S H Kelkar And Company Ltd (NSE: SHK) Q2 2025 Earnings Call dated Nov. 18, 2024
Corporate Participants:
Anoop Poojari — Investor Relations, CDR India
Kedar Ramesh Vaze — Whole Time Director & Chief Executive Officer
Rohit Saraogi — Executive Vice President and Group Chief Financial Officer
Analysts:
Bharat Gupta — Analyst
Dhaval Shah — Analyst
Madhav Marda — Analyst
Abhijit Akella — Analyst
Prakash Kapadia — Analyst
Jatin Damania — Analyst
Rushabh Shah — Analyst
Viraj Mehta — Analyst
Vignesh Iyer — Analyst
Bharat Sheth — Analyst
Parth Shah — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Q2 FY ’25 Earnings Conference Call of S H Kelkar and Company Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you and over to you, sir.
Anoop Poojari — Investor Relations, CDR India
Thank you. Good morning everyone and thank you for joining us on S H Kelkar and Company Limited’s Q2 and H1 FY 2025 earnings conference call.
We have with us Mr. Kedar Vaze, Full-Time Director and Group CEO; and Mr. Rohit Saraogi, EVP and Group CFO of the company. We’ll begin the call with opening remarks from the management, following which we’ll have the forum open for a question and answer session.
Before we start, I would like to point out that some statements made in today’s call may be forward-looking in nature and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.
I would now like to invite Kedar to make his opening remarks.
Kedar Ramesh Vaze — Whole Time Director & Chief Executive Officer
Good morning. Thank you everyone and thank you for joining our earnings call. I trust you have had a chance to review the results document we shared earlier.
We have reported a strong top line performance during the period under review despite a subdued demand scenario in the domestic FMCG industry. This was driven by steady momentum in our small and mid-sized customers, the execution of our prestigious global MNC orders. Additionally, we successfully cleared the backlog from the fire incident, contributing to the first half revenues reaching more than INR1,000 crores, INR1,013 crores to be exact.
On the margin front, the company delivered a resilient performance in H1 FY ’25 despite the impact of the fire incident on operations. Margins improved compared to H1 FY ’24, even as they shifted quarter-on-quarter due to changes in product mix. The investments in Europe and America have also contributed to the cost. The revenues for the same will come in the future quarters.
As we move into the second half, we are confident of sustaining the H1 levels. We remain cautious due to availability challenges in certain key raw materials, which may necessitate price adjustments in the coming quarters.
Moving to our European segment, our core European segment delivered impressive performance this quarter, with revenues growing by 11.5% on a like-for-like basis. Solid profitability was supported by a good product mix, highlighting the strength of our product categories and the opportunity presented by the region’s favorable dynamics. To sustain and further enhance our growth prospects in this high-potential market, we have continued to make strategic investments.
We have launched our Creative Development Center in Germany in June this year and subsequently expanded with an additional center in Manchester, UK, expected to start early next year. These centers are expected to serve as hubs for innovation and act as growth pillars for the coming decades, especially in the European and American markets. This enhanced talent base strengthens our ability to cater to key markets, key customers, positioning us to capitalize on sustainable growth opportunities.
On the Flavor segment, we sustained a healthy performance for quarter one. The division also demonstrated strong profitability, driven by improved market conditions and enhanced operational efficiency. Our Global Ingredients segment has continued its turnaround in quarter two, by further improving profitability. This progress is a result of structural initiatives implemented in the past, combined with ongoing focus on optimizing operations and enhancing efficiency. Looking ahead, the global environment appears favorable, providing opportunities to build on this momentum and drive further growth in this segment.
On our global MNC account, we are pleased to report that execution of orders is secured for FY ’25 and is well underway. This continues to gain momentum. These orders spanning multiple products across several categories are driving significant growth in this account. Our teams, including R&D, perfumers, marketing, are actively collaborating on new business, further strengthening our confidence in the potential to expand this partnership in the coming years. This has positioned us to expand our presence in markets, including India and international markets, and drive sustainable growth.
To conclude, while domestic demand from large customers remains soft, we are encouraged by strong momentum across our small to mid-sized customers and new accounts. Having delivered a healthy performance in H1, we anticipate an even better H2, supported by strategic initiatives and favorable market outlook for our products.
On that note, I would request the moderator to open the forum for any questions or suggestions you may have.
