S H Kelkar and Company Ltd
NSE:SHK
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
143.9
327.3
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
S H Kelkar and Company Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the S H Kelkar and Company Limited's Earnings Conference Call. [Operator Instructions] This conference is being recorded.
I'd now like to hand the conference over to Mr. Anoop Poojari of CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on S H Kelkar and Company Limited's Q3 and 9M FY '23 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'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.
Good afternoon, everyone. We understand that our performance for the quarter has been poor, and I would like to take this opportunity to address the key issues and outline the action plan going ahead.
During the quarter, our performance was impacted by a notable decline in revenues from Global Ingredients division. This division has been facing various challenges in recent times, including impact of raw material price inflation and dependence on China for the raw material. This has affected its competitiveness in the international markets.
In the earnings presentation, we have shared the results of Global Ingredients division separately as a result to give us proper and a clearer picture. To address these challenges faced by the Global Ingredients division, the company has developed processes for complete backward integration in India and is evaluating collaboration or partnership with specialty or agrochemical companies to increase its competitiveness. This will help reduce the overall cost for the product and make the product competitive. The dependence on raw material supplies from China will also be mitigated.
We have also initiated a farmer development program through Keva Aromatics, a promoter-owned company, to further reduce dependence on China sourcing and cultivate aromatic plants like geranium and vetiver in India. This will create sustainable and cost-effective supply chain working closely with the local farmers. This [ security ] and reliable raw materials will support our long-term business goals.
Moving on to an update on the European operations. We have seen a decline in revenue in the Contract Manufacturing business. In the post-pandemic period, the company is taking steps to streamline operations, increase efficiency in the European business by merging the entities. As a result of these mergers and consolidation of resources, our organization structure will get simplified to rationalize cost, paving the way for future growth without requirement of additional CapEx.
Coming to our core Fragrance division, it has reported stable performance despite the ongoing challenges. Our flavor domestic business continued to grow strongly to double-digit growth in both organic and inorganic space.
The consolidation of -- however, the consolidation of distributors in the Middle East resulted in a onetime destocking of inventory impacting sales worth INR 12 crores in our flavor exports. Despite the sluggish environment, in the international markets, the sales in January have been restored.
Coming to the update on the request for proposals from leading global FMCG, I'm pleased to inform all of you that we have already submitted proposals for a range of brands in different categories with total value of more than INR 100 crores. These submissions demonstrate our ability to offer world-class products and services. In the coming months, we are scheduled to submit additional proposals worth more than INR 300 crores.
Although the process of securing the order has taken longer than anticipated, we are optimistic about the potential for long-term growth from this account. We understand from the client that this process for such projects involves lead -- long lead times of 6 to 9 months before consumer tests are finalized and commercial orders begin.
In conclusion, I want to state that we will focus on the actions needed to be taken in this challenging environment.
Now I open the moderator to open the forum for any questions or actions and suggestions that you may have.
[Operator Instructions] We have first question from the line of Bharat Gupta from Fair Value Capital.
So while I was reading the presentation, a couple of things from my side. So first, make -- on the remarks on the global supply side issues. So how well are we protected with respect to procurement of raw materials, whether it is for S H Kelkar alone or it includes the Global Ingredients supply as well? And what's our exposure towards China as on date?
So we are fairly well protected from the global supply chain, given that we are holding good levels of inventory, and we continue to do high levels of inventory than normal for protecting against quick supply chain disruptions. As regards to the disruption of supply chain issues with the global ingredient, this is a specific ingredient raw material, which is used as an intermediate also in agro and pharma industries. And this has seen globally consolidation into 1 or 2 suppliers in China. As a result, the prices and the availability has been tight. As I mentioned already, we have taken -- we have developed the process. We are in finalization stages with some partners in collaboration with agrochemical or specialty chemical companies to make this product for us in India.
But currently, how much are we importing from China as on, like...
In this particular product, we are 100% dependent on China. So we will now develop our own alternate source. In overall business, about 20% of our procurement is coming from China.
Right. And also, 20% of our procurement comes out from Europe as well right?
Yes.
