Oriental Aromatics Limited
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Key numbers — 40 extracted
9%
ct category aroma chemicals, flavor and fragrances and camphor. Our production volume increase by 9% and our sales volume increase by 12% for the year. We are very happy to report that we cross the
12%
d fragrances and camphor. Our production volume increase by 9% and our sales volume increase by 12% for the year. We are very happy to report that we cross the pre pandemic levels of production vol
Rs. 203 crore
ated basis for the fourth quarter of financial year 2022 the operating income for the quarter was Rs. 203 crores which was in decrease of approximately 8% on a year-on-year basis and decrease of 1.4% on a quar
8%
22 the operating income for the quarter was Rs. 203 crores which was in decrease of approximately 8% on a year-on-year basis and decrease of 1.4% on a quarter-on- quarter basis. Operating EBITDA repo
1.4%
Rs. 203 crores which was in decrease of approximately 8% on a year-on-year basis and decrease of 1.4% on a quarter-on- quarter basis. Operating EBITDA reported was Rs. 22 crore which was a decrease of
Rs. 22 crore
r-on-year basis and decrease of 1.4% on a quarter-on- quarter basis. Operating EBITDA reported was Rs. 22 crore which was a decrease of 33.6% on a year-on-year basis and an increase of 36.4% on a quarter-on-qu
33.6%
on a quarter-on- quarter basis. Operating EBITDA reported was Rs. 22 crore which was a decrease of 33.6% on a year-on-year basis and an increase of 36.4% on a quarter-on-quarter basis. Operating EBITDA
36.4%
eported was Rs. 22 crore which was a decrease of 33.6% on a year-on-year basis and an increase of 36.4% on a quarter-on-quarter basis. Operating EBITDA margins stood at 10.89% which increase by 302 bas
10.89%
r basis and an increase of 36.4% on a quarter-on-quarter basis. Operating EBITDA margins stood at 10.89% which increase by 302 basis points quarter-on-quarter basis. Net profit after tax reported was ab
302 basis point
f 36.4% on a quarter-on-quarter basis. Operating EBITDA margins stood at 10.89% which increase by 302 basis points quarter-on-quarter basis. Net profit after tax reported was about 11 crores which was at decreas
11 crore
ch increase by 302 basis points quarter-on-quarter basis. Net profit after tax reported was about 11 crores which was at decrease of about 53% on a year- on-year basis and an increase of 31% on a quarter-o
53%
n-quarter basis. Net profit after tax reported was about 11 crores which was at decrease of about 53% on a year- on-year basis and an increase of 31% on a quarter-on-quarter basis. PAT margin reported
Guidance — 20 items
“So Nirav the CAPEX currently is being done like you rightly said in Greenfield projects which are happening in Baroda where we are putting the multi product hydrogenation facility where the investment plant is around 150 crores and these are all new products which are being developed which are in the generic specialty aroma ingredient space and which will be manufactured in this particular plant.”
“So my question will be on the renegotiation cover on agreements on contracts so out of that so you have mentioned like there will be certain clauses in the agreement where you can pass on the cost increase in the quarter, so my question will be like if there is a cost increase can it passed on entirely or most of it or some of it can be passed on?”
“Out of this can we take the content strike the clients you have will be negotiating the contracts on the future not on the existing?”
“Camphor is one product where the prices still remain a little soft, but as the festival season will come in I think we are hopeful that we will be able to kind of see increased demand and some increase in the prices.”
“And another thing is whatever the margins comparing to international sales and domestic sales which side will be higher and lower not the exact numbers, can you give us like which will be higher compared to international and domestic fuel?”
“So, I think there are a combination of factors which give us the confidence that in any normal we will be in a position to aim to take corrective actions and continue offering value to our customers.”
“So, I think this is just one example, but as a company we are extremely all projects are still a complete go and we are just hoping things come back to normal and we will be back to regular business.”
“And our exports and domestic stays the same actually so it is same almost it will be plus minus, but it is similar to the last year means 30% exports we have.”
