on a pattern of increased demand and improved operational efficiencies which might lead to a revenue growth in the range of 12% to 15% in comparison to H2 FY 2024.
S H Kelkar remains vigilant regarding potential raw material shortages impacting their gross margins, particularly in the first quarter of next year. Some specific natural oils are experiencing supply challenges due to adverse weather conditions. The company is well-stocked at present but acknowledges that these issues could inflate costs, prompting discussions with customers regarding price adjustments to maintain margins.
The management discussed a capital expenditure plan expected to reach approximately INR 50 crores in new investments over the next half-year, aimed at restoring operational capacity after the fire incident and expanding production capabilities in Europe. As part of a long-term strategy, the company eyes substantial investments in its manufacturing base, including plans for additional factories, leading to a broader capacity increase of around 50% in Europe and a doubling of output in India over the next two years.
The company notes a shift toward mid-sized and smaller customers, which comprise about 40% of its growth, alongside the expansion of global accounts, particularly amid changes in competitive dynamics caused by antitrust investigations affecting larger multinational corporations. These changes present S H Kelkar with a significant opportunity to capture market share and expand in both domestic and international markets.
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Ladies and gentlemen, good day, and welcome to the Q2 FY '25 Earnings Conference Call of S H Kelkar and Company Limited. [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, sir.
Thank you. Good morning, everyone, and thank you for joining us on S H Kelkar and Company Limited Q2 and H1 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 from the management, following which we 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.
Good morning. Thank you, everyone, and thank you for joining our earnings call. I trust you have had a chance to review the results document we shared earlier. We have reported a strong top line performance during the period under review despite the subdued demand scenario in the domestic FMCG industry.
This was driven by steady momentum in our small and midsized customers, the execution of our prestigious global MNC orders. Additionally, we successfully cleared the backlog from the prior incident contributing to the first half revenues reaching more than INR 1,000 crores -- INR 1,013 crores to be exact.
On the margin front, the company delivered a resilient performance in H1 FY '25, despite the impact of the fire incident on operations. Margins improved compared to H1 FY '24, even as they shifted quarter-on-quarter due to changes in product mix. The investments in Europe and America have also contributed to the cost. The revenues for the same will come in the future quarters.
As we move into the second half, we are confident of sustaining the H1 levels. We remain cautious due to availability challenges in certain key raw materials, which necessitate price adjustments in the coming quarters.
Moving to our European segment. Our core European segment delivered impressive performance this quarter, with revenues growing by 11.5% on a like-for-like basis. Solid profitability was supported by good product mix, highlighting the strength of our product categories and the opportunity presented by the region's favorable dynamics.
To sustain and further enhance our growth prospects in this high potential market, we have continued to make strategic investments. We have launched our creative development center in Germany in June this year and subsequently expanded in an additional center in Manchester, U.K. expected to start early next year.
These centers are expected to serve as hubs for innovation and act as growth pillars for the coming decades, especially in the European and American markets. This enhanced talent base in less our ability to cater to key markets, key customers, positioning us to capitalize on sustainable growth opportunities.
In the Flavours segment, we sustained a healthy performance for quarter 1. The division also demonstrated strong profitability driven by improved market conditions and enhanced operational efficiency. Our Global Ingredients segment continued its turnaround in quarter further improving profitability. This progress is a result of structural initiatives implemented in the past, combined with ongoing focus on optimizing operations and enhancing efficiency.
Looking ahead, the global environment appears favorable, providing opportunities to build on this momentum and drive further growth in this segment. On our global MNC accounts, we are pleased to report that the execution of orders is secured for FY '25 is well underway.
This continues to gain momentum. These orders spending multiple products across several categories are driving significant growth in this account. Our teams, including R&D consumer marketing, are actively collaborating on new business, further strengthening our confidence in the potential to expand this partnership in the coming years.
This has positioned us to expand our presence in markets, including India and international markets and drive sustainable growth. To conclude, by domestic demand, the large customers remains soft. We are encouraged by strong momentum across our small midsized customers and new accounts, having delivered a healthy performance in H1, we anticipate an even better H2, supported by strategic initiatives and favorable market outlook for our products. On that note, I would request the moderator to open the forum for any questions or suggestions you may have.