Questions and Answers:
Operator
Thank you very much, sir. [Operator Instructions] Thank you. We will take the first question from the line of Bharat from Fair Value Capital. Please go ahead.
Bharat Gupta
Hi, sir. Thanks for the opportunity and congrats for a good stream of revenue growth which we have been able to witness during the quarter. A couple of questions, sir. First, can you just talk a bit about the volume growth and the price-led growth which we have seen overall in the fragrance space? And what was the contribution coming out from the mid and small-scale space in the domestic front?
Kedar Ramesh Vaze
So, I think two questions. One is the volume and price. So, mostly we had sort of 1% price growth. The remaining was volume growth across entire thing. The second part of the question was?
Bharat Gupta
Sir, the contribution which is coming from the mid- and small-scale customers in the domestic space?
Kedar Ramesh Vaze
So, there has been a shift in — so, when we talk about the business, there has been a big contribution from the global accounts. The remaining mid- and small have contributed roughly 40% of the growth, 40% of the growth has come from the large account, which is a global account. And 20% has come from the mid-sized and large corporate accounts.
Bharat Gupta
And, sir, in the domestic space, has the growth been in double-digit across all the tier of categories of our end customers? Or there has been some contraction with respect to the Tier 1 clients?
Kedar Ramesh Vaze
No, so the Tier 1 clients have shown slow growth. The global accounts have grown fast on a small base. And we have seen good traction in mid and small clients.
Bharat Gupta
Sure. Sir, my second question pertains [Phonetic] to the RM side. So, like, can you just talk a bit with respect to the pricing of our key raw materials? And is there any kind of increase in the availability issues which you talked in the opening remarks? So, can you just brief us about the outlook with respect to the gross margin side for the second half?
Kedar Ramesh Vaze
So, we are cautious. I would say that our gross margin expectation is still around the 44%, 45% that we have reported for the first half. However, there are some raw materials where acute shortages are expected in the fourth quarter or last — first quarter of next year. As of now, we are adequately covered with the stocks in hand. But given the strong growth momentum we are seeing, we may have certain raw material rising or raw material availability issues in the last quarter. This — I think we are well covered in term of inventories at the moment. But there is a sort of a storm on the horizon. And we are just highlighting that this may hit the industry at some point in the first half of next year.
In addition, I would like to say that there is an expectation of a lot of changes in the global economic order after the administration in the United States takes charge in January. So, we will wait and see the impact of that for us in terms of our business.
Bharat Gupta
But, sir, just understanding on, like, if the taxation on China increases by the U.S. government, so in that scenario, will it be helpful for us because we are importing nearly 25% from the China market?
Kedar Ramesh Vaze
Our dependence on China is much lower than that. We have roughly 10% of our value which we are exclusively ordering from China. I think the India side, I am not too much worried on the gross margin. I am a bit concerned on the gross margin scenario in Europe. If the tariffs are extended to EU, or there are different kinds of trade barriers, maybe the raw material prices will go up momentarily. We will wait and see how things play out. On the other side, there is an opportunity for our ingredients division to further boost our exports, given the nature of tariffs that are expected.
Bharat Gupta
Sure, sir. That’s it from my side, sir. I will join in the question queue. Thank you.
Operator
Thank you. The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead. As the participant has left the queue, we will move on to the next question which is from the line of Dhaval Shah from Girik Capital. Please go ahead.
Dhaval Shah
Hi, team. Very good growth on the top line as guided. Sir, a couple of questions. So firstly, the comment you made that H2 should be better than H1, so does that give us around 12% to 15% top line growth on last year’s H2? Is that what we should be expecting?
Kedar Ramesh Vaze
Last year, sales were skewed and H2 was much stronger sales than the H1. Given that base effect, I don’t want to put out an exact number. But our second half will be better than the first half. We are already trending higher and we will be upwards of the 12% CAGR growth that we have indicated as our mid-term growth CAGR. I expect our sales to be better than 12% for the full year. Whether it is 15% in the second half, a little bit more or less, in the full year basis, we will be well in excess of our 12% target. And the second half will be better than the first half by at least — I mean, the initial signs are that it’s much stronger momentum going into this quarter.
Dhaval Shah
Great, great. And on the — in terms of EBITDA margin, now I’m talking about the adjusted EBITDA for the INR10 crore impact of fire. So our adjusted EBITDA for H1 stands at around 16.8%. So should we be — what sort of number should we be building for H2?
