Camlin Fine Sciences Limited (532834) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Camlin Fine Sciences Q2 and H1 FY '26 Earnings Conference Call hosted by InCred Equities. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Chaitya Doshi from InCred Equities. Thank you, and over to you, sir.

Thank you. On behalf of InCred Equities, I thank you all for joining the 2Q H1 FY '26 Earnings Conference Call of Camlin Fine Sciences Limited. From the management team, we have with us Mr. Ashish Dandekar, Chairman and Managing Director; Mr. Nirmal Momaya, Managing Director; and Mr. Santosh Parab, Chief Financial Officer. Before I hand over the call to the management team, I would like to draw your attention to the safe harbor statement in the investor presentation. Over to Mr. Ashish Dandekar, sir for opening remarks. Thank you.

Thank you. Welcome, ladies and gentlemen, to this call. I know your time is precious, so we'll get on with it. Santosh will give you a brief of the quarter's performance, after which we will answer your questions. Santosh?

Yes. Thanks, Ashish. Good evening, everybody. Quickly to the financial statements. We had a revenue of around INR 460 crores in this quarter, which is a growth of 8.6% over last quarter. The increase was fueled by the increase in Straights and Blends vertical of ours, where we grew our turnover in both the Straights business of TBHQ, BHA and also the Blends business has increased during this quarter. As you know, Aroma, another vertical of ours, the volumes have increased. However, the net realization there has been subdued due to tariff situation. Overall costs are stable. In Straights business, we have realization pressure because the prices are under pressure, even though costs have remained stable, especially the heightened local competition coming from local in the sense in India. There are competition coming on TBHQ, BHA. However, we have hold on to our volumes. Our volumes have increased this quarter by around 40%. This was mainly because last quarter, if you remember, we had a shutdown there. But we have come back on volumes in the Straights. Blends business has been growing at around 8%, which has grown by 8% in this quarter. Our margins have improved as compared to last quarter from -- by around 2%. It's around 46% this quarter. It was 44% -- 43%, 44% last quarter. Last quarter, we had certain shutdowns and as the gross margins were impacted. This quarter our Tarapur plant as well as Dahej plant have been working at an optimum capacity utilization, and that has helped us to get back to 46% gross margin. Of course, we could have got more margins, but for the impact on the tariff pressure on the volume -- vanillin realization. Vanillin business volume has increased almost by 35%. The sales volume has increased by 35% as compared to the last quarter. But the realizations have been under pressure, especially due to the 50% tariff, which has been levied on Indian exports to U.S. and that has put pressure on the realizations. Prices have been -- costs have been stable. There's no increase in cost, because raw material price and crude prices have been under control. Coming to the other costs, if you remember, there was some onetime expenditure happening on employees cost, but we had also said that we would be strengthening our Blends spend because we are looking at a lot of exciting prospects in our Blends business. And hence, we have been strengthening our employees, especially in Blends marketing employees almost in all our key regions of U.S. and Brazil, even Europe. The new Vitafor acquisition in Belgium, in India, we have almost added 20 people this quarter also. And that's why the employee cost, despite being a onetime hit last year, has been remaining at the same level, and it will remain at this level now of this quarter. In fact, we have planned to add a few more heads in marketing in various sub verticals in those Blends business. So there could be a small -- some percentage increase in employee cost going forward. As far as other cost -- other expenses are concerned, there also we had to absorb fixed cost last -- in the last quarter because of the closure of -- shutdown of the plant. But this time, the volumes are higher. As I said, volumes in our Tarapur plant were almost more than 40%. Even vanillin plant, we had additional 35%. Our plant was working between 50% to 60%, vanillin. Obviously, that has got the other cost. And the end result was an EBITDA of around INR 33 crores this year -- this quarter at 7.27% as against INR 19-odd crores in last quarter, there's an increase. But as I said, margins on cost side, we have been fairly stable, but for the Blends strength, which we have increase in employee cost. However, there are certain pressures on the realizable values of our products. Our Blends business sectorally remains exciting and good. We are growing. Of course, in U.S. is a geography where we have seen certain sluggishness, especially which was also due to the inflationary thing in U.S. But we are certain that we'll get back to the original levels, and we will be able to achieve the generally budgeted thing of growing at around 18% to 20% on Blends year-to-year. This will be supported by the Blends strength, which we are increasing. As well as inorganic growth We had just -- are on the verge of starting share with new acquisition in France that will also come. It will become a subsidiary sometime in this quarter, which will bring additional revenue. So we feel that we are on track for the growth which we have been seeing in Blends. Coming down to the profit, yes, we had a loss last year -- last quarter because of the shutdowns and other things. But we had almost -- it's almost 0, and it will improve as we go to the subsequent quarters. As far as loan book. Coming down to the balance sheet, we didn't have any big fixed asset expenditure apart from what we had to do for maintenance and other things. Our gross debt situation has remained stable. It was around INR 645 million to INR 640 million. We did repay certain loans, but as we have been always saying that this repayment will -- we have to go for working capital also because your revenue keeps on increasing. The net debt was INR 490 million, it has been at INR 520 million. That's basically we had some right issue money, which has been used. But largely, the gross debt is expected to remain at the same level. Correspondingly, if you see interest cost has not gone up much. Net of fixed cost, we have been at the same level. So all in all, this is -- we are an increasing trend despite all the issues of tariffs and the struggle on the realization. We are making, on a -- I will say, on a growth part, and I think this will -- this path will remain as the year progresses. Thank you. You can open the question floor. Thanks.