[Operator Instructions] We'll take the first question from the line of Prit from Fair Value Capital.
Congrats for a good stream of revenue growth, which we have been able to witness during the quarter. Couple of questions, sir. First, can you just talk a bit about the volume growth and the price led fruit, which we have seen overall in the Fragrance fees? And what was the contribution coming out from the middle small uses in the domestic plan?
So I think 2 questions. One is the volume and price. So mostly we had sort of 1% price growth remaining was volume growth across entire fee. Second part of the question was?
Sir, the contribution which is coming from the mid and small scale customers in the domestic space.
Contribution.
So there has been a shift in -- so when we talk about the business, there has been a big contribution from the global accounts. The remaining mid and small have contributed roughly 40% of the growth, 40% of the growth has come from the large account which is a global account and 20% has come from the midsized and at corporate accounts.
And sir, in the domestic space, has the growth been in double-digit across all the tiers of categories of our end customers? Or there has been some contraction with respect to the Tier 1 plan?
So the Tier 1 clients have shown slow growth. The global accounts have grown fast on a small base, and we have seen good traction in mid and small plants.
Sir, my second question, particulates to the RM side. So like can you just talk a bit with respect to the pricing of our raw materials? And is there any sign to increase and availability issues which you talked in our opening remarks? So can you just be us about the outlook with respect to the gross margin side for the second half?
We are cautious. I would say that our gross margin expectation is still around the 40%, 45% that we have reported for the first half. However, there are some raw materials where acute shortages are expected in the fourth quarter or last -- first quarter of next year. As of now, we are adequately covered with the stocks in hand. But given the strong growth momentum we are seeing, we may have a certain raw material pricing or raw material availability issues in the last quarter. This -- I think we are well covered in terms of inventories at the moment, but there is a sort of storm on the horizon, and we are just highlighting that this may hit the industry at some point in the first half of next year.
In addition, I would like to say that there is expectation of a lot of changes in the global economic order after the the administration in the United States [indiscernible] chart in January. So we will wait and see the impact of that for us in terms of our business.
But sir, just understanding on this, if the decision on China increases by the U.S. government. So in that scenario, will it be helpful for us because we are importing nearly 25% from the China market?
So our dependence on China is much lower than that. We are roughly 10% of our value, which we are exclusively ordering for China. I think the India side, I am not too much worried on the gross margin. I am a bit concerned on the gross margin scenario in Europe. If the tariffs are extended to you, there are different kinds of trade barriers. Maybe the raw material prices will go up. Momentum in the -- we will wait and see how things play out. On the other side, there is opportunity for our Ingredients division to further boost our exports, given the nature of tariffs that are expected.
Will move on to the next question, which is from the line of Dhawal Shah from Girik Capital.
Yes, very good growth on the top line as guided. Sir, a couple of questions. So firstly, on the comment you made that should be better than H1. So does that give us around 12% to 15% top line growth on last year's H2? Is that what we should be expecting?
Along with us per sales was skewed and H2 was much stronger sales than even that base effect, I don't want to put out an exact number, but our second half will be better than the first half. We are already trending higher and we will be upwards of the 12% CAGR growth that we have indicated as a midterm growth CAGR. We expect our sales to be better than 12% for the full year, whether it is 15% in the second half, a little bit more or less in the full year basis, we will be well in excess of our 12% target. And the second half will be better than the first half by at least I mean the initial signs are that it's much stronger momentum going into this quarter.
Great, great. And on the -- in terms of EBITDA margin now, I'm talking about the adjusted EBITDA for the INR 10 crore impact of fire. So our adjusted EBITDA for H1 stands at around 16.8%. So should we be -- what sort of number should we be building for H2?
So I think H2 will be similar in terms of percentage. I just want to not put on record that we have now the full cost of Germany and America, creative centers, which has come on board. This is an additional INR 10 crore cost in this period. So we are looking at the result at the moment at 16.8% with this INR 10 crore additional cost in the H1.