“I think with the overall impact of the CAPEX would probably be seen more into either H1 2023 or H2 2023 in terms of hitting the P&L till that time we will be more into the validation and acceptance stage.”
“So, till that time we are looking at a growth of anywhere between 10% to 12% in a very conservative way which will be driven by the full capacity utilization of the new product plant plus certain internal capacity enhancement that we are doing and that should be the driver for the growth.”
Risks & concerns — 7 flagged
Although, EBITDA margins improved for the quarter against the previous quarter this was dampened by further pricing pressure in raw material which started in February 2022 for some overall products.
— Dharmil Bodani
I think very difficult question to really answer to you in a very broad perspective when we are certain and we are so diverse product, but I think if you look at the margins spread between both the segments it is more or less the same.
— Parag Satoskar
So, you know, I think we have gone from a company where we were proactive because we probably knew the old normal to a company where we are looking at every challenge for opportunities that comes to us and then react to it in a way which will ensure that we keep adding value to our business.
— Parag Satoskar
The only concern is ultimately if you look at more of an overarching or part or perspective a lots of companies go through times where different times and suddenly their business model does not work I mean you have seen that, but what I hear you are saying your business model is still and we are constantly going ahead with all our capital expenses right just like you might have to signed new level?
— Bob
I think with the overall impact of the CAPEX would probably be seen more into either H1 2023 or H2 2023 in terms of hitting the P&L till that time we will be more into the validation and acceptance stage.
— Parag Satoskar
So just wanted to understand one of the volume growth in Q4 and also are you witnessing any slowdown in offtake for the volume because of the war like situation or the inflationary environment?
— Saurabh
So, we are relatively insulated because I think all the risk then gets added on to my supplier side.
— Parag Satoskar
Q&A — 12 exchanges
Q
I have one question so if you can breakdown our CAPEX what we have been doing and probably at the end of the CAPEX cycle so totally I think we are investing around 350 to 400 crores over next one and half years, so just wanted to understand and if you can break down the CAPEX in terms of how much we are doing for backward integration, how much it is for the expansion of the existing products and how much it is for introduction of new products in our product portfolio bad debt?
Girish Khandelwal
Parag you can take this, but I believe this has been answered in the past you can go over a… And if you can just explain in terms of the size of the opportunity for the new products what we are introducing for our product basket? So Nirav the CAPEX currently is being done like you rightly said in Greenfield projects which are happening in Baroda where we are putting the multi product hydrogenation facility where the investment plant is around 150 crores and these are all new products which are being developed which are in the generic specialty aroma ingredient space and which will be manufactu
Q
So my question will be on the renegotiation cover on agreements on contracts so out of that so you have mentioned like there will be certain clauses in the agreement where you can pass on the cost increase in the quarter, so my question will be like if there is a cost increase can it passed on entirely or most of it or some of it can be passed on?
Parag Satoskar
Sudharshan thanks for the question I think in most of the contracts we have a review clause with our customers, but normally it has been seen in the past action with the customer where the customers are opened to the idea of kind of negotiating the price and accommodating the price hikes in the future contract rather than really renegotiating the contract in the middle and having said that there is also chunk of space in our ingredient business where we are supplying in the open market where although with a little bit of lag because most of these customers are export customers. We are able to
Q
Since Privi is adding capacities in camphor and Glaxomass, will it affect our market share?
Parag Satoskar
So to answer your question competition comes and competition goes I think Oriental Aromatics has definitely the strength to really address the competitive landscape which keeps changing and we will take all the steps which are necessary to ensure that our market share stay intact and in fact those even in those new competitive landscape.
Q
So we have been talking about input prices for quite some time and not only in this industry but most industries and everyone is hoping that they rework to normal you know this may not happen because the normal might have just changed, so assuming the input prices do not come down at all how does your business model look like?
