S H Kelkar And Company Ltd (NSE: SHK) Q3 2025 Earnings Call dated Feb. 17, 2025
Corporate Participants:
Kedar Vaze — Group Chief Executive Officer
Rohit Saraogi — Executive Vice President, Group Chief Financial Officer & Company Secretary
Analysts:
Mit Shah — Analyst
Bharat Gupta — Analyst
Rushabh Shah — Analyst
Jainam Ghelani — Analyst
Prakash Kapadia — Analyst
Rohit Nagraj — Analyst
Unidentified Participant
Sandip Sabharwal — Analyst
Amit Jain — Analyst
Amrish Kacker — Analyst
Presentation:
Operator
Please wait while you are joined to the conference. The conference is now being ladies and gentlemen, you’re connected to the SH Earnings Conference Call. This call will begin shortly. Please stay connected. This is for the SHKL Car; Company Limited Earnings Conference. This call will begin shortly. Please stay connected. Thank you ladies and gentlemen, good day and welcome to the SHKL Car Company Limited’s Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zer on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr Amit Shah from CDR India. Thank you, and over to you, Mr Shah.
Mit Shah — Analyst
Thank you. Thank you,. Good morning, everyone, and thank you for joining us on SHK Company Limited’s Q3 and 9 M FY ’25 Earnings conference Call. We have with us Mr Kedar, Director and Group CEO; and Mr, EVP and Group CFO of the company. We will begin the call with the brief opening remarks from the management, following which we will open the forum for a Q&A session. Before we begin, I’d like to point out that certain statements made in today’s call could be forward-looking in nature and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would like to invite Mr to make his opening remarks. Thank you, and over to you, sir.
Kedar Vaze — Group Chief Executive Officer
Thank you. Thank you. Good morning, everyone, and thank you for joining our earnings call today. I appreciate your time and interest in our performance and the trust that you have reviewed the results documents shared earlier. We maintained strong momentum during the period, driven by robust revenue growth. Domestic FMCG industry continues to witness subdued demand, but we saw some steady traction across all our segments, particularly in the small and mid-sized accounts. This drove consolidated revenues for the next nine months FY ’25 to INR1,556 crores, reflecting a strong 17% growth year-on-year. While the FMCG landscape is evolving with newer players emerging, our ability to work across a broad-spectrum of customers from large global companies to emerging small players has benefited us enormously. On our European segment continues to perform well with core business revenues growing by 11.8% on a like-for-like basis. Demand in key international markets remain steady, supported by a strong product mix and favorable regional dynamics. Euro remains a high-potential market for us, where we are making strategic investments to strengthen our presence and enhance our market-share. Focusing on the gross margin, during the quarter, gross margins were impacted by higher raw-material prices, which have increased faster than anticipated. While near-term pressures persist, we expect margins to normalize as raw-material availability improves and impact of our pricing actions materializes. Given the ongoing geopolitical uncertainties, we remain cautious and continue to focus on our inventory management to mitigate risk. EBITDA margin for nine months period, excluding investments in newer geographies stands at a healthy 17%. While these investments have resulted in higher-cost, they are strategic and essential to strengthening our long-term competitive position and to expand our footprint in new markets and with global MNC accounts. We are confident that over the next three years, these investments will drive higher market-share, operating leverage and sustained value-creation for both domestic and international markets. Coming to the Flavor segment, we delivered healthy revenue growth, recovering strongly from a low-base last year. Alongside top — top-line growth, we delivered healthy profitability, improved by — is supported by improved market conditions, deeper customer engagement and better operating efficiency. Meanwhile, the turnaround of our Global Ingredients segment remains on-track with segment continuing its recovery. This progress is driven by structural initiatives undertaken in the past such as backward integration, coupled with ongoing emphasis on optimization on the operations and efficiency. Looking ahead, the global environment for exports out of India appears favorable, providing opportunities to build-on this momentum and accelerate growth in this segment. Coming to our balance sheet position, the net-debt stood at INR703 crores as of December 31 December 2024, reflecting the impact of ongoing inventory replenishment following the Q1 incident and capital expenditure at the facility. Additionally, there is a delay in collecting GST refund of over INR50 crores on the export sales, which has been pending with the government for over two years, impacting our cash flows. While we continue to pursue these claims, we remain committed to maintaining financial discipline and also actively engage with our insurers with a partial claim settlement expected in the coming months. As we move forward, we remain committed to driving sustainable growth in strengthening our global market position. The alternate production site is not fully operational. Our efforts have been directed towards driving efficiency and reducing inventory and we are confident that our dedication to creating shared value for all stakeholders please stay connected. We seem to have lost the line for the management. Please stay connected.
