Oriental Aromatics Limited (500078) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Oriental Aromatics Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to the management. Thank you. And over to you.

My name is Nupur Jainkunia from Valorem Advisors. We represent the Investor Relations of Oriental Aromatics Limited. On behalf of the company, I would like to thank you all for participating in the earnings conference call for the first quarter of financial year 2026. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now, let me introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. Dharmil Bodani, Chairman and Managing Director; Mr. Shyamal Bodani, Executive Director; Mr. Girish Khandelwal, Chief Financial Officer; Mr. Parag Satoskar, Chief Executive Officer; and Ms. Kiranpreet Gill, Company Secretary. Without any further delay, I request Mr. Dharmil Bodani to start with his opening remarks. Thank you. And over to you, sir.

Thank you, Purvangi (sic) [ Nupur ]. Good afternoon, everyone, and welcome to our earnings call -- con call to discuss the performance of the first quarter of the financial year 2026. Our Executive Director, Shyamal Bodani, shall be briefing you all on the operational highlights for the first quarter. After which, our CFO, Mr. Girish Khandelwal, will brief you on the financial highlights. Over to you, Shyamal.

Thank you, Dharmil. Good afternoon, ladies and gentlemen. It is my privilege to address you at the close of a quarter that underscores the resilience and adaptability of Oriental Aromatics Limited. In Q1 FY 2025, '26, we achieved a 10% year-on-year increase in production volume even as we undertook a planned maintenance shutdown at our Bareilly site to safeguard long-term asset health. Group sales volume rose 4% year-on-year, driven primarily by the enhanced output of our hydrogenation plant, improved market acceptance and the initial sales contribution from our Mahad facility. This growth supported by the trust of our customers is particularly noteworthy given that Q1 is seasonally softer across all our business segments in India. Our EBITDA margin improved sequentially to 8.03%. While margins could have been higher, they reflect the initial yet promising ramp-up phase of our Mahad facility, an impact we expect will continue for a few quarters ahead. Delivering this performance in a traditionally slow quarter for camphor and select aroma chemicals reinforces the strength of our diversified portfolio and our unwavering customer focus. Stable raw material prices provide cost visibility, while disciplined sourcing allows us to manage ForEx-driven pressures effectively. With festive demand ahead, robust capacity and the right product mix, we are optimistic and expecting a stronger quarter 2. The Indian market operates with a distinct seasonality, with Q2 and Q3 benefiting from the festive and winter months that drive higher consumer spending and product usage. This period is particularly favorable for our camphor, fragrances and aroma chemicals businesses as demand accelerates across region, household, personal care and home care segment. In camphor and terpenes, we have secured adequate feedstock well ahead of the festive production cycle to ensure uninterrupted supply. By maintaining value-based pricing in our premium religious and household formulated camphor as well as powdered camphor and terpene chemicals, we aim to capture peak seasonal demand, delivering sequential volume growth. In the fragrance division, our teams are locking in briefs from national and regional brands ahead of key festive season market windows. We are delivering winning fragrances optimized for the theme of premiumization and performance by combining strong creative execution with exceptional service reliability. We will safeguard our large accounts and deepen client trust during this high-demand period. International demand from our global customers for fragrances also remains strong. Stronger demand in the fragrance division naturally translates into increased demand for our specialty aroma ingredients division. Here, we continue our efforts to position ourselves as a global sustainable supplier to the international fragrance and flavor industry. Incremental output from our hydrogenation facility and growth acceptance of Evermoss by the global customer community are encouraging signs that we are on the right path. At the same time, we must acknowledge potential headwinds. Recent developments regarding a 50% tariff on certain categories of Indian exports could create near-term uncertainty in select overseas fragrance and aroma chemical shipments. While our strong domestic presence and diversified product mix provides a natural cushion, we are closely monitoring these measures. We have already begun evaluating alternate market channels, making supply chain adjustments and engaging in customer site negotiations to mitigate any potential impact. Our brief remains firm. Challenges are inevitable in global business, but it is how we anticipate, adapt and act that defines our trajectory. Oriental Aromatics has navigated demand cycles, currency fluctuations and input cost spikes and each time we have emerged stronger. Now, let me request our CFO, Mr. Girish Khandelwal, to give the financial highlights. Thank you. And over to you, Girish.