So like we were enhancing and focusing more on the [ backward ] integration capabilities. So still, if you look at the gross margin profile that remains below [ 40%-odd level ], while earlier it used to trade [ about 40% ] to 43% level. So what's our target in terms of improving on the gross margin trend going forward?
I would focus your attention on the sequential quarter. We have seen improvement in gross margin on a sequential basis. And we foresee further improvement on gross margin quarter-on-quarter going forward.
So like in terms of -- if I look at 3 to 5 years horizon...
Vis-a-vis last year, seen quite a strong inflation in the second half of last year. So the third quarter last year was on a pre-inflation cost price base. This year is on a full inflation in the RM situation. So it's a big dip. Last quarter was even lower dip. We went from 41.2% to 39.8%, and I think -- I mean, from 39.8% to 41.2%, and we will see continuous improvement in the gross margin as we go forward.
In regard to the [ RFP ] show earlier in the last con call also, you were highlighting the fact that several of the tender offers are due in the month of December, like we were waiting for some of the tenders. Like while we have submitted the bids for the same bid, any plans of finalization like coming base within 1 month or in -- with regard to revenue potentials, you have highlighted...
The process will be 6 to 9 months after we start to submit. So we have started our submission cycles from January. So over the next 6 months, we will continue to make products and submit the products for testing. And the first results are expected 6 to 9 months from there. The second half of this financial year, we will start to get the results.
Is it with respect to a different one, like, earlier, we have a contract with respect to a different FMCG player, right? Now for the submission of the bids, which we are doing, that is for a different FMCG player or it is [ different ] but the same FMCG player?
Let me just rephrase the question and what I understood, and so this is regarding the global FMCG large global MNC where we are working. This Is a multiyear project that will go on for 3 to 4 years. The first year of this project is now coming to a close, and our submissions are getting finalized with their development team and the products are being sent for final evaluation to the consumers. This process has begun. Our submissions will go on over the next 2 quarters, product by product, brand by brand in different geographies, while these testing results are expected to start coming in 6 to 9 months after the submission.
So the first submissions have gone in January. We expect that from July, August onwards next -- so next -- this calendar July, August onwards, every month, it's a cycle of submission, and there will be some results coming out from the -- what we have submitted. As I like to sort of -- I mentioned in the opening remarks, INR 100 crores worth of submissions have already been made and more than INR 300 crores worth of submissions are in the pipeline over the next 2, 3 months. So we expect that INR 400 crores to INR 500 crores worth of business proposals will be on the table, which start to -- we will know the results only in the second half of this calendar onwards.
Right. After the second quarter of the financial year? Just on the margin [indiscernible] on the RFP side. So the margins are in line with the current business, which we are in, or it is on a lower side?
So the net margins are in line with our current business. The gross margins will be lower, but the volumes will be higher, so the operating costs will also be lower.
And also after getting out the RFP approval from the FMCG, so is there any approach, which has been shown by other FMCG players also in regard to, you can say, outsourcing the product base to us or to any other player?
So there is -- I mean we are working with many, many FMCGs. There is no change in that. That continues as has been our business for many, many decades. I didn't quite understand -- there are also -- so yes, there are also other...
Is there any other interest which is being shown by different FMCG guys? This is the -- like in regard to outsourcing, just like similar to what HUL did or the FMCG player did from which where we have received the RFP approval? So similarly, in line with it, other players are also...
This is not outsourcing or Contract Manufacturing. This is basically that we are now partners for their product development. So it's not a Contract Manufacturing business.
Sir, my question was similar to what we have received now, have there been any other interest or query we have received from any other guy, like...
[indiscernible] one to one subsequently because I'm not able to clearly understand your question.
No. So if your question is, are we also working with other MNCs...
With other MNC guys, right.
So the answer is, yes. But it's in a very preliminary stage as of now. We have started engaging with them, and we are getting small briefs on which we are working.
Right. Also Kedar, can you highlight a bit on the domestic scenario, like, currently, though we have delivered, I think, around double-digit. But going forward, how the traction has been in the Fragrance in the flavor space?
I think the traction at the moment has been muted. It really depends on what the macro and how the inflation and growth pans out. We are closely observing. I don't want to put out a prediction for 6 months down the line. But if the growth resumes, we're tracking, and we are doing growth plus in terms of our growth vis-a-vis market growth.