Operator
Participants, please stay connected. We seem to cross the line for the management. Yes, sir, you’re connected. Please go-ahead.
Kedar Vaze — Group Chief Executive Officer
Yeah. Where did you last year? Disconnected
Rohit Saraogi — Executive Vice President, Group Chief Financial Officer & Company Secretary
You are mentioning that you are conf confident, hello,
Kedar Vaze — Group Chief Executive Officer
Yeah, yeah. Did I cover the insurance,
Rohit Saraogi — Executive Vice President, Group Chief Financial Officer & Company Secretary
Please? Yeah, you covered that part. You probably in the last line,
Kedar Vaze — Group Chief Executive Officer
So we are confident that we are — the dedication will create face value for shareholders in the long-term. With that, I invite the moderator to open the floor for questions. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask questions may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from Bharat Gupta from Fairvalue Capital. Please go-ahead.
Bharat Gupta
Hi, Kidar. I hope I’m audible. A couple of questions from my side. So just wanted to check what will be the investment spend during the quarter three in terms of the CE creative development center and how you are going to stand-out there in the race Q4.
Kedar Vaze
Please you want to answer that?
Rohit Saraogi
Yeah. So Bharat, your question is towards the new investment we are putting?
Bharat Gupta
Right.
Rohit Saraogi
Yeah. So in Q4, it was in the range of INR12-odd crores and full-year we’ll look at around INR45 crores to INR48 crores.
Bharat Gupta
So till for FY ’25, it will be towards INR45-odd crores.
Rohit Saraogi
They are a bit lower because over a period we have increased the spend. So quarter three is on an annualized basis will come to some INR45 crore INR48 crores.
Bharat Gupta
Okay. Just also like in terms of you mentioned about the synergy playing out with us with respect to the investments which you are making. So just wanted to check, will it be towards the US subsidiary or how you want to further leverage position with the MNCs out there in the RFQ space? So this investment is dedicated to that particular side
Kedar Vaze
No, the investment is in the two geographies in Europe, UK and USA. And lastly on the product development teams, which are being hired and put in-place in these areas. This allows us to work-in these markets, UK, generally Europe and American market and at the same time, engage with the global agency at their headquarters. So it has dual purpose. We are looking at growing our market-share and markets in the local markets in American market as well as the European market. In addition, it will help us with the global MNC account?
Bharat Gupta
Okay. Coming on the gross margin front, so you — like what has been the key reason attributable for a sudden spread in the raw-material prices? Is it supply constraints?
Kedar Vaze
Like how globally geopolitical — politically how this quarter we have seen such a — gross margin changes are largely to on few natural products which have come for quite a substantial part of the cost. So these are owing to a drought situation in Indonesia and Brazil, respectively in the last year, resulting in the increase in the natural cost. In addition, first-half of the year, we were unable to pass-on any price increases to our clients due to the incident and supply-chain disruption. So we have not taken any price corrections in the first-half. So we sort of expected some compression of gross margin, not to the extent that actually played out, but we expected some compression of gross margin. And as a policy, we have increased the pricing in this quarter and we expect the gross margins will restore over the next year. So our Q1 rate for nine months, we are still at 44% gross margin. So we don’t expect this to fall further down.
Bharat Gupta
Right. Just also in terms of the guidance, if any colors which you can provide with respect to FY ’26? And because primarily given the text relief, so how do you see the order inquiries playing out from the FMCG players for the upcoming year.
Kedar Vaze
So we are continuing to be committing to our 12% CAGR which we had set-out last year and we are continuing to see that as our trend-line for the mid and longer-term. This year we are ahead of the current year, almost 17% on the Nine-Month to Nine-Month comparison. So that will be end is a strong year. We look at some signs of slowdown in some pockets in the days coming ahead and good growth opportunities in other pockets. So we see that double-digit plus growth we will be able to maintain on the longer-term. With the second year or 18 months from now and all the large investments in Europe and other development centers, we will kick-start next leg of higher-growth from 18 to 20 months from now.