Similarly, we will have another INR 10 crores to INR 12 crores of cost in the second half. And these initiatives, revenues will start to come in next year. So there is a time gap between the investments in R&D and the revenue flow that comes in. I would say that this is putting us in a very good position to take growth across the world. U.S.A., Europe and all the Asian markets. In a scenario where there is a possible slowdown in the domestic FMCG that we are observing. Our continued growth will be propelled in new geographies and new customers through these investments.
So Correct. So INR 10 crores -- so INR 20 crore investment in our new centers, could you break that up? So how -- so what is the reputation, how repetitive would it be for the next year or like a first year operation sales establishment expenses or -- and are some employee costs will also be added. So that will be...
OpEx cost. So there is a recurring INR 20 crores order per annum.
Okay. So the INR 20 crores is sitting in employee costs plus expenses, both, right?
Yes, yes.
Combined. Interesting. And sir, about this inflationary trend, which you are witnessing on the -- some of the raw materials. So you mentioned right now the increased inventory, what we are seeing on the balance sheet. So that's -- so you're doing a buildup of inventory for how many months considering the price increase that you're expecting?
So this -- there are 2 parts of the inventory buildup. One is because of our new operational reality, we are working in 4 different sites. So there is more inventory than previously when we were working on one side. In addition, we have high inventories, which we have acquired in the early part of the year and made contracts. We expect that the inventory level at this point is at the highest and we will slowly be bringing it down towards the end of the year. Yes.
Okay, okay. So -- but you are expecting the prices to be higher in Q4 and Q1. And you also mentioned in your comment that you are -- as of now, you have stocked up inventory.
Yes. So this is not a comment on all raw materials. There are a few natural oils which are currently in a difficult scenario due to bad weather conditions or crop failures in different parts of the world. So specifically, products like orange oil perpetually oil water or these are the key components, which is roughly, I would say, 15% of our purchase basket. These are under threat in terms of availability and pricing as of today.
Okay. So now -- so would you also be pitching it to the customer that since there is an inflation what we are watching, then you would be adjusting this inflation in your selling price?
We will start the dialogue with our customers. We are full that by February or March, some of these prices may come down, depending on how the trend we will negotiate and discuss with our customers and have to pass on to the customers.
The next question is from the line of Madhav Marda from FIL.
The first question I got was in the initial commentary, you said that in the new market, we are seeing some favorable regional dynamics from which you're making this OpEx investment. Could you help us understand a bit more in terms of color like what is happening on the ground there? Is it sort of some suppliers going out of the market? Or I mean, what are the agile dynamics which are?
So strangely not having a very strong economic growth is favorable for us because we are not the incumbent. We have the challenges. So when the markets are looking for value proposition or more private labels or different offerings. It helps us to continue our growth.
Okay. The trade down, which is happening there, so basically, people are looking...
So there is a trade down. There is also an effect of consolidation. So the market is over consolidated. There are not many mid-sized players that has helped us to occupy this space, which was sort of earlier companies who are there, but they have been now acquired by the bigger company. So there is a that you created in the midsized companies in Europe.
Got it. Got it. That's sure. And then when you sir, you said that H2 will be better than H1. Is that a similar thing or in fact we just see kind of vendor portfolio from some of the regions which you flagged in the earlier commentary. How should we look at that?
So H2 normally the stronger than H1. This is a normal, a normal seasonality or trend every quarter for quarter 3, quarter 4 is always higher than the first 2 quarters of the year. We don't see it any different this year. I think there is -- while the market as a whole in some parts in India and others is growing in the smaller percentage growth, I think some of the supply scenario despite the incident we had, we have been able to maintain good supply. And this has enabled us to continue to grow and actually gain some market share in some of the other small and midsized segment.
Okay. Got it. Just the other question was on the margin side. I think we are at 16.8% in first half despite our having spent this extra INR 10 crores on creative centers. So clearly, we're trying to -- we could have maybe higher high-teens margins that we're trying to invest for future growth. But at the same time, I think we do have that in a few years, we can reach the 20% EBITDA margin range. So is that something which will happen on like a 2, 3 or you as maybe some of these costs, which are standing right now revenue start coming in so we can move closer to those margins? Is that something interesting in the origin?
