Oriental Aromatics Limited (500078) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Oriental Aromatics Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Good afternoon, everyone, and a very warm welcome to you all. My name is Purvangi Jain 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 company's earnings conference call for the second quarter and first half of the 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 belief 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. Shyamal Bodani, Executive Director; Mr. Girish Khandelwal, Chief Financial Officer; Mr. Parag Satoskar, Chief Executive Officer; and Ms. Kiranpreet Gill, Company Secretary. Without any delay, I request Mr. Shyamal Bodani to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Purvangi. Good afternoon, everyone, and welcome to our earnings conference call to discuss the performance of the second quarter of the financial year 2026. Following a solid first quarter, Q2 FY 2025-'26 has been a historic quarter for Oriental Aromatics, defined by growth in production, sales and market share across every business division. At a group level, we achieved our highest ever quarterly sales. Production grew 26% sequentially and 10% year-on-year, whereas sales volume rose 30% quarter-on-quarter and 21% year-on-year. That translates into a 20% growth in sales value over Q1 and 15% over the same period last year. Our Fragrance division in Ambernath delivered an outstanding quarter. Festive demand and the tailwind of GST 2.0 reforms boosted sales, while our focus on premiumization and performance fragrances helped us gain market share with key international and national customers. In our Aroma Ingredients division, volumes at Vadodara and Mahad grew strongly, driven primarily by increase in output from our hydrogenation plant and the ramping up of our Mahad facility. However, the market stays a buyer's market with Chinese suppliers dumping into non-tariff markets like India, Southeast Asia and the EU, keeping pricing under pressure. We are countering this through process reengineering and yield optimization. Pinene prices remain firmed up and the rupee depreciation adds to the temporary cost pressure. Our Mahad greenfield plant, which is still in the ramp-up phase, is currently causing a 1.5% to 2% point drag on group EBITDA. This impact is expected to normalize over the next few quarters. At Bareilly, our Camphor and Terpene Chemicals division maintained its strong performance, supported by festive demand and adequate feedstock supply, which contributed positively to both revenue and profitability. On a consolidated basis, turnover increased by 20% to INR 271 crores, while EBITDA stood at INR 17 crores, representing a margin of 6.36% both on a quarter-to-quarter basis. Yes, margins are lower, but that is a conscious choice. We have focused on penetration and volume leadership in a soft price environment. Our net debt to equity of 0.6x reflects a healthy and conservative balance sheet. Looking ahead, demand visibility across all areas of operation stay encouraging. We're already active in the RFQ cycles for H1 2026 volumes, which are looking strong even though pricing stays tight. Our priorities are clear: drive growth through volume, tighten costs through process engineering and restore margins to our target range of 8% to 10%. To sum this up, a quarter of record sales, broad-based growth and market share gain, and we see clear tailwinds from margin improvements as Mahad stabilizes and the efficiency program matures. Thank you. I will now hand over to our CFO, Mr. Girish Khandelwal, for further financial highlights.

Thank you very much, Shyamal. I would like to welcome you all to the conference call [Technical Difficulty] sharing our consolidated performance for the quarter. The operating revenue for the quarter stood at INR 271 crores, reflecting a growth of approximately 15% year-on-year. EBITDA for the quarter reported at INR 17 crores compared to INR 29 crores in the corresponding quarter. The EBITDA margin stood at 6.34%. Net profit for the quarter was INR 0.74 crores as against INR 14.78 crores in the same period last year. The PAT margin for quarter stood at 0.26%. Moving on the first half of FY 2026 on a consolidated basis, the operating revenue for H1 FY '26 was INR 497 crores, representing a 10% year-on-year increase. EBITDA for the period stood at INR 35 crores compared to INR 51 crores in the corresponding half year. The EBITDA margin was 7.11% as against 11.20% in the corresponding period. Next profit for H1 2026 was INR 1.24 crores compared to INR 25.75 crores in H1 2025. The PAT margin stood at 0.25%. As of 30 September 2025, the net debt equity ratio stood at 0.60 and the cash profit for the H1 FY '26 was INR 16.7 crores. With this, we can now open the floor for question-and-answer session. Thank you.

[Operator Instructions] The first question comes from the line of [ Anisha Dalal ] from Universal Trading Corporation.

First of all, I would like to congratulate the company on driving this strong results. I have one query regarding the camphor market. Given the substantial volume of camphor being imported into India, has the company has considered approaching the authorities for imposition of antidumping duty on camphor of imports? Actually, such a measure could potentially strengthen our pricing power and enhance the profitability. So I want to know about...

So the straight answer to your question is we are currently not pursuing any such activities of approaching the government and asking them for any of these tariffs. We are still watching the situation. I think the amount of camphor that used to be historically imported from China has reduced substantially. However, there is sufficient quantity coming from China. We will evaluate the situation, and if the need arises, we will take the necessary steps.

My compliments to the management for their excellent performance for this quarter.

[Operator Instructions] The next question comes from the line of [ Rajesh Mishra ] from Liberty Share Trading Company.