And also, when you're looking at our [ subsidiary in Europe ], so, like with regard to CFF, how much revenue contribution will be coming in from Contract Manufacturing side? And what's the update in terms of the headwinds, which is there in the European market. So is it disrupting the demand which you get to [ our product basket ]?
No, it is not disturbing any demand from our product basket. The Contract Manufacturing is a separate business altogether, and that has its own brand related challenges. It's largely in the European space and I believe the uncertainty around Europe, this business has declined versus last year. We are negotiating with the brand to restore the sort of the base around which the Contract Manufacturing costs can be redefined. So in terms of per kilo absorption, we will need to renegotiate the prices, which we are doing at the moment.
Just a last question from my side, in order to understand company's growth prospects over the next 3 years, preliminary focusing on next year, while the current hedgings are there. But what can be the key growth lever? Like I know RFP is there, but what do you think can be a turnaround point for our business?
I think, right now, we -- like, I mentioned in the opening remarks, we are focusing on the actions that we can do. We have the product development teams ready. We have the product prototypes, everything that we are geared and ready capacities installed, product development teams as well as prototypes ready. We will grow once the general market outlook is not recessionary or depending too much on the effect of inflation. Once that eases out, I think, the growth will restore and it will not be linear. It will start to grow faster than the overall GDP growth.
And [indiscernible] volumes will preliminarily coming in from the RFPs alone, that is the core strategy, which we are focusing on, right?
RFP is an incremental growth for us. Apart from that, we have all the necessary tools and development and products ready for a normal business environment globally.
We have next question from the line of Viraj Kacharia with Securities Investment Manager (sic) [ Management ].
I just had one question. Regarding the Global Ingredients business, before this whole impact of consolidation in China, what are the kind of [ models or ] business you used to do?
So we had about 40% gross margins from this business.
No, I meant of operating levels. So even at the [indiscernible] level what we show in the presentation is...
Yes. So it depends like any other specialty chemical, it depends on the volume utilization and plant loading. This quarter was particularly very low from the point of view of the sales and the cost impact of raw material inflation. But typically, if we did a normal production, we have a 40% gross margin, and it would flow down to INR 2, INR 3 crores EBITDA.
Okay. So why I ask is because even before this whole consolidation, like if I look at FY '22 numbers, even the scale of, say, INR 80 crores, this business was not profitable at the operating level. So just trying to understand in a normalized environment post the initiatives we are taking what are the kind of base profit or margin this business will do for us?
Yes. So '22, you have put it correctly. I think the raw material prices have increased in the pandemic and consolidation in China. So '21, '22 already the effect of that raw material mismatch between our supply contracts and our purchase contracts has started to kick in. But this is the result of sort of the historical stock and force majeure pricing. If you look at, going forward, cost of raw material in terms of our backward integrated or if you go in the history in 2018, '19, kind of '21, '22 is actually where this whole raw material situation has panned out, and then we've moved and we've readied ourselves for a full backward integration. So these are not the right comparisons. As a business, it is a bulk chemical specialty, and it has more than 30% gross margin at the production level. It's a combination of the plant loading where the margins will flow into the bottom line.
Okay. And second question on the global RFQ, which we have submitted on the bid for in the Part 1. So as you said, there are 4 different phases, so can you just give some color in terms of what is the kind of addressable or the opportunity size in each of those spaces? And any indication of how that's structured and for, say, Phase 1, would -- if in case we win as per expectation, would we have to do any CapEx to meet that requirement?
So let me phrase this with a caveat that it is the first time we are participating in a global RFQ of this nature. So we are also learning as things unfold. It is typically in 3 phases. One is the selection of partners, which was done last year. Subsequently, they have opened us various parts of their different categories, different brands, which we will engage with them. So they have done that exercise in the last year. And I think in June, July and between June and August in that they have started to award us various categories where we need to work, and the submission phase has started in January.
So we are -- in total out of their $1 billion or so global business, we are shortlisted for between USD 300 million to USD 350 million globally, and we are now participating on the active briefs of roughly 100 submitted and 300 plus a few more, which are getting action at the moment. So somewhere around INR 500 crores worth of projects, which we are in, in active submission phase. And over the next 1 year, we expect that more projects will come.
