Oriental Aromatics Limited (500078) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Oriental Aromatics Limited Q3 and 9 Months 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 third quarter 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 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 A. Bodani, Chairman and Managing Director; Mr. Shyamal A. 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. Good afternoon, everyone, and welcome to our earnings con call to discuss the performance of the third quarter of financial year 2026. Our Executive Director, Mr. Shyamal A. 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.

Thank you, Dharmil. Good afternoon, everyone, and welcome to our earnings con call to discuss the performance of the third quarter of the financial year 2026. Let me begin by connecting the dots with what we had shared with you over the last 2 quarters. In Q1 and Q2, we had clearly stated that the industry was operating in a profit -- in a soft pricing environment on the aroma Ingredients and terpene chemicals side of our business and that our strategy would be to protect and grow volumes, deepen customer relationships and expand market share. While we have executed internal cost and process programs and ramped up Mahad, that is exactly what we have continued to do in quarter 3. The performance of the Fragrance division continues to be very strong and sustainable benefits from a softer pricing of raw materials and new wins with existing customers and new customers being added. Q3 is typically a more normalized quarter after the festive peak. And every year, we see a sequential cooling off in certain categories, most notably in camphor and at times in select aroma ingredients and fragrances. This year, too, we saw sequential softness with lower demand in specialty aroma ingredients and fragrances and a sequential decline in camphor volumes in line with historical seasonal patterns. However, what is encouraging is that the underlying year-on-year direction remains positive. Production increased 3% year-on-year and sales volumes increased 10% year-on-year for the quarter. From an operational standpoint, our plant-wise numbers reinforce this picture clearly in Q3. Total production was up 3% year-on-year. Total sales were up 10% year-on-year, even though sales were down sequentially versus Q2 due to the post-festive normalization. Bareilly sales were up 27% year-on-year despite being down subsequentially, which is consistent with the seasonal curve. Ambernath, our Fragrance division, sales were up 4% year-on-year. [ Baroda, ] where we produce aroma ingredients continues to show resilience on production, up 15% year-on-year, while the broader specialty ingredients market remains competitive and price sensitive. Mahad continues its early ramp-up trajectory and remains strategically important. It is still in the stabilization phase, and we have always guided that it would take a few quarters to reach optimal utilization. On the financial side, Q3 revenues from operations was INR 252.03 crores and our EBITDA margin for the quarter stood at 5.26%. EBITDA moderation in Q3 reflects 3 realities we have been transparent about with the investor community. Pricing remains under pressure, especially in ingredients in what is still a buyer's market. Mahad being a greenfield facility in ramp-up continues to be a near-term drag on consolidated profitability and effect we expect to reduce progressively as utilization rises and fixed costs get absorbed better, consistent with what we have discussed earlier in quarter 2. Q3 demand mix is typically less favorable than Q2 given the seasonal cycle. Importantly, when you step back and view performance the way global peers encourage investors to view it over a long arc rather than a quarter-to-quarter noise, the trend is reassuring. For the 9-month period, we delivered 11% growth in production and 10% growth in sales volume versus last year. This is the clearest indicator that our focus on sales maximization, penetration and customer retention is working even in a tough pricing environment. We are also maintaining balance sheet discipline. Net debt to equity stands at 0.65x as of 31st December 2025, which keeps us well positioned to fund growth while managing volatility. As we look ahead, our priorities remain unchanged and very clear: Protect and grow volumes and market share across camphor, fragrances and specialty aroma ingredients; execute process improvements and cost programs to rebuild margins structurally independent of pricing cycles, accelerate Mahad's commercial ramp-up so that what is a temporary drag becomes a meaningful driver of growth and profitability. To summarize, Q3 is seasonally and structurally a different quarter versus Q2. And this year too, we saw a sequential softness. Yet we delivered positive year-on-year volume growth, healthy 9 months trends and continued execution on the strategic building blocks that will improve margins as Mahad stabilizes and the pricing cycle turns. Thank you. I will now hand over to our CFO, Mr. Girish Khandelwal, for the financial highlights.