Kedar Ramesh Vaze
I think H2 will be similar in term of percentage. I just want to note or put on record that we have now the full cost of Germany and America creative centers which has come on board. This is an additional INR10 crore cost in this period. So we are looking at the result at the moment at 16.8% with this INR10 crore additional cost in the H1. Similarly, we will have another INR10 crores or INR12 crores of cost in the second half. And these initiatives, the revenues will start to come in next year. So there is a time gap between the investments in R&D and the revenue flow that comes in.
I would say that this is putting us in a very good position to take growth across the world, USA, Europe, and all the Asian markets. In scenario where there is a possible slowdown in the domestic FMCG that we are observing, our continued growth will be propelled in new geographies and new customers through these investments.
Dhaval Shah
Correct. So this INR10 crore — so INR20 crore investment in our new centers, could you break that up? So what is the repetition? How repetitive would it be for the next year? Or it’s like a first year operation, so all this establishment expenses or — and some employee costs will also be added. So that will be sitting in the…
Kedar Ramesh Vaze
These are all employee and opex costs. So there is a recurring INR20 crore odd per annum.
Dhaval Shah
Okay. So the INR20 crore is sitting in employee costs plus expenses, both, right?
Kedar Ramesh Vaze
Yeah, yeah.
Dhaval Shah
Combined. Interesting. And, sir, about this inflationary trend which you are witnessing on some of the raw materials. So you mentioned, right now, this increased inventory, what we are seeing on the balance sheet, so that’s — so you are doing a build-up of inventory for how many months, considering the price increase which you are expecting?
Kedar Ramesh Vaze
So this — there are two parts of the inventory build-up. One is because of our new operational reality, we are working in four different sites. So there is more inventory than previously when we were working in one site. In addition, we have high inventories which we have acquired in the early part of the year and made contracts. We expect that the inventory level at this point is at the highest and we will slowly be bringing it down towards the end of the year.
Dhaval Shah
Okay, okay. So — but you are expecting the prices to be higher in Q4 and Q1. And you also mentioned in your comment that you are — as of now, you have stocked up inventory.
Kedar Ramesh Vaze
See, so this is not a comment on all raw materials. There are few natural oils which are currently in a difficult scenario due to bad weather conditions or crop failures in different parts of the world. So specifically products like orange oil, patchouli oil, vetiver oil, these are the key components which is roughly, I would say, 15% of our purchase basket. These are under threat in terms of availability and pricing as of today.
Dhaval Shah
Okay, so now — so would you also be pitching it to the customer that since there is an inflation, what we are watching, then you would be adjusting this inflation in your selling price?
Kedar Ramesh Vaze
We will start the dialogue with our customers. We are hopeful that by February or March, some of these prices may come down. Depending on how is the trend, we will negotiate and discuss with our customers and have the pass-on to the customers.
Dhaval Shah
Got it, got it. Okay, great, sir. Good luck and I will come back in the queue.
Operator
Thank you. The next question is from the line of Madhav Marda from FIL. Please go ahead.
Madhav Marda
Hi, good morning. Thank you so much for your time. The first question I had was, in the initial commentary, you said that in the new market, we are seeing some favorable regional dynamics for which we are making this opex investment. Could you help us understand a bit more in terms of color? Like what is happening on the ground there? Is it sort of some suppliers going out of the market? Or, I mean, what are the favorable dynamics which are helping us?
Kedar Ramesh Vaze
So, strangely, not having a very strong economic growth is favorable for us because we are not the incumbent, we are the challengers. When the markets are looking for value proposition or more private labels or different offerings, it helps us to continue our growth.
Madhav Marda
Okay, there is like a trade-down which is happening there. So basically people are — okay.
Kedar Ramesh Vaze
There is a trade-down. There is also effect of consolidation. So the market is over-consolidated. There are not many mid-sized players. That has helped us to occupy this space which was sort of earlier companies were there but they have been now acquired by the bigger companies. So there is a vacuum created in the mid-sized companies in Europe.
Madhav Marda
Got it, got it. That’s quite clear. And then when you said that — sir, you said that H2 will be better than H1, is that a seasonal thing or in fact are we just seeing momentum in portfolio from some of the reasons which you flagged in the earlier commentary? How should we look at that?