So the overall pipeline of projects, we would guesstimate is at this point, about $100 million of projects. So INR 300 crores, INR 400 crores in the immediate future and then another INR 300 crores to INR 400 crores, thereafter, it will be the project pipeline. And with a lag of 6 to 9 months, we will know the results.
And in terms of the investment of the CapEx?
There is no real CapEx. There will be obviously cost of development. There are some additional fees and specific consumer test costs, et cetera, which we will incur for the product development. There is also a tender fee and cost linked to participate in the basis. So all of these are the costs. As far as the cost of manufacturing within Asia or Europe or India and Europe, we don't have any additional CapEx required. Part of our longer-term production expansion, we have already initiated manufacturing capacity in Indonesia for supporting our business. That same capacity will also be useful for any additional volumes in Southeast Asia for the RFQ business.
Okay. And just one more question on this. So as you said, by the gross margin for the bid and RFQ will be low, but at the operating level or the net level, it would have a similar margin as what we are earning in existing business. So this is after including all the costs for -- either in terms of development or servicing or bidding for the contract, right?
Yes. So typically, we would amortize our investment in development and bidding in a 3-year volume. So yes, it will be almost the same after including all the costs.
Okay. And I had just one more question on the overall net working capital. So I think a couple of 2, 3 years back we started having a more higher inventory than normal levels we used to have considering the kind of volatility and the inflation and the environment we were in. Now as you also talked about in the earlier remark that we are seeing easing in raw material and improvement in gross margin. So in terms of the inventory holding period, how should one understand is it right to think that it will kind of keep moderating in coming quarters?
Yes, I think we are waiting for the China reopening in the coming week, after which we will know a very clear picture in terms of supply chain from China coming and joining back into global supply chain. My best guess is that the inflation is easy. There may be some softening of prices, and we will then look at reduction of our inventory, if there are no -- there is no pressure on price increases further.
Okay. So in that sense, the debt which we have, which is around INR 500 crores, INR 550 crores -- the large part of the cash [indiscernible] are we looking to kind of...
Yes. On the debt, Rohit, if you can give the exact number.
Yes. So the debt is INR 522 crores, which is with translation impact of currency. And what we look forward to is the endeavor is to reduce that month-on-month. However, we are also cognizant about the investments on the projects we are working on. Therefore, we are looking at a level of INR 450 crores in next 6 months.
Okay. Can I squeeze in one more question on the European business?
Please.
So on the CFF, if you look at the growth and the scale up in that particular business over the last few years, most of the clients are regional, and there are a lot of new edge brands also, which we have kind of partnered with them, and we have seen a good healthy growth. So the performance there for that particular business has been better than the local market growth there. So in the kind of environment we are right now, how are you seeing what kind of communication you're hearing from those brands or customers? And how should one understand the growth in that particular business going forward?
So you made a very valid point. We've done more than 12%, 13% CAGR growth in the acquisition in Europe in the last 3, 4 years. At this juncture, we are looking at the Holland Aromatics acquisition, which has also been growing in the last 2 years, very strong double-digit plus. So we are looking at consolidating these 2 into 1 European business that will free up capacity for [indiscernible] growth. So today, we are at a situation where we are approaching 85%, 90% of capacity utilization. And to further grow aggressively, we first need to rationalize our capacities and free up using the synergies between the 2 plants.
We have next question from the line of Amit Kumar from Determined Investments.
Sir, one question on this transition -- raw material transition from China to India. How much time do you anticipate this is going to take? And in the absence of supply of these raw materials, I mean what sort of happens to the business in the interim?
So we have supply from China, and we continue to hold stock of the inventory. So we don't see any disturbance in the business. In terms of time lines, I think we are exploring sort of existing specialty chemical or agrochemical companies with capacity will be able to make our backward integration.
How much time do you anticipate, any -- that sort of tie-up and that supply shift from China to India will sort of take?
I think in around 6 months, we should have an alternative supplier within India.
I'm really, really sorry the Global Ingredients revenue has fallen quite dramatically. So if you have inventory of raw material, then what was really the issue in terms of that business line? I'm not sort of clear on that.
