S H Kelkar & Company IPO  – Should you subscribe?

S H Kelkar & Company IPO - Should you subscribeS H Kelkar & Company IPO  – Should you subscribe?


S H Kelkar & Company IPO would open for subscription on 28th October, 2015. S H Kelkar & Company is a leading fragrance manufacturer in India. Fragrances and flavours are found in a number of bestselling brands in their respective product categories all over the world. Its revenues have grown at 15% CAGR in last 5 years. It earned over 10% margins in last couple of years. What are the positive factors of S H Kelkar & Company IPO? What the risk factors of investing in S H Kelkar IPO? Should you invest in such IPO or not?

About S H Kelkar & Company Ltd


S H Kelkar & Company is one of the largest fragrance and flavour companies in India by revenue, with a market share of approximately 12.0% for the year ended December 31, 2013 (Source: “Market Study on Fragrances and Flavours” by Nielsen, March 22, 2015). They are the largest domestic fragrance producer in India with a market share of approximately 20.5% for the year ended December 31, 2013 (Source: “Market Study on Fragrances and Flavours” by Nielsen, March 22, 2015), with exports of fragrance products to 52 countries. It is an emerging flavour producer in India with exports to 15 countries.  Its fragrance manufacturing plants in Mumbai and Raigad in Maharashtra comply with the regulations of the International Fragrance Association (“IFRA”) and its flavour manufacturing plant in Raigad in Maharashtra is registered with the United States Food and Drug Administration (“US FDA”).

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Issue details of S H Kelkar & Company IPO


  • IPO opens: 28-Oct-2015
  • IPO closes: 30-Oct-2015
  • Face Value: Rs 10 per share
  • Issue price band: Rs 173 – Rs 180 per share
  • Minimum Shares: 80 shares and in multiples of 80 shares there-of
  • Minimum amount: Rs 13,840
  • Issue size: Rs 200 Crores
  • Lead Managers: JM Financial Institutional Securities Ltd & Kotak Mahindra Capital Company Ltd
  • Listing: BSE / NSE
  • Download S H Kelkar & Company IPO Prospectus at this link

Purpose of the IPO


  • Repayment/pre-payment of certain loans
  • Investment in KV Arochem Pvt Ltd
  • General corporate purposes

Company Financials (standalone, reinstated)


  • Company generated revenue of Rs 288.53 Crores for the year ended Mar-11 and Rs 505.08 Crores for the year ended Mar-15.  It earned revenues of Rs 139.63 Crores for 3 months ended Jun-15.
  • Company posted a Profit of Rs 23.97 Crores for the year ended Mar-11 and a Profit of Rs 54.96 Crores for the year ended Mar-2015. It earned profit of Rs 15.82 Crores for 3 months ended Jun-15.
  • Its standalone diluted EPS for FY 2015 is Rs 4.13 and last 3 years average EPS of Rs 3.43. Its 3 months ended Jun-15 EPS is 1.19.

S H Kelkar & Company IPO - Financials

Reasons to invest S H Kelkar & Company IPO


  • Good revenue growth in the last few years. It has grown at 15% CAGR. Revenues increased by 1.75 times in last 5 years.
  • Consistent margins of over 10% in last 2.3 years.
  • No listed peers in similar business in India.

Reasons not to invest in S H Kelkar & Company IPO


  • Success of its products depends on customers’ ability to identify market trends and customer preferences early on and to leverage this information successfully. Its customers’ inability to do so would adversely affect its cash flows, business, financial condition and results of operation.
  • There are outstanding litigations involving Company, its Promoters, its Directors, its Subsidiaries and its Group Companies.
  • Increasingly stringent regulatory environment with regard to food, cosmetic ingredients and FMCG could result in stricter standards being applied to its products, which could cause to incur substantial costs, which may have an adverse effect on its business and results of operation Breaches of laws, rules and regulations applicable to company could adversely affect its business, results of operations and financial conditions.
  • Breaches of laws, rules and regulations applicable to us could adversely affect its business, results of operations and financial condition.
  • The increasing competition and growing trend towards consolidation in the fragrance and flavor industry can result in declining prices and weaken its market share, which could adversely affect its business, financial condition and results of operations.
  • Intense competition and consolidation in the FMCG industry may lead to increased price pressure on its customers. If they are unable to compete effectively, company sales and results of operations will suffer.
  • As part of company growth strategy, they plan to grow its flavour business, and if they are unable to implement its growth strategies successfully, its business and results of operations may be adversely affected.
  • Company do not have long term agreements with a majority of its customers and suppliers.
  • Company had negative cash flows from its investing and financing activities in the three months ended June 30, 2015 and the last three financial years.
  • Some of its Group Companies have incurred losses in the last three financial years.
  • Other risk factors (Internal and external) can be viewed in prospectus Page no. 14 onwards.

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Recommendation / Investment strategy:

  • At an upper price band of Rs 180 and on last FY14-15 EPS of Rs 4.13 and last 3 years average EPS of Rs 3.43, P/E ratio works out to be between 43x to 52x times. There is no listed peers in similar business in India, hence we cannot say whether issue price is overpriced or underpriced.
  • S H Kelkar & Company revenues have been growing consistently in last 5 years.  It generated good margins of over 10% in last couple of financial years. Issue price looks on higher side considering 43x to 52x asking price. Though, company has good revenue growth and consistent margins, Currently I am neutral on this IPO. After listing, if share price drops, one can look at buying such stocks.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh
S H Kelkar & Company IPO

2 comments

  • ROHAN ADC

    Hi Suresh,

    Awaiting your reply

  • ROHAN ADC

    Hi Suresh,

    Must say you are like an online tool to help improve the financial literacy of financially illiterate people like me.

    I read your article “12 tips on how to research stocks for long term investments”.

    Must say the article us really helpful in understanding and analysing stocks.

    But I want to understand the following

    Let’s take an example of SH KELKAR

    as per your article I mentioned above, an increasing EPS, increasing revenue, are a good sign

    Now SH KELKAR has posted good revenue earnings for the past few years, also the EPS is increasing.

    But the PE is around 35-40 (as per money control.com)

    I had a look at its investor ppt.

    It has good forecasts for years to come and upward moving growth in terms of flavors segment.

    Now daily trading volume is a worry also there are a lot of sellers and less of buyers.

    But then like Mr buffett said, buy when everyone is selling. I am doing the same considering the revenue,EPS, future growth forecast as well as Blackstone being one of its investors.

    Can you let me know your take on the stock?

    I currently have 175 shares at an avg price of 235 each.

    I somehow have a feel good intuition about this company

    What’s your opinion?

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