Bharat Gupta
So for 18 to 20 months, 20% kind of a growth seems on card for us. And the signs of slowdowns you are mentioning that pertains to the businesses which we are deriving from the small and medium enterprises or it can be with respect to large accounts?
Kedar Vaze
No, the slowdown is largely in the domestic Indian large accounts. We are seeing momentum. It’s not de-growth, it is growth, but it is a slower-growth than it was, let’s say, last year or early part of this year. So we are seeing growth, but the momentum has slightly eroded, I would say, towards the last quarter or for last month of the 3rd-quarter after Diwali, the momentum has been slow. We expect it for the full-year to be normal, but at the moment it is subdued on the larger accounts.
Bharat Gupta
Right. So there has been some sort of a deferment with respect to the new product launches from the large accounts, from the domestic large accounts in a way.
Kedar Vaze
And there is — I don’t think there is deferment of new products, but overall volume and pricing this is I think the inflation and the existing saturation of some of the products is resulted in not rapid growth.
Bharat Gupta
Right. And margins will be able to maintain over 16% to 18% for the upcoming year.
Kedar Vaze
Yes, the margins are at the moment subdued due to these new investments. Next year, the margin should be in the same range 16% to 18%.
Bharat Gupta
Sure. That’s it from my side. Thank you so much,, for answering all the questions.
Operator
Thank you. Thank you. Before we take the next question, a request to participants to please limit your questions to two per participant. Should you have a follow-up question, we request you to rejoin the queue. We take the next question from Rushab Shah from Bugal Rock PMS. Please go-ahead.
Rushabh Shah
Yeah. Hi. Thanks for the opportunity. I have two questions. A few years ago, the company forayed into new product category of industrial use of ambience — for the consumer durables and automobile accessories segment. So how has that business moved for us?
Kedar Vaze
Hello? Yeah. So that is one of the big growth areas for us. We are continuing to see that is growing. That’s why I mentioned in my call, newer areas that is one of those segments which is growing, which is not the traditional FMCG.
Rushabh Shah
So, sir, have you made any further investments into that?
Kedar Vaze
Investments in the good sales
Rushabh Shah
In that new product category.
Kedar Vaze
No, this is it’s not — it is already in our portfolio, we continue to grow it. There is nothing, no new investments or new product development. This is largely in the Asian market and in Indian market. So all the tips are there, everything is in-place already
Rushabh Shah
Okay. Sir, my second question is, sir, what are the key risks you see in your business? See, the raw-material risk is one of the risk, which is always going to be there. That is the nature of our business. But what are the other major risks do you see in our business for a longer period of time.
Kedar Vaze
It’s a consumption driven business. There is always fragrance and flavour requirement, whether it’s high economic growth or low economic growth or recession. So that’s a very strong positive for us. So from a business risk, I think there is no — the industry as a whole is extremely resilient. It’s very defensive in downturns and slow and fast-growth, it continues to be growing and it’s a profitable industry. Within the industry, the risk effectively is the competitive intensity, how we are able to compete vis-a-vis our competitors and that’s really the main concern or main risk that competitors do much, much better than us and we still — we don’t — we don’t grow or we are not able to keep our market-share. That is the only risk. So it’s a — not a very big disruption industry in that sense.
Rushabh Shah
So just a follow-up, sir. So how has the competition been for you in the past five years? Has it grown or have you gained market-share? How has that been?
Kedar Vaze
So we have actually lost some market-share during the demonetization and GST these two years. Apart from those two years, we have continued to gain market-share. We are continuing to grow faster than the industry average and faster than the competition.
Rushabh Shah
Okay. So my last question is that the company in Netherlands called, we created a product called, which is a key — key ingredient for sunilwood oil. So how — how has we been able to take advantage of that and how it has benefited us.
Kedar Vaze
So this partnership we are basically they are exclusive distributors. We have number of products built on this partnership which we are making and selling to kind of give you a ballpark number about INR60 crores of revenue and in this year or something like INR65 crores of revenue this year will be coming from products like — like what you mentioned with our past collaboration or past working, closely working with.
Rushabh Shah
Thank you so much. I’ll get back-in the queue.
Operator
Thank you. Thank you very much. Next question is from Jainanam from Swan Investments. Please go-ahead.