Kedar Ramesh Vaze
So H2 normally is stronger than H1. This is a normal seasonality or trend. Every quarter four or quarter three, quarter four is always higher than the first two quarters of the year. We don’t see it any different this year. I think there is — while the market as a whole in some parts in India and others is growing at a smaller percentage growth, I think some of the supply scenario, despite the incident we had, we have been able to maintain good supply. And this has enabled us to continue to grow and actually gain some market share in some of the other small and mid-sized segments.
Madhav Marda
Okay, okay, got it, got it. Understood. Just the other question was on the margin side. I think we are at 16.8% in first half despite us having spent this extra INR10 crores on creative centers. So clearly, we’re trying to — we could have maybe had high-teens margins but we’re trying to invest for future growth. But at the same time, I think we do have this view that in a few years, we can reach the 20% EBITDA margin range. So is that something which can still happen like in a two, three-year view as maybe some of these costs which you’re spending right now, revenues are coming in, so we can move closer to those margins? Is that something which is still on the horizon?
Kedar Ramesh Vaze
Yes, so I think what we are looking at is a sustainable or the baseline EBITDA, and then what are we investing for growth. So for European market, for example, with the Germany and Manchester expected to come in early next year, we would have done a full investment on the development, so we will not have any development center increase or growth in the future. So we are now sort of fully invested in the creation development centers in Europe after this set of investments. We are starting American journey with small investment. We’ll have to ramp up there as business grows. We will ramp up some investments in the U.S.
But European business, which is roughly 45 million, 50 million this year, with the Germany development center, we would be kind of at a full strength. And then we don’t need to — so there will be no step-up and step-jump investments. And we are looking at investment as we grow few people, more people, more account managers, things like this, maybe some investments in the production facilities as we are reaching the limit of our current facilities. But right now we have taken big jumps in the investment quantum, so roughly INR25 crores to INR30 crores annualized basis extra investment we have done this year. So that kind of big jumps will not be there in the near future.
Madhav Marda
Because that’s a fairly large number, right? Because, let’s say, our first half, we did about INR1,010 crore revenue and we’ve invested about INR10 crore, INR15 crores extra, which means almost 100, 150 basis points of margin. It’s front-ending some opex, right? Is that the way we should look at it? Otherwise margins are closer to 18% already for us.
Kedar Ramesh Vaze
That’s correct.
Madhav Marda
Okay. Okay, yeah, thank you.
Operator
Thank you. The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Abhijit Akella
Hi, am I audible?
Operator
Yes, sir, please proceed.
Abhijit Akella
Yeah. Good morning. Thank you so much for taking my questions. First one is just on the revenue growth side. I missed a little part of the call, but I heard you say that second half, we should be at least 15%-plus in terms of revenue growth. I just wanted to confirm that, that is indeed the expectation. And then for next year, as these new creative development centers in Germany and U.K., etc., start to pay off, how much of an incremental contribution can we expect from them? And will that be over and above the 12% growth we normally talk about?
Kedar Ramesh Vaze
Yeah, so the development centers in Germany and Manchester will not really create much direct revenue in this year. They are started now. We are already seeing benefits of having the centers in terms of quick turnaround on certain projects which we are already making and so on and so forth. So there is benefit. But if you see specific large clients or new geography revenue, it will take at least another six to eight months before any meaningful revenues will start to come in.
On the revenue guidance, like we said, the second half is expected to be better than the first half. I would expect to reach around INR2,100 crores [Phonetic] or something like this number for 14% odd for the full year. This is subject that no major changes happen between now and the end of the year.
Abhijit Akella
Understood. Thank you. And with regard to the capex progress and the insurance receipts, the insurance claims, we’ve done INR47 crores of capex in the first half as per the cash flow statement. What’s the full year number we should look at? Does that include the Vanute [Phonetic] growth as well as the Vashivali rebuild? And how do we see that sort of trending as we reach closer to year end or maybe even next year?
Kedar Ramesh Vaze
So I think in the second half, we would have roughly around INR50 crores and the first half next year another INR50 crores of capex, out of which almost INR100-odd crore would be the reinstatement of the Vashivali factory itself. So I expect a new capex of roughly INR50 crores to INR60 crores, which will generate the — or which will give us the factory. And we will end up with two factories, which we are building at this point. So incremental capex after insurance, the reimbursement would be roughly INR60 crores. That’s the expectation.