Yes. So I think what we are looking at is a sustainable or the baseline EBITDA and then what are we investing for growth. So for European market, for example, with the Germany and expected to come in early next year. We would have done a full investment on the development. So we will not have any development center in increase or growth in the future. So we are now sort of fully invested in the creation development centers in Europe after this set of investments. We are starting American gene with a small investment, we'll have to ramp up there as business grows, we will ramp up some investments in the U.S. for the European business, which is roughly 45 million, 50 million this year. With each the Germany development center, we would be kind of at a full strength. And then we don't need to -- so there will be no step up in step jump investments. And we are looking at investment as we grow a few people, more people, more account managers, things like this. maybe some investments in the production facilities as we are reaching the limit of our current facilities. But there right now, we have taken big jumps in the investment quantum roughly INR 25 crores to INR 30 crores annualized basis extra investment we have done this year. So that kind of big jumps will not be there in the near future.
Because that's a fairly large number, right? Because let's say, first half, we did about INR 1,030 crores and we've invested about INR 10 crores, INR 15 crores extra, which means almost 1,150 basis points of margin front-ending some OpEx, right? Is that the way we should look at it, otherwise margins are closer to 18% already for us?
That's correct.
The next question is from the line of Abhijit Akella from Kotak Securities.
First 1 is just on the revenue growth side. I missed part -- a little part of the call, but I heard you say that second half, we should be at least 15% plus in terms of revenue growth? Just wanted to confirm that, that is indeed the expectation. And then for next year, as these new creative development centers in Germany and U.K., et cetera, start to pay off. How much of an incremental contribution can we expect from them? And will that be over and above the 12% growth we normally talk about.
Yes. So the development centers in Germany and Manchester will not really create much direct revenue in this year. They have started now. We are already seeing benefits of having the centers in terms of quick turnaround on certain projects, which we are already making and so on and so forth. So there is benefit, particularly specific large clients or new geography revenue, it will take at least another 6 to 8 months before any meaningful revenues will start to come in. On the revenue guidance, like we said, second half is expected to be better than the first half. I would expect to reach around 2,100 or something like this number of 14% or for the full year. This is a subject that no major changes happen between now and the end of the year.
Understood. And with regard to the CapEx progress and the insurance receipts, the insurance claim, we've done INR 47 crores of CapEx in the first half as per the cash flow statement. What's the full year number we should look at? Does that include the novate growth as well as the Vashi rebuild. And how do we see that sort of trending as we reach the year end or maybe even next year?
So I think in the second half, we would have roughly around INR 50 crores in the first half next year, another INR 50 crores of CapEx. Out of which, almost INR 100-odd crores would be the reinstatement of the [indiscernible] factory itself. So I expect new CapEx of roughly INR 50 crores to INR 60 crores, which will generate the -- or which will give us the factory or -- and we will end up with 2 factories, which we are building at this point. So incremental CapEx after insurance, the reimbursement would be roughly INR 60 crores. That's the expectation. We are also looking at the next 2 years of quite heavy investments in terms of manufacturing capacity in Europe -- we are reaching 75%, 80% plus utilization in our current plant. We expect at least 18 to 20 months of time for building the new facilities. So I'm looking at something like INR 50 crores additional outlay second half of next year, which would be in terms of European factory building and capacity building. given good strong double-digit growth, we may look at another factory in Europe to derisk and have 2 factories with sufficient capacity. So there is sort of a blueprint of around INR 45 crores to INR 50 crore investment in a factory. We are clearly looking at 2 in this year and next year. in addition to the Vasiliy rebuilding. And we may look at one more factory in Europe in the year after. So in between now and sort of 3 years, we are looking at 3 to 4 factories being built across. In the 2-year period, we will shut down close our factory in [indiscernible]. So there will be an OpEx saving in terms of lease and the old factory, which we are operating in [indiscernible] will be closed down
Okay. So this will be about 3, 4 factories will be about INR 200 crores of total spending, right? In addition to the normal annual CapEx, we have of say, INR 50-odd crores.