[Operator Instructions] The first question is from the line of Rehan Laljee from Coheron Wealth.

First of all, I just had a couple of questions. In the Q1 con call, you had mentioned we have about 3 to 4 months of -- there's 3 to 4 months of channel inventory for vanillin. And I see on a Q-o-Q basis, you've done really well in a challenging time. So kudos to you guys for that. Could you help us understand how is the channel looking currently at the moment? Is the destocking complete? That's my first question.

The destocking in the U.S. is expected to be completed by Q4 of this year. And in Europe, it is expected to be cleared by Q1 of FY '27 because Europe, the antidumping duty was levied only in July. So there was a large amount of channel stocks lying in Europe.

Understood. Because on the Q1 con call, you had mentioned you're expecting by November to be cleared the entire channel. So are we seeing a delay on that?

Yes, I think so. I mean there is -- also there is the effect of tariffs, which has played a role on overall demand in the U.S., which is now opening up. So we expect by Q1 for it to be -- the channel stocks to be empty and we get a good position in the market.

And just for this quarter, what would have been your blended realization, around $12, $13?

Around $12, yes.

$12 is sell price and the net price -- net of freight and other things, which we bore, it's between $11 and $12.

Understood. So sir, I wanted to confirm on that, that year-on-year if we look, not quarter-on-quarter because I understand you took the plant shutdown. If we look at it year-on-year, your sales have improved by about 8%, 9% for the quarter, out of which vanillin has improved specifically by about 70%, 75% year-on-year. But still your gross margin is down about 200 bps. So I mean, it just doesn't -- just wanted to understand more on that.

So last year, I've been mentioning that there is certainly a price pressure here. In last year's Straights like TBHQ and BHA was been sold at $8.5 and $9. The prices have come down to $7. Similarly, vanillin, the situation was totally different. We were hardly producing at that moment of time. But generally, the margins are lower. The cost have almost remained same year-on-year, but the whole trouble is the realizable pricing is under pressure, and that has taken out around 2% to 3% of our margins quarter-on-quarter.

And considering that Europe now scheduled their fresh contracts for vanillin, are we seeing $15, $16 kind of realization is what has been the historical median. So are we seeing those kind of prices and contracts coming in for us?

No, not in Europe, not as yet. Like I said, in Europe, the channel stocks will remain till end of the year, till March at least. So the price realization is in the $12, $13. But we will see it move once the channel stocks are improved.

And do you feel you are confident of reiterating your guidance for about 2,500 to 3,000 tons this year for vanillin and also Blends, because on H1 -- Y-o-Y basis, you're about 7%, 8% kind of growth. So do you think you guys are going to stick to that for this year, considering the tariff headwind and other macro factors?

I think vanillin, we are -- how much have we done now?

We have done -- for the half year, we have done almost 1,300 tons.

1,300. So yes, we are good for the 2,500. And for the Blends also, we are -- the 20% that we are seeing between 18% to 20%, I think we are okay for that as well.