If you look at this business, there are -- there is stock with the distributors. It's not that the business has stopped from the consumption point of view. Fresh sales -- prices for the fresh sales are sort of going up. We have January to December pricing. So we have a better realization from January. So we are not pushing given the raw material situation. And we have a situation where there is low sales in this quarter. And we anticipate that once we have the full backward integration plans in play, we can be more aggressive to regain our market share and grow this business.
Understood. Just one final question in mind, you sort of mentioned that you lost some business in the Middle East in this quarter as well. I just wanted to get a sense, not as far as this particular quarter is concerned, but on a full year basis, generally, what is the share of sales that Middle East exports contributes overall?
So it's about 90% of our export business is in the Middle East. This is not a consolidation or distribution sort of, again, the gap between consumption and the stock in the increasing price trend. I think even the distributors had higher stock levels, they bought and they kept in the stock. As the prices are softening, they are combining their stocks and reducing the buy. Our understanding from the distributors is that the actual consumption at the consumer or FMCG side has not declined. It is stable. However, this INR 10 crores, INR 12 crores of purchasing is a consolidation in their stocks and reduction of their sort of distributor stock in this quarter.
Yes, I understand the difference between the primary and secondary sales basically. My sort of the simple point was that what -- in a normal sort of quarter or during the course of the year, how much would that -- how much would be the export number? If you can sort of share the export number for -- in this particular quarter, we can I think [indiscernible].
So the exported number basically for the 9 months was INR 65 crores. Last year, it was INR 75 crores in the same period.
The difference is [ sales ], understood.
We have next question from the line of Manoj Bagadia from Equicorp.
First thing about the Global Ingredients. Can you just throw some light on what is the capital employed for this business?
About INR 160 crores.
Okay. And what has been the capacity utilization in the third quarter for this business?
So the third quarter, while we had a low margin or low -- not low margin, low sales on this Global Ingredients, we utilize the product capacity for some other smaller local ingredient manufacturer, but the capacity utilization was less than 50% in this quarter.
Okay. What is -- what would have been the normal capacity utilization here?
About 70%. When on the Global Ingredient normal course is running, the plant is largely 70% to 80% producing one product.
Okay. So if you reach 70%, 80% capacity utilization, then you would have a positive EBITDA in this business?
That's right.
And is there any long-term strategic thinking about this business? Because at good capacity utilization, you will generate INR 2 crores, INR 3 crores of EBITDA, right, on a INR 160 crores capital employed?
INR 2 crores, INR 3 crores EBITDA in a quarter. If we have a 70% utilization, then we have a very good business. The main thing is that the raw material has gone up by almost 25%, and the selling price has only moved up by 5%, 6%. This is on account of China government and supplier policy. So they have lower cost of sales of raw material within China and when they export, they have higher cost of raw material, and they have a subsidy towards the finished product being sold in the global market. The differential is largely sort of taxation and opportunistic scenario within China. And when we have an alternate non-China supplier and supply situation, then we are, I believe, the most competitive or lowest cost producer in this product.
So once we have a domestic supply in 6 months, then you are secured about the supply, right? Or does it give you some cost...
If we are secured, we will make -- because it's our process, we will make a tie up with the local agro or chemical company. And with that security of supply and cost, then we will be able to regain our market share quite easily.
So this business eventually in a couple of years, would generate what kind of return on capital employed? I mean, will it be like 15%, 18% kind of...
I will get back to exactly numbers. But effectively, it will have a swing of minus 10 EBITDA to a plus 10 EBITDA in this product.
Okay. This you're talking about on an annual basis?
On an annual basis.
On annual basis. Okay. Still, I mean, it will not be very attractive, right, lucrative in terms of the return on capital employed?
Yes, that is just one product, the capacity of the plant that we have smaller products and there is additional capacity. So this is just the bulk product, which makes the plant. And...
Is this strategic for us for the longer term, this business? Or I mean you might [indiscernible] property in the separate subsidiary and do something around that?
Well, we have separated it out as a segment. We are open to joint venture strategic partnerships, anything that may come up on this side of the business because this one product particularly is now multiple or a couple of large producers in China as well. We don't see it being a unique position like we had in the past. But it's still very much integral part of our business, and we would like to keep it. But just to -- I believe that once we have the domestic India raw material sourcing, then our position will be very strong.