So there is no -- the normal CapEx is less than INR 10 crores, INR 12 crores, INR 15 crores for what we call maintenance CapEx, that will be lesser because we have now a new development center investment already done.
Got it. And just one last thing before I get back in the queue. On the global accounts that we have won, is that scaling up as per our original expectations? We had mentioned about $10 million plus possibly for this year. So if you could please just update us on that. And one other thing was just -- in the context of all the antitrust lawsuits and rates against the global MNC in Europe and the U.S. against the likes of giga and the other. Is that sort of helping open up doors for the next tier players like houses to win business in these geographies?
So on the global account, we are trending as expected. So we are on track. To your question on antitrust investigation, et cetera, yes, that does open up opportunities for midsize and other players like us.
The next question is from the line of Prakash Kapadia from Spark PMS.
Two questions from my end. You mentioned in the presentation and in your opening remarks, there is a shift in product mix, which has led to a fall in gross margin. So can you explain this in more detail? So is it fair to say personal wash or hand wash?
Just to explain that more. I think the first half or first quarter of this year due to the fire incident, we prioritized orders and execution towards the higher-margin products and some of the lower margin or some of the backlog went into the second quarter. So roughly INR 25 crores, INR 30 crores of business was carried over to the second quarter that was at a lower margin. Therefore, the composite margin of second quarter is muted. Typically, the H1 margin -- gross margin is representative of the business as a whole. So there is no backlog carried forward from the H1.
Some of this execution happened. That is why we are [indiscernible]. Understood. And you also mentioned about the inventory buildup in the PPD and in the opening remarks. So how do we relate this buildup at a time when our domestic demand is soft. So is there more visibility from the open MNC accounts or some new accounts, which has led to this buildup. And as of now, you also mentioned the plant rationalized earlier, there were lesser planned. So that includes global and domestic or is it just domestic, the increase in plan?
No. The plant includes all manufacturing for all customers. The inventory buildup has been quite high. At this moment, the raw material prices have remained soft, so we have been able to build up inventory at good pricing. We expect to start to control this inventory as we speak. As you can understand, the major efforts in the first half of the year were to stabilize the production and ensure availability to all the customers as a result of the operational disruption. We are in a new normal that these factories are producing and there is warehouse. And so all the facilities that alternative facilities are up and running, and they are fully producing in time to all the customer demand. However, in the new normal, we will start to focus on inventory and to reduce the overall inventory to normal levels.
Okay. So as of year-end, we should estimate a lower inventory and maybe a lower debt. Is that right understanding?
On the debt piece, I think we expect some amount of money to come in from the insurance between now and end of the year, early December, January, we expect insurance payout to start to flow in. So yes, we will have a lower debt in the end of the year. Also, operationally, we are reducing the debt as we generate free cash flow month-on-month. Plus we have the expectation of the insurance payout before the end of the year.
The next question is from the line of Jatin Damania from Swan Investments.
So sir, basically, I just wanted to confirm whether our growth guidance for FY '26 and '27 remains intact in terms of top line and margins.
Yes.
The next question is from the line of Rushabh Shah from Burger Rock PMS.
Follow up question from my. So how is your theme divided between consumer and Flavours is, how many -- how many you have because we are the most informed...
Mr. Shah, your audio is not clear. May I request you to use your handset, please?
Sir, how are being divided between perfumers and sores and how many these procurers and [indiscernible] you have because they are the most important people we have in our business? And how many have you added the prosumers and florist in the past 5 years?
So we are one of the few companies that trains consumer and flavor is in-house. We take roughly 3 to 4 people as pennies every year, and we continue to train them kind of build in-house consumers. We have more than 20 consumers and adequate Flavours is for the business. In terms of Fragrance and Flavours, we are sort of 75% fragrance and 10% flavor. So in that ratio, adequate consumer and flavor is starting with us.
And sir, how are these ratios compared to the Judas and ISS of your IFF of the world?
They are very similar. So we do assets of the world would have 120, 130 consumers worldwide. We have around 20. So it's comparable.