Girish Khandelwal
To start with I would completely agree with the gentlemen that the normal has changed. So taking it from there I think you can answer the question. In a new normal, normally when you are rewriting the rules of the game you probably become reactive then proactive and that is what we at Oriental are doing. We have an internal checkbox where we are saying are the new products being launched the answer is yes, are we having customers for those new products the answer is yes, are they paying us in time the answer is yes and we keeping the inventories in control the answer is yes. So, you know, I th
Q
My first question is on the volume growth if you can talk about what was the volume growth in export market versus what was the volume growth in domestic market as well as we are targeting for FY23?
Parag Satoskar
Girish do you have that breakup because I do not have the breakup between the volume growth in the export and the volume growth in the local market, but I can broadly say Aman that across all product categories and individual products we have seen a volume growth. So, this 9% is kind of not product driven or not category driven, but I think it has been kind of a blanket growth and it has been across customers in India and it has also been driven by customers outside India where we have acquired some customers in the fragrance space or in the ingredient space. So, I think it is kind of a broad-
Q
So just wanted to understand one of the volume growth in Q4 and also are you witnessing any slowdown in offtake for the volume because of the war like situation or the inflationary environment?
Parag Satoskar
Girish if you can give the Q4 numbers I do not have them right now in terms of the volume growth. So, Girish probably will inform that, but Saurabh in terms of the whole new coined term of demand destruction I probably will not kind of concur or infer that has been initiated at least in our space I mean we are just seeing probably people delaying their purchases a little bit because they have a situation where they overstocked in Q1 of their quarter which is Q4 of our quarter. So, I am talking to friends in America and in Russia and in Europe and all of them are saying that what we have stock.
Q
I just wanted to ask the flavor and fragrance plant is not working at full capacity utilization, when can we expect the utilizations to increase?
Parag Satoskar
I mean it is not really a true statement that is not working at full capacity. We run the plant one shift to full capacity and right now this plant has the capability to run three shifts and at the single shift so far we are able to manage the volumes we are moving and also in the fragrance business and the flavor business it is about compounding, it is not about reactions, it is about simple blending business. The capacity utilization in the fragrance and flavor plants is not necessarily calculated with the same methodology that we would use in the chemical plants. So, right now I think the p
Q
So first question on the revenue breakup so if you can help us understand how does it get broken up into spot as well as contractual across the domestic and export and extension to that question will be that how do we decide on our pricing, is it cost plus basis or a percentage margin basis?
Girish Khandelwal
In fact we can answer this on the flavor, fragrance vertical. On the fragrance flavor vertical we look at giving fixed pricing to our customers for at least 6 months period and then we review it with them and accordingly in the fragrance side we do cover raw material which are critical for that entire period and the commodity is we also contract out. So, on the fragrance and flavor side we had stability in pricing and also in terms of the cost I mean looking at the current situation unfortunately even if going into long term contracts there is pricing issue which is an usual scenario, but if t
Q
So I have two questions so one if I compare to say versus Q3 in Q3 we had a partial plan closure and there was a debottlenecking capacity also that came up and then we took price hike as well then still why do we have Q3 and Q4 slot in terms of sales so that is one question and second is our operating cash flow has again become negative even though I was just told that inventory levels have come down, so what explains that and how do we intend to improve that because even in the last call we discussed and that is one area that were because I have been investing in the company for close to 7 ye
Parag Satoskar
From a non-finance perspective I can answer and Girish you correct me if I am going wrong which is Saket although our inventory quantities have gone up, but I said in terms of the value of the inventory has gone up by 55 crores so I think the negative cash flows are a net outcome of using working capital for kind of ensuring that we have the inventory and we are ensuring business continuity to our customers and the other aspect of the use of the cash flow is for our CAPEX expansion which is where the capital. So, Girish am I correct in terms of summarizing. Yes Parag absolutely right. So, if t
Q
What we have seen is decent improvement in the margin side for this quarter, but somehow the top line has been flat as explained in the previous answer, so what to carry further from there in our previous call we had mentioned that though we are running at almost 230 crores of quarterly run rate of top line plus 40 crores coming in from the additional new specialty chemical and thereby Parag we had guided that for FY23 somewhere around 1,100 crore top line is doable. Given the current scenario do we stick to that kind of doable or not?