Okay. Because in H1 basis, you're still at high single digits. So you feel that, that will cover up in H2?

Yes. Also, there is an acquisition, which will add some numbers.

Okay. So that includes that 18%, 20%.

Yes.

The next question is from the line of Satish Kumar from InCred Capital.

So I just wanted to ask one thing. This is regarding the guidance that was there of around INR 2,000 crores to INR 2,100 crores kind of sales, whether that will be achieved or are we changing it?

No, that will be on -- we are on line for about INR 2,000 to INR 2,100.

And sir, also, what will be the current prices, the retail prices of vanillin in U.S.?

In U.S., the prices are -- minimum is $19. But we are seeing now some businesses even at $20 plus.

Okay. So assuming, sir, that if Trump tariff comes down to 15%, what we can realize, sir? I mean just -- I'm not asking for a guidance, I'm just asking a rough idea.

No. So the pricing, I don't think will come below that because the local competition that we have is pricing it at around the same $20 price. So our realization should improve by at least $3, $4 -- whatever depending on the tariff situation, what it lands at.

Okay. Got it, sir. And sir, I also wanted to understand regarding Vinpai. When will the integration happen, sir?

So we are expecting it by November end. It should be -- we're just waiting for approvals from the stock exchanges for the swap. And once that is done, within 15 days we will do the swap. So by end of November, it should be done.

So we will start consolidating it from this quarter -- for [ 1 month ].

Correct.

The next question is from the line of Surya Narayan Patra from PhillipCapital (India) Private Limited.

My first question is on the U.S. business. So the North American business sequentially has seen a kind of impact. So what is this business getting impacted, sir? Is it the export from India or it is pricing or it is the tariff? What is really getting impacted here?

In the U.S., the one impact that had happened was there was a bit of a slowdown in the pet food business in the last 2 quarters, which now seems to have improved and is picking up again. So structurally, the natural -- that we are selling into the U.S. was getting replaced by some synthetic at a lower end of the market. So which I think, again, now they are back on track, and we should be back on track on the U.S. business.

Surya, to add to what Nirmal is saying, we have been selling vanillin through U.S. So INR 96 crores of revenue last quarter also had vanillin. Now to -- if we import, then we have to bear the duty first that impacts our working capital. So in this quarter, we have tried to do direct sales rather than routing it through U.S. So the dip of INR 96 crores to INR 69 crores is not only of Blends. There is reduction because of vanillin. Blends, we have -- it's not gone down. It's like 5% small on animal nutrition and other things. Because the turnover is shown of entire -- in earlier time, there was no vanillin sold in U.S. So it was very pretty safe to assume that it was Blends. But now the case is different, at least for this quarter. Last quarter, there was vanillin sale in U.S. because we had selling through U.S. to get better margins. Now to circumvent the working capital requirement and the vanillin to be -- there is duty on us, we are directly selling.

Okay. Sir, hypothetically, just wanted to understand, see, if the -- we know that the historical average for vanilla has been -- in terms of pricing has been in the range of around, $12 kind of. So what we are currently getting even for the U.S. market right now, even after the tariffs? So if this tariff situation continues like that for, let's say, extended period, so then what will really restrict us from enhancing and expanding the volume?

No. So Surya, the point is that the volumes were impacted, as we said, was because of the channel stock. Once the channel stock is cleared, irrespective of what the tariffs land at, whether they continue at the same or they come down. If they go up from where it is, of course, our net realization will get impacted because the final price in the market is around $20. Now our net realization today is $12 because of the tariff in between. So it's -- really a calculation is now really where the tariffs will land at. If they go more than $55, this will come down, net realization. If it comes below $55, our net realization will go up.

Just to add also to this, if the prices remain at $12, channel stocks are out, we will be increasing our production to much more. As you know, we are running at 50%. So the cost is higher. So we may be saving around $1, $1.5. If we go on 100% with $12 realization only, there will be some margin improvement, though not -- the turnover doesn't increase. But as a Nirmal said, the tariff situation is different, there will be a much higher margin increase.

Correct. Yes, yes. fine.

The way to look at it, Surya -- sorry, Surya, the way to look at it is, all our costs of running the vanillin plant are in today. Whatever incremental sales that I do on vanillin will -- my RMC today is, say, at roughly about $8 and if my realization is $12, I get a straight $4 margin on every incremental sale that I do. Because in my these numbers, all my costs today are in. 100% of the costs are in.