Sir, as you said that we are adding and we are training these consumers. So from where do you pick up these prosumers and flavors sir?
Where do we take up, we hire people in our company from various institutions and we chemists or science graduates, and we have also in our [indiscernible] college course called post graduate diploma and perfumery and cosmetic management. This course also has around 24 students every year. So this is an input for us, and we take 7, 8 trainees from this every year.
Okay. So my next question is, so the key mode of our business of our industry, sorry, is the stickiness of the customer. So has there been any instances in the past and the FMCG player has changed their supplier? If yes, then what could be the reason?
So the change of supplier is quite low in our industry. It does happen, but it's quite low. If I -- and I cannot give you any specific instances on the top of my mind, but the instances are quite low.
Okay. Sir, has been changed to like if there was a supplier to some big customer? And has Kikertaken the place of that supplier has that been in the past? Has it happened?
So it does happen, but it's not our main growth strategy is not replacing somebody else. Our growth strategy is to take business from new products and new geographies. When we are particularly in the new markets, we are replacing or we are taking part of the market share from some of the existing companies. It does happen, but it's quite low.
Okay. My last question is, then I'll get back in the queue.
Sorry to interrupt, sir, I would request you to rejoin the queue. We'll take the next question from the line of Viraj Mehta from Enigma.
My question have been answered.
The next question is from the line of Vignesh Aya from Sequent Investments.
The first question is on the utilization part of it. Can I understand what is the utilization percentage in H1 as of now? And this INR 200 crores total CapEx that we have to spend over this year and next year, what will be the percentage addition that would come to our total capacity post that? And if you could also help to understand the time line for the same?
So right now, we are at more than 85% utilization of our facilities. With the rebuilding of the Vasili and on UK factory, we will add almost 2x additional capacity. And one -- so that is on the domestic. And we are proposing to add 1 more factor, which would give us roughly 50% additional capacity in the European context.
Sir, if I got it right, you will have 50% more to what it is right now, right?
We will add -- so in India, we will add 200% to what it is right now. In Europe, we will add 50%.
Now. What is the time line for this for the fact that so start?
For the next 2 years.
Got it. Got it, sir. And one more question. I see our European part of the performance when we have seen the increase in gross margin, but there seem to be some impact on the EBITDA margin part of it. Can I understand why the EBITDA margin on a Y-o-Y basis is lower despite increasing gross margins.
Yes. So basically, there is no specific change. The EBITDA percentage is 20.5%, vis-a-vis, 21% last year. So it's very marginal on the overall growth of 11.5%. So there is no change in the business or like-for-like profitability of the company in European operations.
Yes. But the margin -- gross margins have gone from 54% to 57.5%. So that is a 350 bps improvement, but our EBITDA has gone by now by like 70. So like net 420 bps down in EBITDA, if I understand right. So is there any one-time expenses involved in that?
This is purely a product mix issue. When you look at the gross margin, we look at the product level, but when we have smaller batches, then our net margin is the same. So this just shows you that the growth has come from smaller and newer clients.
The next question is from the line of Bharat Sheth from Quest Investments.
Congratulations on the top line growth. A quick question is that in the past half, we have spent INR 10 crores on this -- of the new development center. Is that correct? Hello?
The management line has been disconnected. [Technical Difficulty]
Ladies and gentlemen, thank you for patiently holding the line for the management has been reconnected. Over to you, sir.
Please ask your question.
Yes. You said that we have spent around INR 10 crore on opening of these 2 new CDC center, correct? Is that correct understanding?
Yes. So addition to that, also, we have incurred a INR 10 crore on because of this higher incident. So INR 20 crores additional and in one kind we can attribute to that? And that's correct. I think out of that, the loss of profit due to fire incident has been added back in the adjusted EBITDA.
Okay. So we set up this INR 10 crore, which was on the fire incident will not be there. Is that -- only INR 10 crores will be reported.
No, it will be there, and it will be exactly as the same as the first half.
Okay. So in part, we have reported 15.81% kind of EBITDA margin. So second half will be in the same range?
Yes, I expect it to be in the same range, slightly better.