Thank you very much, Shyamal. I would like to welcome you all to the conference call. Let me begin by sharing our consolidated performance for the quarter. The operating revenue for the quarter stood at INR 252 crores, reflecting a growth of approximately 13% year-on-year. EBITDA for the quarter was reported at INR 13 crores compared to INR 23 crores in the corresponding quarter. The EBITDA margin stood at 5.26%. Net loss for the quarter was INR 1.92 crores as against net profit of INR 7.14 crores in the same period last year. The profit after tax margin for the quarter stood at minus 0.76%. Now moving on the consolidated performance for 9 months FY 2026. Operating revenue for 9 months FY 2026 was INR 748 crores, representing 11% an year-on-year. EBITDA for the period stood at INR 49 crores compared to INR 73 crores in the corresponding 9 months. The EBITDA margin was 6.4% as against 10.85% in the corresponding period. Net loss for 9 months FY 2026 was INR 0.67 crores compared to net profit of INR 32.90 crores in 9 months 2025 with PAT margins stood at minus 0.09%. As on December -- 31st December 2025, the net debt equity ratio stood at 0.6x and the cash profit for the 9 months 2026 was INR 22.65 crores. With this, we can now open the floor for the question-and-answer session. Thank you.

[Operator Instructions] Is from the line of Rajesh Mishra from [ Liberty Security. ]

[Foreign Language]

[Foreign Language]

[Operator Instructions] The next question is from the line of Kaustav Bubna of BMSPL.

I wanted to understand what is the exposure to North America for our company? And how much have number financials been impacted due to the tariff situation? And if you can quantify somehow the exposure? And what's your view on this trade deal? And how does that benefit a company like us? Is your name?

Did your name is, Kaustav, did I get it right?

Yes.

Okay. Great. So Kaustav, primarily, I wouldn't be able to give you the exact numbers but Girish, correct me if I'm right, the last time we checked between 16% to 20% of our sales are oriented towards America, point number one. Point number two, I think the major impact because of this positive trade deal is if you historically look at the American market, it is driven by having material in inventory. And because of the uncertainty, the American customer was buying hand-on-mouth. And hence, what used to normally stay at the inventory level was the loss in sales. I think that slowly started opening up because nobody still has the final draft of the of the tariff reduction program and how it's going to be implemented. But we are seeing positive signs in terms of customers coming back and placing orders, which will definitely have a positive impact on sales.

So but if you could explain that part again where your current financials, your 9-month financials.

Yes.

Has there been -- what kind of impact has there been on the financials because of the tariff uncertainty that existed in that time period?

So I will not be able to quantify exactly what has been the impact on the 9 months financials. But I would have said that we would have very easily expected to have a 6% to 9% more sales in these 9 months had the tariffs not been there or there was clarity in terms of the eventual landed cost for an American customer coming from goods from India and/or China.

And just to further add -- can you hear me? This is Dharmil. Just to further add that there is -- I mean, look, if you come down in duty structure from where we were to where we are today, that obviously makes -- or gives a sense of stability to our buyers in North America, and gives them a clear idea of where their cost structure of the landed material is going to be. So they have obviously not bought and built stocks because they had no idea whether the tariffs would continue to go up, go down. So there was a lot of uncertainty. So if you're asking us a forward-looking question on the impact of this trade deal that we've had with the United States, it's extremely positive. I think it's in the right direction. And I think if America starts looking back at India and buying again and building stocks, I think we are going to be seeing much better days ahead than we have so far.

And just a follow-up question on -- when you talk about return of pricing power, you mentioned pricing is still weak. Just could you explain the China angle ones...

So currently, in our industry, there's a 14% duty difference between the Chinese and the companies like mine. So if you just look at that difference, that gives us some hope in terms of pricing power. And I think the pricing power that when we talk about pricing power, what we are referring to is we are net -- I mean, we are importing most of our materials to process and reexport. So if the duty structures have changed, if the Indian companies are again competitive in North America, what will happen and we hope will happen that if petrol goes up, if naturals go up, if there is a general shift in the starting raw materials that we use for our industry, then we will see an opportunity to have better realizations. Meanwhile, what we do and continue to do is improve on our processes and hope to see movement upward.

Yes. Just because in your opening comments, you had mentioned that if you look at long-term numbers, we are happy with our performance. But like we are back to -- we're almost back to FY '18 EBITDA levels.