We are also looking at the next two years of quite heavy investments in term of manufacturing capacity in Europe. We are reaching 75%, 80% plus utilization in our current plants. We expect at least 18 to 20 months of time for building the new facilities. So I’m looking at something like a INR50 crores additional outlay,
Second half of next year, which would be in terms of European factory building and capacity building. Given good, strong double-digit growth, we may look at another factory in Europe to de-risk and have two factories with sufficient capacity. So there is sort of a blueprint of around INR45 crore to INR50 crore investment in a factory.
We are clearly looking at two in this year and next year, in addition to the Vashivali rebuilding. And we may look at one more factory in Europe in the year after. So in between now and sort of three years, we are looking at three to four factories being built across this. In that two-year period, we will shut down — close our factory in Mulund [Phonetic]. So there will be an opex saving in terms of lease and the old factory which we are operating in Mulund will be closed down.
Abhijit Akella
Okay, so this will be about — for the three, four factories will be about INR200 crores of total spending, right, in addition to the normal annual capex, we have, say, INR50 odd crores?
Kedar Ramesh Vaze
So there is no — the normal capex is less than INR10 crores, INR12 crores, INR15 crores for what we call maintenance capex. That will be lesser because we have now the new development center investment already done.
Abhijit Akella
Got it. Thank you. And just one last thing before I get back in the queue. On the global account that we have won, is that scaling up as per our original expectations? We had mentioned about $10 million-plus possibly for this year. So if you could please just update us on that. And one other thing was just in the context of all these antitrust lawsuits and raids against global MNCs in Europe and the U.S. against the likes of Givaudan and the others, is that sort of helping open up doors for the next-tier players like ourselves to win business in these geographies? Thank you.
Kedar Ramesh Vaze
So on the global account, we are trending as expected. So we are on track. To your question on antitrust investigation, etc., yes, that does open up opportunities for mid-sized and other players like us.
Abhijit Akella
Thank you. I’ll come back in the queue for more.
Operator
Thank you. The next question is from the line of Prakash Kapadia from Spark PMS. Please go ahead.
Prakash Kapadia
Yeah, thanks. Two questions from my end. You mentioned in the presentation and in your opening remarks, there is a shift in product mix, which has led to a fall in gross margin. So, can you explain this in more detail? So is it fair to say, personal wash or hand wash…
Kedar Ramesh Vaze
Just to explain that more, I think the first half of — first quarter of this year, due to the fire incident, we prioritized orders and execution towards the higher-margin products. And some of the lower-margin or some of the backlog went into the second quarter. So roughly INR25 crores, INR30 crores of business was carried over to the second quarter. That was at a lower margin. Therefore, the composite margin of second quarter is muted. Typically, the H1 margin, gross margin is representative of the business as a whole. So there is no backlog carried forward from the H1.
Prakash Kapadia
Okay, so that — due to some of this execution happened, that is why we are saying that. Understood. And you also mentioned about the inventory build-up in the PPT and in the opening remarks. So how do we relate this build-up at a time when domestic demand is soft? So is there more visibility from the global MNC accounts or some new accounts which has led to this build-up? And as of now, you also mentioned the plant rationalization. Earlier, there were lesser plants. So that includes global and domestic or is it just domestic, the increase in plant?
Kedar Ramesh Vaze
No, the plant includes all manufacturing for all customers. The inventory build-up has been quite high. At this moment, the raw material prices have remained soft. So we have been able to build up inventory at good pricing. We expect to start to control this inventory as we speak. As you can understand, the major efforts in the first half of the year were to stabilize the production and ensure availability to all the customers as a result of the operational disruption. Today we are in a new normal where the factories are producing and there is warehouse and so all the facilities, that alternative facilities are up and running and they are fully producing in time to all the customer demand. Now, in the new normal, we will start to focus on the inventory and to reduce the overall inventory to normal levels.
Prakash Kapadia
Okay. So as in year end, we should estimate a lower inventory and maybe a lower debt. Is that right understanding?
Kedar Ramesh Vaze
On the debt piece, I think we expect some amount of monies to come in from the insurance between now and end of the year, probably December, January, we expect insurance payout to start to flow in. So yes, we will have a lower debt in the end of the year. Also, operationally, we are reducing the debt as we generate free cash flow month-on-month. Plus, we have the expectation of the insurance payout before the end of the year.