Parag Satoskar
So, Rahul I think you are referring to the numbers that was given in the last investor call and that number is kind of summarization of lot of these projects having some sense of sales contributing to the topline and like I said that we find ourselves in a very tricky situation where there are too many unknowns in the field and so when you actually are navigating a field which you are exploring although we are confident and we are endeavor to reach that number, but we feel that 10% to 12% growth is something which is definitely doable and we will try to kind of reach that number over here.
Q
So my question is regarding margins guideline so previously the margin guidelines were 35% for gross margin and between 15% and 17% for EBITDA margin so I can see from this FY22 finances the gross margins we have achieved the target of 35%, but EBITDA is at 10.3 we can say 11 so my question is the dent in EBITDA like the guideline was at 17 and 15 and the achieved EBITDA is 10, can we say this is mainly because of increase in operating expenses rather than raw material cost or something or can you shed some light on that?
Parag Satoskar
Girish correct me if I am wrong because even our gross margins I mean because we have had a increase in our material consumption as well signifying that there has been an increase in the raw material cost as well. I think the reduction in EBITDA margin is primarily driven by in the past year is primarily driven by increase across all input cost which also includes raw material cost. So, I think as we move on and hopefully the situation stabilizes with our relationship with all our customers intact we should slowly be in a position to kind of get back to our margin expectation of between 15% to
Q
Thank you so much. Thank all for participating in this earnings call. I hope we have been able to answer your questions satisfactorily. If you have any further questions I would like to know more about the company. We would be happy to be of assistance. We are very thankful to all our investors who has continued to stand by us and also have confidence in the Company’s growth plan and focus and with this I wish everyone a great evening. Thank you very much.
Opening remarks
Anuj Sonpal
Thank you. Good afternoon everyone and warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the investor relations 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 fourth quarter and financial year ended 2022. Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s concall maybe forward looking in nature. Such forward looking statements are subject to risks and uncertainties that could cause results to differ from those anticipated. Such statements are based on management belief as well as assumptions made by an information currently available to 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 conference call is purely to educate and bring awareness about the company’s fundamental busines
Dharmil Bodani
Thank you Anuj. Good afternoon everybody. I hope you all safe and healthy. It is a pleasure to welcome you all to our earnings conference call to discuss the results of the fourth quarter and financial year ending 2022. Talking about the performance during the quarter we manage to achieve price increase for most of our products in H1 FY22. However, the geopolitical developments in Europe and supply chain challenges resulting from various lockdown in China. Most raw material have either seen significant price increases all are showing signs of price increases. Although, EBITDA margins improved for the quarter against the previous quarter this was dampened by further pricing pressure in raw material which started in February 2022 for some overall products. Summarizing the operational highlights for the financial year 2022 the company witnessed steady command across all product category aroma chemicals, flavor and fragrances and camphor. Our production volume increase by 9% and our sales
Girish Khandelwal
Thank you Dharmil. Good afternoon all. On the consolidated basis for the fourth quarter of financial year 2022 the operating income for the quarter was Rs. 203 crores which was in decrease of approximately 8% on a year-on-year basis and decrease of 1.4% on a quarter-on- quarter basis. Operating EBITDA reported was Rs. 22 crore which was a decrease of 33.6% on a year-on-year basis and an increase of 36.4% on a quarter-on-quarter basis. Operating EBITDA margins stood at 10.89% which increase by 302 basis points quarter-on-quarter basis. Net profit after tax reported was about 11 crores which was at decrease of about 53% on a year- on-year basis and an increase of 31% on a quarter-on-quarter basis. PAT margin reported at 5.17%. On a consolidated basis for the financial year ending 2022 the operating income for the year was Rs. 869 crore which was an increase of approximately 23% on a year-on-year basis already EBITDA reported was Rs. 92.5 crore which was a decrease of about 40%. Operating