So effectively, we should be okay next year onwards on this business?
Yes.
Can you throw some light on the debt repayment or road map for next 2, 3 years? I mean, 6 months, we are talking about INR 450 crores. Then how do you see it for over the next 18 months from there?
I think our target is to have between INR 10 crores and INR 12 crores of free cash flow per month. This is ongoing even in this quarter, which is, I would say, not been a great quarter. We have done about INR 30 crores of operating cash flow. If you kind of look at the net debt, while it has gone up, it's largely the conversion of euro to rupees that the net debt has gone up. We've been able to reduce it by INR 15 crores odd in like-for-like basis. And we will continue to do that, I think, at a faster rate, bring down the debt to less than INR 400 crores, INR 300 crores in 18 months period.
Considering the uncertainty, what we are seeing, it would be prudent to reduce the debt, I mean, for kind of business, and I hope there are no plans to acquire further.
Yes, there is no plans at the moment.
At least for a couple of years, we will not see any acquisition?
If you probe me 1 more time, I think I'll answer is not 100%, no. Things change. Things are environment. I hope that the environment is much better. We have a few good strong quarters in business. The RFP business starts flowing in, things will look differently. So I don't want to talk about 2 years down the line, but until we have the debt well below INR 400 crores and so on and so forth, we will not look at any additional outlays.
That's good to hear that significant focus on the cash flow, at least the next 6, 12 months or maybe even longer term. And about the European operation, when you combine these 2, apart from getting some additional capacity, is there any cost synergy?
Yes, there will be cost synergies on raw material buying a number of management roles, which are duplicated will get reduced. So there will be cost synergies. But largely, the capacity freeing up is -- it's very good because the 2 companies independently would need to invest in capacity, but joined together, they can have a bigger capacity because of the synergy.
All right. And any thoughts on the next year organic growth outlook? I mean, as of now, considering the uncertainty what we are seeing?
I think I wanted -- again, in the opening remarks I concluded, where are actions that we need to take, we will focus on them. We are ready from plant capacity, product development work that is happening at our end. The actual growth number that translates is, I think, largely dependent on the macro as much as what we can control. So I don't want to judge a number on a global basis what the growth rates look like. But I would only say that the growth rate of the company will be more than the GDP growth of the different economies where we are operating.
So earlier, what we used to plan 12%, 15% at least growth, we are not sure as of now because how things are going to pan out?
So basically saying 12%, we have everything that is required for 12%. If the demand environment doesn't give us opportunities, it looks very difficult.
We take the question from the line of Rakesh Chaudhry.
In your opening remarks, you spoke about some initiatives relating to farmer development with a related party, which is the promoter-owned group entity called Keva Aromatics, I believe. If you can throw some light on what exactly this activity is, whether it has already commenced? And to what extent has it already begun? And how is it likely to shape up going further?
Yes. So I alluded that in my opening remarks, Keva Aromatics is a promoter company, where we are basically collecting from hundreds of farmers small quantities, 5 kilo, 10 kilo, this kind of. It's a collection center where we collect aromatic essential oils, particularly geranium, which is a substitute to China. And this is combined and transferred to the S H Kelkar with a 2% markup. This is basically an activity where we collect, and we have quality control and large compliance requirements, which are all managed in this company. And then it's one bulk lot, which is then approved by the parent company and ship to the parent company. So [indiscernible] agreement with a 2% markup on the collection and sales side.
What kind of size of business are you doing through this company?
So we have done about INR 30-odd crores this year. I expect around INR 40 crores for the full year. And maybe -- so the geranium oil, we have ballpark INR 15 crores to INR 17 crores of our own consumption. We expect this INR 15 crores to INR 17 crores, INR 20 crores being year-on-year activity. The first year, there is a higher quantity because their quantity has come in. We are taking it. We will have some stock. But after that, on a regular basis, it will be around INR 20 crores, INR 25 crores annual basis.
So you believe that this will help mitigate your procurement pains to some extent. And that's the reason for this relationship?