Prakash Kapadia
Sure, sure, that is helpful. Thank you.
Operator
Thank you. The next question is from the line of Jatin Damania from Svan Investments. Please go ahead.
Jatin Damania
Hi, sir. Thanks for the opportunity. So, sir, basically, I just wanted to confirm whether our growth guidance for FY ’26 and ’27 remains intact in terms of top line and margins?
Kedar Ramesh Vaze
Yes.
Operator
Mr. Damania, you’re not audible, sir.
Jatin Damania
Yes, sir. That’s it from my side. Thank you.
Operator
Thank you. The next question is from the line of Rushabh Shah from BugleRock PMS. Please go ahead.
Rushabh Shah
Yeah. Thank you for the opportunity. I have some questions from my side. So, sir, how is your team divided between perfumers and flavorists? How many you have? Because these are the most important people…
Operator
I’m sorry, sir. Mr. Shah, your audio is not clear. May I request you to use your handset, please?
Rushabh Shah
Yeah. Is it clear now?
Operator
Yes. Much better. Thank you.
Rushabh Shah
Sir, how is our team divided between perfumers and flavorists? And how many — these perfumers and flavorists you have? Because these are the most important people we have in our business. And how many have you added these perfumers and flavorists in the past five years?
Kedar Ramesh Vaze
So we are one of the few companies that trains the perfumer and flavorist in-house. We take roughly three to four people as trainees every year. And we continue to train them and build in-house perfumers. We have more than 20 perfumers and adequate flavorists for the business. In terms of fragrance and flavors, we are sort of 75% fragrance and 10% flavor. So in that ratio, adequate perfumers and flavorists are in with us.
Rushabh Shah
And sir, how are these ratios compared to the Givaudans and IFFs of the world?
Kedar Ramesh Vaze
They are very similar. So the Givaudans, IFFs of the world would have 120, 130 perfumers worldwide. We have around 20. So it’s comparable.
Rushabh Shah
Sir, as you said that we are adding and we are training these perfumers, so from where do you pick up these perfumers and flavorists, sir?
Kedar Ramesh Vaze
We — where do we take up?
Rushabh Shah
Yeah, from where…
Kedar Ramesh Vaze
We hire people in our company from various institutions and we — chemists or science graduates. And we have also in our VG Vaze College a course called Postgraduate Diploma in Perfumery and Cosmetic Management. This course also has around 24 students every year. So this is a input for us and we take seven, eight trainees from this every year.
Rushabh Shah
Okay. So my next question is, so the key moat of our business — of our industry, sorry, is the stickiness of the customer. So has there been any instances in the past that the FMCG player has changed their supplier? If yes, then what could be the reason?
Kedar Ramesh Vaze
So the change of supplier is quite low in our industry. It does happen, but it’s quite low. If I — I mean, I cannot give you any specific instances off the top of my mind, but the instances are quite low.
Rushabh Shah
Okay. So has S H Kelkar been changed to — like, if there was supplier A to some big customer and has S H Kelkar taken the place of that supplier? Has that been — in the past, has it happened?
Kedar Ramesh Vaze
No. So it does happen, but it’s not — our main growth strategy is not replacing somebody else. Our growth strategy is to take business from new products and new geographies. When we are particularly in the new markets, we are replacing or we are taking part of the market share from some of the existing companies. It does happen, but it’s quite low.
Rushabh Shah
Okay. So my last question is — then I’ll get back in the queue.
Operator
Sorry to interrupt, sir. I will request you to join the queue.
Rushabh Shah
Sure. Sure. Okay.
Operator
Thank you so much. We’ll take the next question from the line of Viraj Mehta from Enigma [Phonetic]. Please go ahead.
Viraj Mehta
Yeah. My questions have been answered. Thank you.
Operator
Thank you.
Kedar Ramesh Vaze
Thank you.
Operator
The next question is from the line of Vignesh Iyer from Sequent Investments. Please go ahead. Mr. Iyer, please proceed with your question.
Vignesh Iyer
Hello. Am I audible now?
Operator
Yes, sir. Please proceed.
Vignesh Iyer
Yeah. Thank you. Sorry. Thank you for the opportunity. So I wanted to — the first question is more on the utilizations part of it. Can I understand what is our utilization percentage in H1 as of now? And this INR200 crores total capex that we are going to spend over this year and next year, what will be the percentage addition that would come to our total capacity post that? And if you could also help me understand the time line for the same?