Jainam Ghelani
Hi, sir. Thank you for this opportunity. So as you mentioned to an earlier participant that we can expect 16% to 18% margins for FY ’26. So what gives us confidence that have we signed new contracts with the price hikes or do we see the overall industry and market improving
Kedar Vaze
So I think the price hikes is not a difficult situation. We are in discussion with the clients and that will happen in normal-course of business. So there is nothing — if you look at the 3rd-quarter results, the top-line growth has been robust. We don’t see any reason to feel that the top-line growth is challenged for us in the coming years. So the top-line momentum is good. On the gross margin, all corrective actions have been taken. So we expect the gross margin to slowly range upwards. And on the cost structure, whatever the expected growth, 12% plus growth next year, we will normalize our cost structure as we have invested heavily this year and next year that will balance out. So we are very confident of delivering 16% to 18% for next year?
Jainam Ghelani
Okay. And sir, so can we expect that from Q1 FY ’26, the gross margins could come back to normalized levels?
Kedar Vaze
I. I think Q1 next year, the trend will be upward, whether it is fully recovered or there is — because again, there have been big changes in the dollar to rupee in as we speak, we need to factor that in and see how much of that will translate into cost increases for us and all of that kind of may disrupt the gross margin recovery, but it will be upwards quarter-four, quarter three this year.
Jainam Ghelani
Okay. And sir, how is our MNC order progressing that would it be possible to quantify in terms of revenue or in terms of percentage by any chance?
Kedar Vaze
Yeah. So we have indicated around $10 million business this year. I think we are on-track to achieve that number and we expect it to continue to grow.
Jainam Ghelani
So sir, can we expect that to be almost 20 million next year?
Kedar Vaze
No, it was — it was kind of 3 million to-4 million between 3 million and 4 million. Last year, we will be around 10 million this year. I expect that to continue to grow by 20% 30% here on.
Jainam Ghelani
That’s it from my side, sir. Thank you.
Operator
Thank you. The next question is from Prakash Kaparia from Spark PMS. Please go-ahead.
Prakash Kapadia
Yeah. Thanks. These are a couple of questions from my end. So in FY ’26, are — how are we looking at sales in India? What I’m trying to understand is government is focusing on boosting consumption. So are we seeing more inquiries or some new product developments or it’s too early to gauge demand recovery in India? That’s the first question. And secondly, if I look at employee costs, they are up sequentially by 10%. So from this base, given that the development center is opened and we’ve taken the global route for scaling. What kind of an increase should we expect from next quarter onwards on this base? And you mentioned the insurance claim you should get maybe next month. So what kind of a debt are we looking at by the year-end and what could be the capex for next year? Those are my questions.
Kedar Vaze
Thank you. Okay. And so the first question in terms of the growth, while there is a lot of slowdown on the larger clients and in the economy in general in India, we have not seen really a slowdown in our overall business. We continue to have strong growth. I think the budgetary provisions in terms of reducing some of the tax labs may in fact spur some more consumption, which will be beneficial for us to further have a good growth year. And on the cost, I think the quarter three number on the cost of all the centers is largely fully costed in the quarter three, there may be some incremental 10% additional cost as we finalize and fill-up some of the last positions left. But by end of this year, we will have those costs all-in the book as well. So it has earlier mentioned, around INR48 crore to INR48 crores of full-year cost is what we have onboarded in this year. And that will continue to be in the normal books and grow at, I guess, 5% to 6% inflation year-on-year. We expect our business to grow double-digit plus. So we will compensate, it should be quite normal next year if we grow 12% to 14% top-line and our numbers will all fall in the right way. The last question was on the debt and inventory and I think the focus on inventory reduction is now we expect that inventories will come down in the next six months and debt will come down by almost INR100 crores in addition to the insurance payout, which is expected anytime now?
Prakash Kapadia
And on the India side, being a key supplier and part of their supply-chain, when do we get a sense of demand, Malab, how difficult or easy is it to scale? What I’m trying to understand assuming some of these initiatives by the government fructify in terms of demand coming back, say, from Q1 onwards. So how soon or how much time does it take for us to fulfill because I’m sure if there are new products, you would have got a sense.