Absolutely. And the aroma chemical prices are even lower than the 2018 results that you are referring to. So we have -- we feel internally, we have bottomed out as far as chemical prices are concerned.

Can I also probably add Kaustav that it's not so linear in terms of the functioning of the business. Between 2018 and 2026, we see a completely different oriental where we have a large range of materials. These materials are used by our Fragrance division. We have internalized our formulated camphor. So a lot of things have been -- are now ready for action when the opportunities come.

[Operator Instructions] The next question is from the line of Jay Jain, an Individual Investor.

I just wanted to know the outlook on the revenue side of how much growth we can expect by the end of this fiscal and also for the next?

So I mean, we always like to be cautiously optimistic. And Shyamal in his opening speech has already highlighted in terms of the sales and in terms of the production, the growth that we have achieved. I think these last 3 months is going to only reiterate and reinforce that growth structure. So we are looking at anywhere between 8% to 10% growth in sales for this year, definitely. Not a big fan of projections. So we are pretty solid in terms of our order book for H1 2026, the process. The plan is now to execute all these and continue in the same trajectory.

Sir, we lost the line. We'll move on to the next participant. The next question is from the line of Manasvi Gupta, an Individual Investor.

I just had a small question. Why was there a decline in the margins? And when can we expect them to stabilize?

So Manasvi, just to -- if you look at the Q3 numbers per se, historically, Q3, since we have a product mix where you have camphor, which is a very strong seasonal product. Q3 normally tends to be a little softer than the Q2, which is more of the festive season. So it's not surprising, point number one. Point number two, similar seasonality also happens in some of the fragrance part of our business. And hence -- and the third element is the geopolitical situation, which was kind of restricting the American buyers because of the uncertainty in the tariffs. And because of which, all the focus on sales was for the global suppliers was on Europe. So even the European buyers were slow because they felt that there was too much of material in the market. Having said that, now that on both sides of the Atlantic, we have positive news where the EU trade deal will help as well as the tariff reduction will show increase in sales in America. Both these factors should be a good catalyst for the coming quarters to show us increased sales and hence, profitable growth.

[Operator Instructions] The next question is back from Jay Jain, an Individual Investor.

Any international partners with big fragrance and aroma players like the other competitors are doing?

Sorry, Jay, can you repeat your question, please? I mean we lost you in the middle.

Sure, sir. I just wanted to know like if Oriental is planning some JVs with big fragrance and aroma players like the peers are doing?

I think we are very happy with the way the structure of the business is as on today. I mean most of our plants on the aroma ingredients side are running at capacity. Camphor powder sales as well as formulated camphor sales look very encouraging. The Fragrance division is benefiting from the overall reduction in the raw material cost. So as of now, we stay in the holding pattern and we continue with our business. If there are any opportunities that come in the future, we will definitely explore them based on the merit.

And one more question, sir. Any other new products you are planning for the upcoming fiscal?

So like we have mentioned in our initial -- in our past investor calls, 2025, '26 financial year, was a year of consolidation where we are looking at our current range of products, looking at areas where we haven't reached and trying to build markets over there, stabilize our Mahad infrastructure. So these were our primary outline. I mean, as a company, we have an extremely, extremely strong R&D program, which is driven by our Perfumery division acting as a beacon for our Ingredients division. So we have a very strong pipeline, which we normally don't talk about. As and when the opportunities come, we will be in a position to, a, launch them commercially and b, inform you guys.

The next question is from the line of Rohit Kumar, an Individual Investor.

Can you give me an outlook for the specialty aroma industry?

Yes. So again, the specialty aroma ingredients industry primarily is extremely broad-based. If you look at the overall industry that lies in this space, it continues to grow. Albeit, there are also many companies who are trying to look at this particular part of the fragrance business as an opportunity to grow. And companies which are able to kind of develop these products using some uniqueness in terms of the processes or some uniqueness that they get in -- on the table in terms of chemistry or engineering, will continue to be ahead of the others. I mean, just to answer briefly, the specialty aroma ingredients business continues to grow, looks strong, but is also crowded.