Yes. Yes. So then it is a question that, okay, when the on-ground demand will really pick up after the deduction of the inventory.

Correct. That is the real question. And for that, our expectation is by Q4, it should start picking up in the U.S. and Q1 in Europe.

Okay. And about the non-U.S., non-Europe market, what is the trend and what dynamics that you are seeing, sir, for vanillin?

Trend is very bad because the Chinese are desperate selling at $7, $7.5. So it's not really a market that you can play in. But of course, we do have some markets where -- especially in F&B, where we do sell small volumes, and we are yet focusing on those markets and trying to build -- it will not be very large volume. But whatever we do get is always -- it always helps.

Okay. My next question was about the Blends business. So if I remember last time that you have been mentioning about creating the franchisee -- the branded franchisee in the Blends in the advanced markets. And today in the opening remark also, it has been mentioned that there is a field force expansion likely.

Right.

So if you can, sir, give some sense that, okay, what is the field force that you are currently having for the Blends business, what you are currently having? And what metrics that you do follow in terms of revenue per sales representative or something like that? And what is the field force you are expanding? And what timeline that would be required to achieve an optimal kind of revenue per representative on that front?

So in every market, Surya, the metrics is different because every geography, the cost structures are very different. So we can't really generalize and say that our metrics is -- in the U.S. is very different than it is in India. It's very different in Mexico as compared to Brazil. So it's again market to market. However, on the number of people, I mean, we have expanded the field force by almost 31 people in this quarter, starting -- I mean, in this last quarter, which the impact of that, we will start seeing from -- typically, it takes 6 months for the impact to start showing once somebody is onboarded. So you will start seeing the impact of this additional by Q4 and Q1 of next year. However, we had also added people, say, 6 months ago -- also in Q1, we had added people -- a few people. So that will also start showing results from Q4 onwards.

So that means, is it fair to say, sir, this is a 10%, 20% kind of field force expansion or in what -- any numerical sense if you can provide?

No, it's more than 10%. It's almost -- I think we were at 21% increase in field force.

Hence, accordingly the employee cost we'll see a kind of a swing to the tune of, let's say, 5%, 7% incremental.

So yes. So it's -- already you've seen this quarter, what this is. Beyond this, there will be a little bit more than that in -- by the next quarter because we are also adding a few more people. But more or less, it will be on these lines. And that's why we are projecting by adding 20% sales force, we are projecting at least 20% growth in the next year.

Patra, just to add to this. There is no -- we are not absorbing any increase in the employee cost because there was a onetime bonus which we had given last quarter. So this increase in employee cost is getting hidden because of that. So if we -- so there is -- we have added people and salaries have increased. In fact, if there was a onetime in first quarter, my salaries should have gone down. It has not gone down because we are adding people.

Okay. Just last one point, sir, from my side. See, we know that there is a kind of over inventory for vanilla, both in U.S. and Europe. But we also know that this is the time that by December, we signed the contracts for the next full year. So on that front, what feedback that you are getting, whether there is --

No. So right now, people are not signing for the full year. Typical contracts are for 1 quarter or 2 quarters because they have some stocks also and some contracts spilled over. So that is the reason why it is very difficult to gauge what ultimately that volume will turn into. But yes, the indication is, I mean, we did win some contracts for the next -- first half of the next year, all at these prices that we are discussing. And we are also kind of happy that it doesn't go on -- the contract should be too long because if there are any changes in the tariffs or whatever, we need to be careful on how we are quoting.

So that means if the tariff situation eases, then our first target would be spot market rather than the contractual price.

No. I mean, -- in the contract, it is DDP price, right? So for us, we are taking those contracts. It's not that we are not. We are signing up as we are bidding. And we've got -- we've also got some contracts. Already the bids we have won for H1 of next calendar year. So there will be a strong -- we will tie up for H1 a decent volume through contracts. And of course, then the rest is the spot market.

The next question is from the line of [ Raj Agrawal ] from CJ Shah Family Office.

Yes. Sir, I just wanted to understand on this European business, sir, what are our plans for this business? And by when will these losses, even now in discontinued operation, but like how long will this continue?