Sir, just I want to know what is percentage of the retail and what is percentage of the –- your camphor powder business in terms of totality, like 50-50 or 80-20 or something?

So Rajesh, normally, as a practice, we only give the breakup of the 3 primary divisions that we operate out of, which is the Fragrance, the Aroma Ingredients and the Camphor and Terpene Chemicals. We do not give individual breakup of the division. So we will like to stick to that policy. Having said that, we have substantial amount of exposure both in the formulated as well as in the camphor powders.

And sir, now I see in retail market your Saraswati brand is almost everywhere...

Correct.

In all India basis. So now I think you are fully involved in retail business or B2B also in the terms of Camphor?

Sir, we are -- we have sizable exposure because we have substantial capacities of Camphor in our Bareilly plant. So we are in a position to take care of our Saraswati Camphor business as well as 3 Pine Camphor business. Plus we have extra capacity where for our strategic customers in markets where we are not active, we keep supplying them powder so that we are active in both the areas of business.

Okay. Sir, next question is regarding -- because I've seen last 1 year -- 1 to 2 years, around 500 metric tons per month camphor imported, 400 to 500 metric tons from China. Because of that, all camphor companies not making so much profit, as I see as a investor. So any chance to impose antidumping duties so at least some quantity will reduce? Because earlier, it was hardly 10 to 15 tons or sometimes 50 tons. But continuously, I've seen 500 metric tons, 400 metric tons per month imported.

So Mishraji, to answer your question, primarily a lot of the camphor that is now imported from China is natural camphor, and what is produced by the manufacturers in India is synthetic camphor. And so it's actually not an apple-to-apple comparison if you really go and do a micro study. And I think the bigger hit is not the imports coming from China because that particular quality of camphor is very difficult to use in the puja space unless you do some processing to it. I think the bigger challenge to profitability is the substantial capacity for camphor that has been built in India by multiple players, and the camphor market per se has not expanded to the same level. So we are having a classic situation where there is a lot of supply and relatively less demand.

But any chance to increase the price because now...

I'm sorry to interrupt you, Mr. Rajesh, please rejoin the queue for further questions. The next question comes from the line of [ Damodar ] from DB Investments.

Sir, in the initial introduction speech, it was mentioned that Mahad plant is pulling down the EBITDA by 1.5% to 2%. So does it mean that are we running the Mahad plant with EBITDA positive?

Hello?

Can you hear me?

Yes, I can. I got disconnected.

Okay. Fair enough. Sir, in the initial commentary, it was mentioned that Mahad plant is pulling down the EBITDA margin by 1.5% to 2%.

Correct.

So is it -- can we make an assumption that Mahad plant is positive at the EBITDA level?

Mahad plant in the -- at the current level is positive at the EBITDA level, but it's pulling down because it's not reached the full capacity from a sales perspective.

So is it possible to share the capacity utilization, sir?

So we have given our -- we have stated that our capacity of the Mahad plant in Phase 1 is 250 metric tons annually. Right now, since we have -- it takes -- and we have also stated that it takes anywhere between 5 to 6 months for us to complete 1 cycle of sampling approvals and commercial shipments. And so we missed out the RFQ season of H2 2025. So we are looking at a capacity utilization of around 20%, 21% in the last 1 or 2 quarters. And we see rapid adoption happening in the coming quarters.

Okay. So with this 21% capacity utilization also, we are already EBITDA positive. That's right?

Yes. Yes. Sorry...

Is that because this –- sorry?

EBITDA positive or not, probably Girish can answer. I'm saying at a profitability perspective per kg, we are positive. Girish, if you want to take this question from an EBITDA perspective, you can...

Yes, yes, yes. Yes. So I want to answer. Damodarji, as of now, as on -- in this quarter, the Mahad plant is EBITDA negative. That is why our consolidated EBITDA has come down as compared to standalone EBITDA. And Parag is answering that -- however, we have achieved the substantial capacities in the production side. Now we are expecting the sales to grow. So in the coming couple of quarters, we will be EBITDA positive.

Agreed, sir. Sir, based on the current pricing, what should be the minimum capacity utilization that we need to achieve to be positive at the EBITDA?

Parag, do you want to answer?

So I don't have the exact number, Damodarji. Girish, if you have the number, you can share it. Otherwise, we'll come back to you on the exact number.

Yes, we will come back to you. Yes.

Sir, my second question is, Mahad plant, we are yet to achieve all this, better utilization and also EBITDA positive. What about the hydrogenation plant which was also commissioned some time back at Baroda?

So the Mahad plant and the hydrogenation plant are completely different stories, because if you look at the Mahad facility, the Mahad facility is a greenfield project and it's a very large project where we have incurred costs to really develop the land, et cetera. Whereas on the -- in the hydrogenation plant, which was commissioned at Baroda, that is a brownfield project and it is well integrated with the Baroda set of plants. So as we ramp up -- as we get product acceptability in our hydrogenation facility, we are seeing extremely positive response from the customers for the hydrogenation products. And there, the utilization is much higher than the Mahad facility as it stands today.

So are we EBITDA positive there?

Girish, can you answer that question?