[Operator Instructions] The next question is from the line of [ Saket ] from Sagari Capital.

So one quick question. So while I appreciate the management has been conservative in its outlook. But somehow even then the performance -- sorry if I'm being too critical here. But in my humble opinion, the performance still has been below expectations. So what is the now new reset for the EBITDA? Because initially, we were even hoping that 8% to 10% would materialize but that even seems to be a distant dream. And second part is around this Mahad thing, right? Initially, we are thinking that 200 would be a good days would be a good stabilization period. But even after 1 year now, if I look at the difference between, say, stand-alone and consol exchange there was a negative contribution from all on the top line bottom line anyways, I think the losses are mounting, which is understandable. So what exactly is the issue with Mahad? Is that the product -- the plant has not stabilized or there are some teething troubles with machinery or something because there have been no revenue so far. So these would be -- that would be my question. Where should we look at our EBITDA even say, at least for the Q4 and then we can take it from there?

So for Saket, to answer your first question, I think, a, when you are in the generic ingredient space, a lot of the actions that you take and a lot of the projected outcomes that you might have, there might be a bit of a gap in terms of achieving them. And unlike some other industries where the outcomes are relatively faster, especially when you look at the chemical industry and when you look at, say, something like Mahad, which was a very large site, which has been taken or acquired with future in the plan, we have ended spending money, which was a little more than what we would have spent if we would have just built the [indiscernible] plant in some of our other sites, point number one. So I think if you are going to probably look at a process of -- and which is what Shyamal mentioned in his speech that what we are trying to create is a sustainable infrastructure, which will continue to churn out products for a long period of time, especially Q3, especially geopolitical, if you just add all these factors up and look at the EBITDA movement, I mean, a lot of the companies who are in this space also have shown a similar kind of movement. So to answer your question, Mahad will take its time. It's taking a little while longer. And that's beyond our control. What is in our control is to ensure that we continue to move in the positive space, which we are. And we will give you -- I mean, whether it is 8% to 10%, whether it is less than 8%, where it will stay, it's something which only time will tell. We are pretty confident about our business model. And we are not looking at it specifically from a quarter-to-quarter perspective. But from a long-term sustainability perspective and opportunities are back in the market.

And how is that FMCG initiative doing? Because I see the margins remain on a downward trajectory. So in that strategy, has it -- is it really working out? Or it is still subscale for it to add meaningfully in fact or maybe even it is contributing negatively because there might be some advertising spend or distribution expenses. So what -- see, none of the strategy seems to be working for. That is the limited point, right? But I understand maybe that's a long-term part. But still even if you look at the last 3 years now, 3 to 4 years now, how -- when the performance has not really kicked in, and we were positioned as such specialized people who were looking at individual chemistry capabilities. So something as the business model has been struggling. So can you update on the FMCG bit? I requested for that in the PPT but this time, the PPT hardly has anything for us to really connect with the company on the long-term frame. It's very simple or just state basic facts. So not really -- as an investor, I think there could be a bit more explanation just to help us understand how our company is doing. So anything on the FMCG front, sir?

Sure. So I think I will take your note on the presentation side. We had an internal discussion of the subject. It's still work in progress, point number one. Point number two, I think the FMCG segment of the business continues to stay stronger. We all have to be -- we all have to also be mindful that the FMCG part of our business is in camphor, which as a product is very much under pressure in terms of the profitability. Hence, the normal outcome that we should see in that piece of our business, we are unfortunately unable to kind of capitalize on it. But like I said, that we are currently focusing on customer retention. We are focusing on sales maximization. And we are very confident that the opportunities will come. I mean if you look at the past 2 or 3 years, the past 2 or 3 years have been very asset creation heavy. And all these assets are now on the ground. And so now it's our job to ensure that they get filled up and are sold to capacity, which is what we are doing. So we are pretty confident if that has not been translated in our PPT, we will make an attempt to probably make a better one next time.

I would prefer it translate into the numbers. I think mainly the PPT part was just to educate us about FMCG because that's not necessarily a potential area and some of the other companies were into that camphor branding, at least give us -- these are new launches that we are doing even -- because even Amazon [ or digital sales ] or the e-commerce companies, there's very limited listing of 3, other companies have not done different varieties of camphor offerings, right, from room fresheners to gifting packs. So the innovation is very much visible there, right?.