Thank you very much, Shyamal. Good afternoon, everyone. Let me begin by sharing our consolidated performance for the Q1 FY '26. Our operating revenue stood at INR 226 crores, reflecting a 4.5% year-on-year growth and the 10.9% decrease quarter-on-quarter. EBITDA was reported at INR 18 crores compared to INR 19 crores in the previous quarter and INR 22 (sic) [ INR 22 crores] in the corresponding quarter. EBITDA margin stood at 8.03% as compared to 7.62% in the previous quarter and 10.29% in the corresponding quarter. Net profit after-tax stood at INR 0.5 crores as it is impacted by higher deprecation and finance cost from recent capacity expansions. Cash profit stood at INR 8 crores as compared to INR 9 crores in the previous quarter. With this, we can now open the floor for question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Moksh Ranka from Aurum Capital.

I just wanted to know the camphor pricing and what has been the trend last quarter and this quarter?

So, we are seeing a gradual hardening of camphor pricing across the past few months. The raw material prices stay at the elevated level. However, we also will probably have to factor in the impact of ForEx. Hence, to answer your question, we are seeing firming of pricing over the last few months.

Okay. And what are the current per kg prices in the market? And we sell some premium camphor as you said. So do we have a -- do we sell at a much higher price than market?

So Moksh, it will be difficult for you to give me a per kg price because that will depend on various factors. However, we can say that we have a relatively good amount of cost leadership when it comes to powdered camphor as well as our formulated camphor.

Okay. Is it possible to give some broad range as what camphor prices for normal camphor or even just normal camphor if that's possible? Just a broad range.

I mean it could be -- I mean, just to give you a perspective, it could be between INR 450 to INR 550, which is a very broad range, if that helps.

And I think this is the price which has been stable also. Are we seeing a stable price for the last 1, 1.5 years? There is not much [indiscernible] prices.

So, that's what I'm saying. I mean, pricing is something which is very customer-centric, which is driven by volumes, which is driven by multiple factors. So it's something which is -- this is not an ideal platform to really discuss about micro pricing of camphor.

The next question is from the line of Mr. Saumil Shah from Paras Investments.

Sir, I would like to know what is our current capacity utilization?

So across -- except Mahad, where we are seeing volumes kind of grow in terms of monthly production and monthly sales, we can very safely say that all the rest of the plants across all our sites are running at optimal capacity of anywhere between 75% to 80% of their total peak capacity. And the Ambernath fragrance compounding facility runs on one shift. So, there we have the ability to expand capacity by one more shift.

Okay. Because I'm new to this company. So, I think we had a big CapEx in FY '24?

So, we had a big CapEx, which was spread over the past 1.5 to 2 years because we had a brownfield project where one of the chemistries, which is the hydrogenation chemistry, we built a facility in our Baroda site. And we also did a greenfield expansion in Mahad, where we acquired a new site, which we first developed and then we have done Phase 1 of a single product plant.

Okay. So even -- I mean, the new capacity, which we did, even that is running at 75%, 80% utilization?

No, that is the only facility, which currently is kind of post commissioning. We are ramping up our production. And we have a window of, say, 5 to 6 months where we go through the process of sampling, getting approvals and then starting commercial shipments. So, that facility is currently running at between 20% to 30%.

Okay. And that we do expect by end of the year, it would be running at a similar capacity?

That's our objective.

Okay. Okay. And sir, out of our 45% international business, how much is it to the U.S.?

So, I wouldn't get into numbers, but it's something which is not very substantial to really have a large impact on an immediate basis.

Okay. So, we are not seeing much impact due to the tariff on the U.S. business?

We probably are in a wait-and-watch approach where I think in the perfumery side of the business, especially for aroma chemicals to really have a new vendor in takes time. So, we are kind of watching how the geopolitical situation emerges. And based on that, we will take a decision. Having said that, even in a very broad sense, even if you have to kind of move out from that supply chain entirely, we have the possibilities of earmarking those materials in other markets.

Okay. Okay. And sir, can you share any revenue and EBITDA guidance for the current financial year and for FY '27?

So we normally -- Girish, correct me if I'm wrong, but our EBITDA guidance is between 8% to 10%. Am I correct?

Yes, sir. Yes, Parag.

Yes. So, we stick to that guidance. We would like to kind of cross that guidance, deliver and then come back to the investor community. Currently, the EBITDA also gets kind of restricted a bit because of the impact of the Mahad post-commissioning activity that's going on.

