S H Kelkar & Company Ltd

As the year marks our celebration of delivering sensorial delight for a century and beyond, we rededicate ourselves to continually innovate and improve, aiming not only to be the foremost fragrance and flavour company in India, but also to emerge as a worldwide leader in this industry.

Dear Shareholders,

I am delighted to present to you the 67th Annual Report of S H Kelkar and Company Limited for FY 2022-23. As the year marks our celebration of delivering sensorial delight for a century and beyond, we rededicate ourselves to continually innovate and improve, aiming not only to be the foremost fragrance and flavour Company in India, but also to emerge as a worldwide leader in this industry.

The financial year 2022-23 ended on a stable note, registering similar cash profits as the previous year, despite the numerous challenges, both on domestic and global fronts. Uncertainty in the European markets during the initial months and an inflation in raw material prices weighed considerably on demand and our performance in the first three quarters. However, recovery in the European business during the second half of the year as well as sustained focus on alternate supply of raw materials and operational efficiencies, helped us to restore growth in the last quarter, with our core business reporting a strong double digit growth. Globally, 2022 started on a dull note registering a 2.9% decline in the world GDP growth as compared to the previous year. However, easing of supply chain bottlenecks and reduced inflationary pressures since mid-2022, led by tight monetary policies and reduction of fuel and energy commodity prices, among other factors, provided some support to the economic growth. Notwithstanding global slowdown, the Indian economy showed strong resilience and grew sustainably in FY 2022-23, backed by prompt government policies and timely actions to curb inflationary pressures and reduce international commodity prices. Experts believe that the global flavours and fragrances market is poised for consistent growth, dominated by Asia Pacific, which accounted for more than 31.4% of the overall industry revenue in 2022.

Key growth drivers include rising demand and consumption of processed food and personal care & cosmetic products globally, led by rising disposable incomes, population growth, and a shift in consumer preference. India, being a major F&F export market and a leading supplier of natural ingredients, is well-placed to be a major contributor to this growth, opening a plethora of opportunities for Keva to explore, exploit and take advantage of.

Financial performance

The total income for FY 2022-23 stood at _ 1,698.33 crore as compared to _ 1,581.70 crore in the previous year. Despite the supply chain constraints and inflationary pressures, Keva's gross margins during the year stood at 40.1%. Profit after Tax (PAT) during the year stood at _ 62.95 crore. Excluding exceptional gain and loss in FY 2022-23 and FY 2021-22, PAT in FY 2022-23 stood at _ 83.2 crore as against _ 161.4 crore in the previous year, lower by 48% year-on-year due to onetime tax benefit of _ 64.5 crore. The revenue from operations on a consolidated basis was _ 1,686.52 crore, 7.82% higher than FY 2021-22. The core fragrance division (excluding global ingredients) reported a stable performance growing 5.4% more than previous year and the flavour business including acquisition grew by 51.9% growth over FY 2021-22. Keva's steady performance amidst tough market conditions is attributed to multi-level interventions and strategic initiatives taken throughout the year across various business segments.

We mitigated the inflationary pressures better than our peers through a robust inventory management. Maintaining higher than normal inventory kept us well protected against the supply chain disruptions and contributed to business continuity. Continued focus on strengthening our research and innovation and product development helped us to penetrate in new markets, expand our global reach and win more loyal customers. Besides ensuring sustained growth for the Company, this strategy served extremely well for our flavours and fragrance businesses, enabling consistent growth throughout the year. In FY 2022-23, we made steady progress in our natural products portfolio and introduced several new products to attract a larger consumer base. With the substantial revenue potential that the segment presents in the Indian and overseas markets, we are excited to capitalise on the opportunity and escalate our market share.

Key operational highlights

Robust operations underpins the growth of every successful organisation. In the fiscal year 2022-23, we intensi_ed our efforts to bolster our operational capabilities, resulting in significant expansion and sustainable growth across our business segments and diverse geographies. In addition to this, commercialisation of various opportunities will fuel our aspiration of engaging with large global multinationals and achieving fast-paced business expansion across international markets.

Sustainability: Our way of doing business

At Keva, sustainability is not just an afterthought, but a deeply ingrained idea that is at the heart of all that we do. Our goals thus transcend the typical pursuit of growth and profitability; encompassing a comprehensive commitment to sustainable action. We are aligned with the United Nations Sustainable Development Goals with the aim to reduce emissions under Scope 1 – (Direct Greenhouse emissions) & Scope 2 (Indirect Greenhouse emissions) through various initiatives.

Our care for the planet is reflected in our aspiration to minimise carbon footprints. Concentrated efforts are therefore being taken to make our range of products biodegradable. The progress in making our manufacturing plants net zero is also on track and will scale up our sustainability proposition, considerably.

Going forward

We are well-aligned with the macro-environment and placed substantially better in terms of managing our gross margins and profitability. As the market outlook eases, we expect a quick uptick in demand, which will effectuate a non-linear restoration in our performance. Supported by strong fundamentals, extensive product portfolio, in-house raw material availability, commercialisation of opportunities, and strong operational capabilities, we are well-poised to grow faster in the next few years. At Keva, we have always been on a mission to offer sensorial delight and add value to our customers by interpreting the rich heritage of our brand and transferring it to our creations. Going forward, we shall continue to do so by selecting world-class raw materials to create innovative and blissful flavours and fragrances by combining processes, means, resources and creative capital in the most efficient and performing way and building deep and lasting connections with our customers.

In conclusion

I congratulate and thank my shareholders, partners, investors, employees, customers and all other stakeholders for the spectacular 100-year journey, which would have been impossible to navigate without your support and trust. Moving ahead, I look forward to your continued patronage and promise to stay committed to the Company's long-term growth.