Kedar Vaze
So are you your question I already answered once again, let me reiterate, while the overall news of slower demand in the larger accounts is there, the grassroot demand in totality for us has not been low. I think we have taken substantial market-share from competitors in this period that since the overall demand was lower, but our growth has continued on the normal — actually very robust 15% year-on-year quarter growth. So we have on a strong growth trajectory. We have not seen any slowdown in our business yet and we expect that there is more growth in the early part of next year as the steps that the government has taken to increase consumption start to play-out in-demand generation for our plants.
Prakash Kapadia
Understood. All the best.
Operator
Thank you. Next question is from Rohit Nagraj from B&K Securities. Please go-ahead.
Rohit Nagraj
Yeah. Thanks for the opportunity. Again, delving on the debt part. So can you let us know what is the bridge between say FY ’24 year-end debt of INR500 crores and INR700 crores. So what are the components which have increased the debt by INR200 crores, including inventory, maybe the capex or a facility for which we will get the claim incrementally. So how this INR200 crores can be now segregated among these pockets?
Kedar Vaze
Thank you. So I think if you look at the INR200 crores, we have almost INR140 crore of inventory losses, which have been replenished. We have built-up another INR50 crores of inventory over and above the INR140 crores which we have replenished. So INR200 crores of cash-flow has gone into inventories. INR75-odd crore has gone into capital investments for rebuilding the factory, most of which will be covered by the insurance repayment and around INR50 crores is stuck in the GHT refunds, which is in-process. So this is the effectively cash-flow that is — that is incurred over and above the normal routine. And that’s where the debt has gone up from the INR540 level to INR700 crores.
Rohit Nagraj
Sure. Second question is for the quarter and for nine months, how has been the growth from volumes and pricing, if you can just break it up?
Kedar Vaze
So most of the growth has been volumes. We have very limited price corrections been done in the last nine months. So almost all of that is volumes. There may be some impact of currency exchange rate, but mostly it is volume.
Rohit Nagraj
Just one last clarification on the development expenditure, so FY ’25, we will be completely doing away with the development expenditure of about INR45 crore INR48 crores. And from next year onwards, there will not be any incremental on this part, except the inflation-adjusted increases that will happen on the base.
Kedar Vaze
That’s right. So our objective and it’s pretty aggressive investment, we have covered all the four major areas where we want to operate Southeast Asia, India, Middle-East, Europe and America. We have — we have put in teams and development teams and production operations teams so that we are catering to all these four markets and we have no plan to grow beyond these four markets in the near-term or even medium-term business.
Rohit Nagraj
So that’s it from my side. Thank you and all the best.
Operator
Thank you. Next question is from Kiran D from TableTree Capital. Please go-ahead.
Unidentified Participant
Thank you for the opportunity, sir. Sir, just want to break-down into segments, right? So when we are talking about 14% sales growth or whatever the CAGR is for the next year or two, I mean, I’m just putting in calcation, so it’s about INR3,000 crores will probably hit by FY ’27. That’s a very, very healthy growth. So what I’m trying to do is, is there — is there a faster growth that we’re going to get-in flavors division versus fragrances division? And the reason why I’m asking is on the flavors division, we’ve grown very healthily this quarter or at least even in the nine months and it has a very healthy EBIT, right? It’s close to 22% EBIT. So it’s adding far more to the bottom-line as a percentage, right, than the fragrances for this nine months. So if we are expecting more-and-more flavors growth, then our operating margin automatically has to bump-up quite a bit. So I’m just trying to see where the growth is going to come from if it more heavily loaded into flavor, which means our EBIT would be faster or is it going to be more?
Kedar Vaze
I think — I understood your question. I think the flavors market in the flavors business, we did investments three, four years ago and now it is in the kind of full recovery of the investment. So it is actually delivering results which are higher than the average result for the flavor industry we expect. So another two years from now, we expect some more investments in the flavor business, similar to what we have taken-up in the fragrance business in the last two years and this year. So every every sort of momentum, we are on the lower side or below the average in the fragrance side. We are in the investment phase. In the flavors, we have finished the investment phase, we are now in the growth phase sort of in the sort of second-half of the growth phase. In couple of years, we will see further investments in flavors. And then you will see the fragrance margins have restored and improved and the flavor margin position we will require the next-stage of investments. So this is kind of not structural in terms of our business. It’s just the level at which we have investments vis-a-vis the growth maturation. So within fragrances, let’s say the India business, which is the most mature has much higher results, but it also means that our market-share and as a result of our market-share, our growth is lower — lower than in new markets, which we expect the growth to kick-in and give us much faster growth. So the — it is true that the flavor margins have been better this year compared to, let’s say, two years ago and overall fragrance business, but structurally both businesses have the same. So it’s not going to result in any differential in a two to three-year horizon, it will even out. Got it, got it, got it, got it. Even out means the fragrance will start to catch-up with the this reverse not the other.