Okay. And in terms of revenue?

In terms of revenue, we -- if I'm not completely off target, we have done an investment of around INR 200-odd crores. And so we always say in a very conservative basis that the incremental sales would be 1.7x in a period of 2 to 3 years.

[Operator Instructions] The next question is from the line of Mr. [ Saket ] from [ Sagar E-Capital ].

Yes. So my first question would be -- Girish bhai, if you can help me within the stand-alone numbers. I think there is also this trading business. So if you exclude the trading business, what remains is our core pre-Mahad business. So, what is the EBITDA margin of that core business, excluding the trading P&L?

So, see, trading business also, we are getting that same type of margin of 8% to 10%.

So, my question is excluding trading, our core business right now is at 8% to 10% margin, EBITDA, is it?

Correct. Yes. In terms of the percentage, it remains in the same range, 1% plus or minus.

Okay. Okay. Fair point. So then the question to Dharmil bhai is our broader normalized margin used to be in the 14% to 17% range, right? Now -- and if I look at some of our peers, even Mangalam or Privi, most of them have crossed these normalized margins that we used to report. And again, it could vary from company to company, but broadly, they are in the upper band or they have crossed them. On top of that, in the last 2 to 3 years, we have taken multiple initiatives like backward integration, forward integration, even say, these brownfield CapEx-es, which are typically margin accretive in nature. But despite all these initiatives -- and fairly, I think a stable business environment in the last couple of quarters, if I look at your, say, annual report as well as commentary, but our margin is way below the normalized range. So, my question is, what's the reason for that? Is it like we lost any major account, which was profitable, maybe that account went under the bus post-COVID or any profitable products? So in that case, what is the now new normal? Is it like it will remain at 8% to 10%? Or is it maybe at best you can do 10% to 11% for the core business? I'm not talking about the Mahad and the trading. That will be my subsequent question, but that's one question that I had for Dharmil bhai.

So, I won't comment on the -- Parag, I'll take the first part and then you can take the second part. I won't comment on the other companies. As far as Oriental Aromatics is concerned, our core business will stay in the revised guidance margins, which we've given, which are not off the top of my head, but you can look at the transcripts and unless Parag, you have those numbers. So, I will answer the margin and Parag, you can take the other half of it.

So primarily, just to answer your question, I think like Dharmil rightly said, we are unable to understand and we are not ready to comment on our peers as to, first of all, how they are able to achieve the sustainable EBITDA margins because those margins actually are not even sustainable by the end industry, which is the fragrance and flavor industry. Having said that, I think if you look at pure camphor manufacturers, I think the name that you mentioned, probably their profitability has come only in the current quarter. So, we need to kind of look at what is the exact reason. Otherwise, pure stand-alone camphor manufacturers are also having this massive problem of extremely high level of capacity in the market and very low demand. So, I mean, for us, companies which have brand-new plants where we have fully depreciated plants and are able to deliver margins which are much higher than your end industry margins. It's something, which we don't understand and we don't want to comment upon. What we can tell you is that our customer base remains loyal with us. All the product categories that we operate out of continue to show growth. I mean, the last few quarters, there were a lot of instability in terms of global instability, in terms of delays, in terms of overstocking. So, all these factors, like we've just started saying since the last 2 investor calls that we are seeing normalization and naturalization of demand coming into the picture. And hopefully, as days go by, we should be in a position to improve our performance.

Okay. Fair point. Now -- and within the camphor…

Sorry to interrupt, sir. Sorry to interrupt. Could you rejoin the queue again, please, sir. We do have other participants in the queue. [Operator Instructions] We'll move on to the next question. That's from the line of Mr. [ Yash Nayak ] from Kamakhya Wealth Management Private Limited.

So, first question is the FMCG seem to be the steady growth for our business. So, could you outline your strategy to deepen the penetration in the FMCG space, both with large established player and emerging regional brands?

So to answer this question, I'll have to divide it into 2 compartments. I mean, when you look at our engagement with the FMCG business, I mean, on the fragrance side, we have a very active line of communication going on with all the national and the regional brands who are active in the FMCG space in India and also our customers in Asia. And we continue to grow in our existing business with them, and we continue to acquire more and more brands, which are fragrance by us. And that is something, which is achieved because of our combination of our creativity done by the creative team and our backward integration pace. So, that's on the part of our FMCG strategy when it comes to the fragrance division. When it comes to the camphor division, we are again engaging with various FMCG players who are active in the camphor selling space and we are exploring opportunities where we can co-work with them on our camphor powder as well as formulated camphors.