Okay. Okay. Coming to this -- I mean the new factory that we were planning when we do expect to start one, we were expecting somewhere in the month of the March. So when do we expect and what we can really come up.
So the factory expected new factory is expected to come up in first quarter calendar next year, fourth quarter. [indiscernible] which is the rebuild of the factory will still take another 9 to 10 months before it is rebuilt.
And then [indiscernible] be tech off post [indiscernible] correct?
That's correct.
With this, I mean you are alluding that overall inventory will also come down with Talent these 2 new factories starting. I mean, we are working on the more than fine which are so far to kind of efficiency. So how much inventory say, end of the FY '26 really can come down?
So I think the absolute value of the inventory, I don't expect it to come down dramatically, but the sales will ramp up another 10%, 12%, 15%. So they're automatically the day stock will come down. It will reduce to around 135 days.
Okay. And secondly, because of the -- because we understand the large global MLC account has also lower gross margin. So is it possible to understand what kind of an impact that is the info I mean this quarter, particularly.
So there is no impact on that. The gross margin, what we have is composite average, including the global account. So 45 is including the global account.
And we expect to remain at 45% level in second half in please?
Yes.
And to understand, I mean, this large small SMC amount MSME accounts where we are ramping up and Indian FMC, we are seeing some softer growth. So is there a profitable, I mean, differential in the profitability between this business?
Not substantial. There will be 1%, 2% differential in the type of business, small versus mid and large. Product-wise, also there is differences. But in average, there is not much difference. As you see, the smaller accounts, you will see a higher gross margin, but there will be more overhead and operating costs. Other accounts, the gross margin is lower, but the net operating cost to maintain and produce that product is also lower. .
Okay. But if you can give some little more color on insurance claims, the kind of a colorant -- so how much do we expect to receive in this particular quarter and next quarter?
So we have filed the claim in the process, final claims will get in -- with the insurer any time now. And we expect by December, January, substantial payments to start to come in. the plant and machinery CapEx reinstatement will only happen once we have rebuilt the plant. So that is a reimbursement of the insurance amount.
So first then, we are expecting around INR 100 crores kind of a payout from the insurance. Is that fair understand?
Yes. So the inventory amount should be paid out first. And the CapEx amount as we incur the CapEx, the insurance will reimburse us at the instant basis.
Okay. Okay. And now with this kind of I mean INR 20 crores to INR 20 crores kind of additional expenses that we have, which may not be there, INR 20 crore [indiscernible] Revenue will start and in kicking in. So what kind of -- I mean, every while reaching to the next 3-year target of 20% EBITDA margin, we can improve expect the improvement?
So we are at the around 16% EBITDA margin with the full investment of new growth areas, which are not contributing any revenue at the moment for this probably a full year basis, INR 30 crores of new investment, we'll then start to generate additional revenues that will take 1 or 2 years' time. So effectively, we are today at 18.5% EBITDA minus the additional investment of 2% or which we are putting for new growth market.
The next question is from the line of Pat Shah from Tara Capital Partners.
Firstly, I wanted to know the contribution of the mid- and small customers that you mentioned, I missed out that.
Can you repeat your question, please.
Contribution of mid and small customer.
Yes. So the growth rate has been higher on the smaller and global account. So it is kind of 40% of the growth has come with small and midsized accounts and 40% has come from global accounts.
Okay. Got it. And secondly, you mentioned about the impact of administration chains in the U.S. and also some export opportunities. So if you could just repeat that because I remove those for [indiscernible].
I have not sent anything further. We just need to wait for the actual data and still what the new administration does undertake tariffs, how they are implemented on what product, which country and so on and so forth. But I see there an opportunity for India as a whole to take some business away from the Chinese suppliers in these kind of overall global supply chain. So that's an opportunity which we are weighing as additional area for growth. .
Ladies and gentlemen, we will take that as a last question for today. I would now like to turn hand the conference over to the management for closing comments. Over to you, sir.
Thank you. I hope we have been able to answer your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our team or CDR India. Thank you once again for taking the time to join us on this call.
Thank you, members of the management. On behalf of S H Kelkar and Company Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.