Kedar Ramesh Vaze
So right now we are at more than 85% utilization of our facilities. With the rebuilding of the Vashivali and Vanute factory, we will add almost 2 times additional capacity. And one — so that is on the domestic. And we are proposing to add one more factory which would give us roughly 50% additional capacity in the European context.
Vignesh Iyer
So if I got it right, you will add 150% more to what it is right now, right?
Kedar Ramesh Vaze
We will add — so in India, we will add 200% to what it is right now. In Europe, we will add 50%.
Vignesh Iyer
And what is the time line for this, for the factory to start?
Kedar Ramesh Vaze
Over the next two years.
Vignesh Iyer
Got it. Got it, sir. And one more question. I see your European part of the performance where we have seen increase in gross margins, but there seem to be some impacts on the EBITDA margin part of it. Can I understand why the EBITDA margin on Y-o-Y basis is lower despite increasing gross margins?
Kedar Ramesh Vaze
Yeah. So basically, there is no specific change. The EBITDA percentage is 20.5% vis-a-vis 21% last year. So it’s very marginal on the overall growth of 11.5%. So there is no change in the business or like-for-like profitability of the company, European operations.
Vignesh Iyer
Yeah. But your margin — gross margins have gone from 54% to 57.5%. So that is a 300 — 350 bps improvement. But our EBITDA has gone down by like 70 bps. So net-net 420 bps down in EBITDA, if I understand it right. So is there any one-time expenses involved in that?
Kedar Ramesh Vaze
No, no. This is purely a product mix issue. When you look at the gross margin, you look at the product level. But when we have smaller batches, then our net margin is the same. So this just shows us — shows you that the growth has come from smaller and newer clients.
Vignesh Iyer
Got it. Got it. Thank you for that. I’ll get back in the queue, sir. And all the best. Thank you.
Operator
Thank you. The next question is from the line of Bharat Sheth from Quest Investments. Please go ahead.
Bharat Sheth
Hi, Kedar and Rohit. Thanks for the opportunity and congratulations on good top line growth. So the question is that in the first half, we have spent INR10 crore on this — the opening of this new development center. Is that correct? Hello?
Operator
I’m sorry, sir. The management’s line has been disconnected. Please stay connected while I reconnect. Ladies and gentlemen, thank you for patiently holding. The line for the management has been reconnected. Over to you, sir.
Bharat Sheth
Hello?
Kedar Ramesh Vaze
Yeah. Bharat bhai, please ask your question.
Bharat Sheth
Yeah. Kedar, you said that we have spent around INR10 crore on opening of these few new CDC center, correct? Is that correct understanding?
Kedar Ramesh Vaze
Yes.
Bharat Sheth
So in addition to that, also we have incurred INR10 crore odd because of this fire incident. So INR20 crore additional, I mean, one kind of we can attribute to first half?
Kedar Ramesh Vaze
That’s correct. I think that out of that, the loss of profit due to fire incident has been added back in the adjusted EBITDA.
Bharat Sheth
Okay. So in second half, this INR10 crore which was on the fire incident will not be there. Is that correct? Only INR10 crore will be reported?
Kedar Ramesh Vaze
No, it will be there and it will be exactly as the same as the first half.
Bharat Sheth
Okay, okay. Sir, in first half, we have reported 15.81% kind of EBITDA margin. So second half will be in the same range?
Kedar Ramesh Vaze
Yes, I expect it to be in the same range, slightly better.
Bharat Sheth
Okay, okay. And coming to this — I mean, this new factory that we were planning, when we do expect to start? One we were expecting somewhere in the month of the March. So when do we expect in Vashivali, when we can really come up?
Kedar Ramesh Vaze
So the factory expected — the new factory in Vanute is expected to come up in first quarter calendar next year, so fourth quarter. Vashivali, which is the rebuild of the factory, will still take another 9 to 10 months before it is rebuilt.
Bharat Sheth
Okay. And then Mulund will be phased off post Vashivali recommissioning, correct?
Kedar Ramesh Vaze
That’s correct.
Bharat Sheth
Sir, with this, I mean, as you were earlier alluding that overall inventory will also come down with this new factory starting, I mean, working on more than [Indecipherable] for kind of efficiency. So how much inventory, say, end of the FY ’26 really can come down?