Yes. So this -- the aromatics company has been set up for developing agricultural practices for these products that we need. It's sort of a backward integration venture. Apart from the Chinese geranium, there is products like vetiver oil, which is coming from Haiti, and that has very uncertain supply due to political as well as geopolitical as well as climatic and earthquake situation. So these kind of products where globally the supply chain for our industry is affected, we are cultivating in India and building our own strong supply chain.
We have next question from the line of Dilip Sahoo, an investor.
Yes. This is regarding RFP. What I heard you say is, we got selected for the CapEx for a set of category of products that will have an opportunity of $350 million. Do you have an idea how many competitors would be there in this $350 million category that we got selected?
So I -- to the best of my knowledge, the entire $1 billion plus has been allocated with 6 or 7 suppliers globally.
Yes. So we can assume around 3 to 4, at least, other people who are competing for this $350 million, if that would be a fair guess?
Yes.
Yes. The second question is, you said you have submitted expression of interest or whatever for INR 100 crores, and then another INR 300 crores, INR 400 crores is in the works, and over a period of time, this will keep on repeating maybe INR 1000 crore, INR 1,500 crores of submissions in a year or so. So when you say INR 100 crores, what is the cycle you are referring to? Are you referring to the whole 4 years left in the contract INR 100 crores? Or is it going be...
Annual potential INR 100 crores.
Okay. So what you submitted in January, if it starts getting maybe offers in September to December?
Yes, we have submitted 3 projects totaling INR 200 crores and one of them is INR 25 crores annual potential. And if we win INR 25 crores, we will be continuously supplying this INR 25 crore potential for a minimum of 3 years.
Minimum of 3 years, okay. So this is 25 into 3, and there is similar kind of terms and conditions...
The total business is 3x the value which I've given. So INR 100 crores means we have bid for INR 300 crores over 3 years, INR 400 crores will be INR 1,200 crores over 3 years. And this is all the [ annual ] potential.
Sure, sure. And talking to the customers, what do you think when is this whole requirement of $350 million will get exhausted? Will it take 1 or 2 calendar years for this whole $350 to be addressed to -- $350 million?
I think it will take about 12 months more. So between -- in this calendar, the submission phases should be over, and then we will know by next calendar the -- starting from second half of this calendar, the results will start coming in. So it's a ballpark 1 year submission phase and 6 months delay, we'll start to see the results.
Sure, sure. So just trying to understand a bit more. You have expensed out, I think, some INR 4 crores to INR 4.5 crores, which is RFP, means procurement cost of the RFP. What are the other costs required for just fulfilling this -- filling in the proposals, do you need any R&D cost, any other cost for, say, running this whole $350 million in the next 12 months?
Yes. So we typically have a large team of R&D people working on these projects. So yes, there is a ballpark INR 12 crores to INR 15 crores cost of running the projects in a year, plus there will be related consumer tests, some marketing strategies, and so on and so forth.
Sure. And once you get the request, there is no more preproduction costs required. You can just start off with nothing else if there is normal production, right?
Yes, there is no cost for scaling up to manufacturing. We already have the capacity and know-how to scale up the products.
We have next question from line of Raj Kumar, an investor.
Yes. So most of my questions got answered.
We have next question from the line of Viraj Kacharia from Securities Investment Manager (sic) [ Management ].
Yes. I just had 1 question. Regarding the Contract Manufacturing business in Europe, if you can just give some color in terms of how long the contract is for? And given that we are now kind of trying to merge both Holland Aromatics and CFF to kind of free up your capacity. Is this an avenue where we can kind of reduce this exposure and focus more on scaling up, using the capacity for the Fine Fragrance and other business?
So the capacity is not -- it's different from Fine Fragrance capacity. So it's a different plant. But yes, we can utilize it for expansion in our core business.
Okay. And this contract agreement is for how many years? I mean...
So it is typically 3 years with an annual sort of renegotiation or annual reset, with ongoing contracts. So every year, there will be a discussion now.
Ladies and gentlemen, that was the last question. I'd now like to hand the conference back over to the management for closing comments. Over to you, gentlemen.
Thank you. I hope we have been able to answer some of your questions. 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 very much, sir. Ladies and gentlemen, on behalf of S H Kelkar and Company Limited, that concludes this conference. Thank you for joining with us. You may now disconnect your lines.