Saketji, just to answer your question, I am not going to discuss my FMCG sales strategy with you on the investor call, point number one. I think all the positive points that you have said, we have taken it into a note, and we will try to definitely place it in our presentation. If you look at the fine print of Shyamal's speech, it says very clearly that we are currently in a sales maximization mode. And if you look at the sales number and if you look at the production number for 9 months or for year-on-year, we are achieving our targets. We are not going to go and oversell in a market where the pricing is not correct. And hence, we are waiting and watching the situation. Everything that goes down has to go up. We are already seeing some green shoots because of the American market opening up. So as quarters go, I can only tell you 2 things, Saketji [Foreign Language] things will happen. And that is what we believe in working.

[Operator Instructions] The next question is a follow-up question from Kaustav Bubna from BMSPL.

So I wanted to understand what is the total capacity at Mahad? Which markets are we going to be -- in terms of what would be the ideal domestic export split that we target at this -- from Mahad? And I mean, post the -- how long do you think we'll take to reach 70%, 75% utilization in this facility? And then what is the management's plan for total capacity at Mahad post -- I mean, what's the broader plan in terms of how big -- including brownfield, et cetera?

So Kaustav, I think a lot of these questions have been answered by us very specifically in our previous calls but I will probably try to kind of summarize them. The Mahad facility or the Mahad site that we have is an 80-acre site. So we have currently only implemented Phase 1. But when we had to implement Phase 1, we had to do the land development for the whole site. And that took up a substantially large chunk of the investment that was done there, point number one. Point number two is we are looking at a split of anywhere between 30 to -- 30% local and 70% exports in terms of the 250 tonnes that we have kind of earmarked for this particular plant, which will help us get into the profitable zone. We already have reached around -- I mean, to be very honest, the real production in that plant has only started from June 2025. So in 7 months, we are already seeing that the plant is running at anywhere between 30% to 35% of its capacity. And like I had mentioned in my previous call that there is a 6-month cycle between a sample submission and getting the approval for commercial shipments. And assuming that the plant started in June and we started our first commercial sampling for the global customers in August and September, I think the next 2 quarters should see Mahad getting into some level of independence, point number one. And this is not something which is new for us because between 2018 and 2026, we have had multiple plants in very large sites, all of them brownfield though, where we have commissioned the plants and then within a period of 1,000 days have moved to the expected sales level. Now in this case, there was a slight aberration because of 1 year lost in the whole geopolitical confusion that's happened globally.

Yes, exactly. Exactly. And just one clarification on camphor. Camphor purely domestic sales or we have some exposure to Western markets?

We are the world's -- to the best of my knowledge, we are the world's -- and I stand corrected, we are the world's only U.S. FDA-approved camphor manufacturer, point number one. We also have WHO and GMP certified camphor. So I don't have the exact number of exports, but we play a very large role globally in the pain management space when it comes to the medical side of the camphor.

So your camphor business could also be impacted by the U.S. tariff situation and what's happening in Europe because of...

So I think what we will have to do is we will have to probably lay to rest the whole U.S. tariff situation because I think that's gone. So no rearview mirror. Yes, it was impacted to an extent, like I said, because for a brief period of 6 to 8 months, India and China were probably for a U.S. customer placed at the same level of tariffs. India always had that advantage of between -- like Dharmil said, between 25% to 28%. And then suddenly, we found that we were at the same level as China. Whereas now when we are scaled back to 18%, we will now retain that 20%, which is needed, especially in the American market because of the certain advantages that the Chinese manufacturer has. So I think just to answer your question in a very short way, I feel that we have to put the tariffs to rest. We have to now look forward, and we have to take the advantage of this situation and grow the business.

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Dharmil Bodani from Oriental Aromatics Limited for the closing comments.

Thank you all for participating in this earnings conference call. I hope we have been able to answer your questions satisfactorily. If you have any further questions or would like to know more about the company, please reach out to our IR managers at Valorem Advisors. Thank you.

Thank you. On behalf Valorem -- on behalf of Oriental Aromatics Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.