Kedar Ramesh Vaze
So I think the absolute value of the inventory, I don’t expect it to come down dramatically, but the sales will ramp up another 10%, 12%, 15%. So there, automatically, the base stock will come down. DSO will reduce to around 135 days.
Bharat Sheth
Okay. And secondly, because of this, as what we understand, this large global MNC account has also lower gross margin. So is it possible to understand what kind of an impact that they have in this quarter particularly?
Kedar Ramesh Vaze
So there is no impact of that. The gross margin, what we have, is composite average, including the global account. So 45% is including the global account.
Bharat Sheth
And we expect to remain at 45% level in second half also.
Kedar Ramesh Vaze
Yes.
Bharat Sheth
Okay, and to understand, I mean, this large — small FMCG account, MSME account, where we are ramping up and Indian FMCG, we are seeing some softer growth. So is there a profitable — I mean, differential in the profitability between these two business?
Kedar Ramesh Vaze
Not substantial. There will be 1%, 2% differential in the type of business, the small versus mid and large. Product-wise also there is differences, but in average, there is not much difference. As you see, the smaller accounts, you will see a higher gross margin, but there will be more overhead and operating costs. Larger accounts, the gross margin is lower, but the net operating cost to maintain and produce that product is also lower.
Bharat Sheth
Okay. And sir, if you can give some little more color on insurance claim, the kind of a conversation we are having with the insurer. So how much do we expect to receive in this particular quarter and next quarter?
Kedar Ramesh Vaze
So we have filed the claim, it is in the process. Final claims we’ll get in with the insurer anytime now, and we expect by December, January, substantial payments to start to come in. The plant and machinery capex reinstatement will only happen once we have rebuilt the plant. So that is a reimbursement of the insurance amount.
Bharat Sheth
So first time, we are expecting around INR100 crore kind of payout from the insurer. Is that fair understanding?
Kedar Ramesh Vaze
Yes. So the inventory amount should be paid out first, and the capex amount, as we incur the capex, the insurance will reimburse us at the reinstatement basis.
Bharat Sheth
Okay. Okay. And now with — I mean this kind of — I mean this INR20 crore — plus INR20 crore kind of additional expenses that we have, which may not be there, but I mean, say, out of INR20 crore, revenue will start, I mean, kicking in. So what kind of a — I mean, while reaching to the next three [Phonetic] year target of 20% EBITDA margin, we can expect the improvement?
Kedar Ramesh Vaze
So we are at the around 16% EBITDA margin with the full investment of new growth areas, which are not contributing any revenue at the moment. So this INR20 crore, probably a full year basis, INR30 crores of new investment will then start to generate additional revenues. That will take one or two years time. So effectively, we are today at the 18.5% EBITDA minus the additional investment of 2% odd, which we are putting for new growth markets.
Bharat Sheth
Okay. Thank you very much and all the best.
Operator
Thank you. The next question is from the line of Parth Shah from Tara Capital Partners. Please go ahead. Mr. Shah, you’re not audible.
Parth Shah
Hello. Am I audible now?
Operator
Yes, please proceed.
Parth Shah
Hi, sir. Thanks for taking my question. Firstly, I wanted to know the contribution of the mid and small customers which you mentioned. I missed out that. If you could just repeat.
Rohit Saraogi
Contribution of — sorry, can you repeat your question, please?
Parth Shah
The contribution of mid and small customers.
Kedar Ramesh Vaze
Yeah. So the growth rate has been higher on the smaller and global account. So it is kind of 40% of the growth has come with small and mid-sized accounts and 40% has come from the global account.
Parth Shah
Okay. Got it. And secondly, you mentioned about the impact of administration change in the US and also some export opportunity. So if you could just repeat that because I missed those. Sorry for the inconvenience.
Kedar Ramesh Vaze
I have not said anything further. We just need to wait for the actual data and actual what the new administration does undertake tariffs, how they are implemented, on what product, which country and so on and so forth. But I see there an opportunity for India as a whole to take some business away from the Chinese suppliers in this kind of overall global supply chain. So that’s an opportunity which we are weighing as an additional area for growth.
Parth Shah
Okay. Got it. Thank you. That’s it from my side.
Operator
Thank you. Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Kedar Ramesh Vaze
Thank you. I hope we have been able to answer your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our team or CDR India. Thank you once again for taking the time to join us on this call.
Operator
[Operator Closing Remarks]