And sir, what is your current internal utilization of camphor?

We are at -- Girish, correct me if I'm wrong, but we are at around between 60% to 65% internally consumed.

Right. Right, Parag.

The next question is from the line of Mr. [ Arun Arora ] from [ NB Investments ].

Sir, since I'm new to the company, I'm just asking one basic question. Like if you see our past revenue, let's say, take revenue of FY '21, the revenue was INR 709 crores and PAT was INR 102 crores. Now fast forward to FY '24, it was INR 836 crores and INR 9 crores was the profit. So, my first question was, we know that there was a sudden reduction in the price of camphor and then more players came out with the additional capacity. So during this period, the camphor, we had a tough time. Now other than camphor, we also deal with aromatic ingredients as well as fragrance and flavor. So, does these 2 divisions also had a tough time during this period? Then second question in the same one is now FY '25, the revenues have gone to INR 924 crores, but the PAT is INR 34 crores. So, there is a sudden jump in the profit. So, just wanted to know -- now also you said camphor vertical is still undergoing a lot of challenges. Which other 2 verticals? Is it that both the verticals have improved their revenue and the profitability? Or is it only one of them? If you could share some details about that.

So Arun, to answer your question, if you actually look at what happened, say, in 2021 and then kind of look at 2024, probably we can compare it to what we internally call as a perfect storm because we had an R&D pipeline and we had an investment program for our specialty ingredients division, which was kicked off in 2019 and continued till around 2023. We continue to invest. We continue to make new products. And all these new products were at various levels of approvals with our customers. So, we had ended up doing the investment cycle and we had still not got economies of scale when it came to sales of these products. And on the top of that, we had this situation of camphor, which suddenly came within a period of 1 year. And these 2 situations combined together led to a situation where we had a substantial reduction in profit margin. Over the past 1.5 to 2 years, we have kind of done a lot of things on the camphor side to create and to enforce our competitive moat so that we become strong there. All the products that were kind of launched on the specialty aroma ingredients side between 2019 to 2022 are now being accepted by the customers. And hence, we are seeing capacity utilization of those plants coming at optimum levels. And because these materials are also used internally by our fragrance division to add value to the fragrance. The fragrance division also has kind of benefited from the whole piece. And so a combination of these 3 positive factors is what you are seeing in terms of the improvement of the PAT. And the reduction was primarily because of 2 or 3 completely negative factors coming together at the same time. I hope I have answered your question.

Small clarification, the recovery in FY '25 PAT, was it due to recovery in only 2 segments, 2 verticals? Or is it only because of all ingredients which you had started the production, new products that have reached a stable level and they have started contributing more is that I wanted to know?

So like I said, Arun, it's a bit of all the 3 divisions turning positive in terms of their contribution to the overall business. The camphor -- by us taking some internal steps in terms of formulation, in terms of pharma camphor contributing more than what it was doing. In the fragrance division, because of the backward integration, we have started winning more business and the profitability is better there. And the third part is now that all our aroma ingredient launches, except Evermoss, have crossed that critical path of 500 days to 600 days, which is what is needed for us to go through the cycle of product approval, product stabilization and eventual commercial orders. All 3 divisions have now started contributing to an extent. And hence, we are seeing the improvement.

That is very helpful, sir. Sir, regarding the debt, see, when we had started this CapEx cycle, I think sometime during '22 or '23, the CFO had predicted the peak debt of around INR 360 crores, but we have done INR 170 crores, if you see a year back when we completed most of the CapEx. So, one of the reason was that we had postponed few CapEx, particularly the multi-purpose plant at Mahad. Is there -- other than that, is there any other CapEx were postponed? Or did we do cost control and could able to complete whatever the CapEx plan other than the multi-purpose plant at a lesser debt?

So primarily, your second observation is correct. I mean, when we realized the challenges in terms of output pricing, we went into a massive optimization mode at our Baroda facility and hence, we could actually shave off certain CapEx, which was scheduled to be done, but we found optimized ways of doing it in our current facility and current site in a very safe and sustainable. So, that's why we kind of have not really invested in that CapEx and optimized it.

So, that means only the multi-purpose plant at Mahad was only postponed, correct?