Unidentified Participant
Okay, got it. Understood, sir. Understood. Sir, from a — then from a gross margin standpoint, we are taking the price hikes and so on and so forth. Are there any alternatives, sir, let’s say, the drop continues for a year more no, no, right? I mean, we’ve seen what happened to cocoa prices for a while now. So are there any alternatives that we can think of over the next year or two in terms of replacement or there is no replacement for any Indonesian or Brazil drought kind of situations?
Kedar Vaze
So I think the Brazilian drought and Brazilian issue is affecting some of the sectors and other products is a more structural issue. So we have spoke with some Indian vendors have now a large part of domestic sourcing for these kind of natural products. So that will kick-in this year and early next year, maybe by the time we will have some alter led to the situation in Brazil. For Indonesia, it’s not really easy alternative or replacement. It is quite widespread product. And as I — this is a short-cycle product relatively, so in six months, things should correct
Unidentified Participant
Got it, sir. Got it. And my last question, sir. I mean, we have grown substantially higher in India. We were very, very hopeful of the Europe business growing much faster than the averages because we’re going to take market-share away because Europe is having slowed on and so on and so forth. Now beyond the investments, because the investments will pay-off in the next 18 to 24 months in the Europe business, in the interim period, do we see continuing gaining market-share in the European market as in right now 9.5% growth is from Europe. Can we see a structural improvement there where it goes to 12% to 15% from Europe in the interim 18 to 24 months or is that going to happen only after the 24-month period?
Kedar Vaze
No. So we need to understand the European business has grown at 11.8% on a like-for-like last year to this year. For a European market, which is growing less than 2%, a 12% growth is a 10% faster growth than the industry or the market average. So we are doing exceedingly well. We also need to recognition that there is no or much lower inflation in the European zone. So when we look at the 11.8% or 12% growth in European context, it’s a very, very healthy growth. So there is nothing there which is sort of low-growth in any which way. It has been a good substantial and fast-growth in Europe. And we expect it to continue going-forward. We will reach a point in year or two where we need to continue to invest in the production capacity in Europe as we have now invested in the development capacity and the sales momentum will — you know the — it will be a good problem that our capacity is fully utilized and we need to invest in the next phase of growth.
Unidentified Participant
Got it, sir. Perfect. Perfect.
Operator
Thank you. Next question is from Sandeep Sagarwal from ask Sandeep Agarwal.com. Please go-ahead.
Sandip Sabharwal
I have tracked the company now for 12 to 16 quarters. Another question is that there is lot of volatility in the performance of the company. Sometimes suddenly the growth slows down and then there are some reasons for that. And sometimes there is some margin squeeze which happens. Two, three years back, you had indicated a glide path for reducing the debt substantially, but we’ve actually seen that the debt expand, so like leave aside this fire which happened because there were some acquisitions you did at some stage and suddenly some capex comes up. So it’s very tough for investors to actually evaluate what’s happening in your company. So can you make some comment on this
Kedar Vaze
Yeah, so I think the — let’s say not everything goes as what is planned. Let’s understand that point-of-view. We are seeing in terms of the investment cycle and opportunities, we are seeing opportunities for large investments and we are not waiting for those opportunities because those opportunities come in like we have invested behind Global MNC, that business can happen we’ve been trying for 10 years and when it did happen, we need to substantially invest behind that business, put the development centers, put the production facilities, etc in other geographies that we maximize on that opportunity. So yes, while the track-record in a quarter-on-quarter year-on-year has not been predictable on a longer-term, we are doing exactly what the industry and the business requires and we are building a strong foundation for continued growth in continued profitable growth and continued cash-flow conversion. We are not there. We are not in the — in the kind of the size where we are now globally present everywhere in mature market and we can then have extremely high predictability. We are still in that way hungry and fast-growing company in the industry. So we will have ups and downs as we adjust our strategy to opportunities and events that happen in the global world.
Sandip Sabharwal
And just one clarification, you talked about this INR1.40 crore loss of inventory. So was this a loss of inventory in the fire and this will also get covered in insurance or can I didn’t get that
Kedar Vaze
Right. Yes. Yes. So the INR140 crores that I talked about is the inventory that was lost in the fire. We expect part of that to be paid by the insurance in the next —
Sandip Sabharwal
INR140 crores plus INR75 crores of the — for the factory. So total will be around INR215 crores will be your claim. And then whatever the insurance company clears for you.. Is that right?
Kedar Vaze
Let’s ahead.
Sandip Sabharwal
Okay. Thank you.
Operator
Thank you. Next question is from Amit Jain from Monarch Networth Capital. Please go-ahead.
Amit Jain
Thanks. Thanks for the opportunity. Just a few — just couple of things. One, on the margin front, when you are guiding this margin of 16% to 18%, so my understanding is that whatever investment that we made, most of them are recurring in nature. So have you taken — so this guidance takes into account those expenses like on the creativity center, so these must be salary expenses. So I just want to check my understanding whether it is correct
Kedar Vaze
Yes, so your understanding is correct. It is taking into account the normalization of the gross margins and the continued growth in double-digit plus growth that we expect. So this will happen in a combination of these two events. The costs are recurring in nature. Our size of business will grow much faster clip than the increase in the cost-plus the recovery on the gross margins, which is expected now will bring back the position on the profitability?
Amit Jain
And secondly, sir, as far as this price revision that you are taking for your clients, so just want to understand what is the mechanism. So it happens once in a year or is it some — what exactly the mechanism for this revision price? Because you mentioned you that last year you could not take this price because of that fire incident. Just want to understand what exactly the — what are this mechanism for this price revision.
Kedar Vaze
So the normal — normally we — every six months or so, we review the cost structure and cost increases, we go back to the clients, if there is a substantial change in the input cost, then we go back to the clients with pricing corrections. So this is a normal process, which is reviewed every six months and it’s not that pricing happens to all clients and all products at one-go. It’s a continuous process. But at some point, you have a bigger corrections, but you cannot plan the exact timing when the raw-material increases and when you are making the quotations to the — to the customer. So there will be some periods when there is a margin compression and likewise there is margin expansion in other times when you have the price increases have come in-place and the costs have not yet hit the accounting?
Amit Jain
Okay. Just a follow-up question on this. So the dip that we have witnessed in this quarter — last quarter, so can it be treated as an aberration or we can see such bouts of dips whenever such price correction happens that abrupt a hike in the raw-material prices.
Kedar Vaze
So what has happened is, as you know, we are carrying lot of inventory and in the replenishment of the inventory in the fire, some of these raw-material prices had already gone up substantially. So we got a hit in the last months of the calendar year. In normal situation, we would have increased the prices to the customers before the increase in the inventory cost would have hit us or simultaneously. So we have a mismatch of three to four months of inventory, which was kind of and I would say destroyed is the fire which had?
Amit Jain
And lastly, sir, you have — we have a very sticky business because this business. Now when we are guiding for double-digit growth above the industry growth. And if we exclude this large MNC account, so are we still hoping that, yes, we will be beating this industry of — because just want to understand the new — the share of the new clients we are adding and this overall when we are guiding for, let’s say, 12%, 14% revenue growth for coming couple of years going-forward.
Kedar Vaze
Yes. So we are not considering the global MNC growth in the 12% CAGR that we outlined and it’s our strategic growth. We have enough customers, enough engagement with new products and current volume growth, plus new markets in Southeast Asia, Middle-East, Europe and now we are starting in the US. So we have a lot of markets where our penetration levels are quite low and that allows us to grow faster and we see engagement across all the customers we have to enable us to grow at 12% plus year-on-year growth.
Amit Jain
So basically, we will be majorly this growth will be led by new client addition or it will be a mix of both higher wallet share and new client additions.
Kedar Vaze
Both higher volumes new client and new geographies. So completely new areas and new clients in those areas.
Amit Jain
Thank you. Thank you. Thank you so much, sir.
Operator
Thank you. Thank you. The next question is from Amrish Kakar, who is an individual investor. Please go-ahead.
Amrish Kacker
And thank you for the opportunity. And just one question from my side. On a broader and longer timeframe, is there some more detail on the flavors — flavors business that you could share or a timing of when you’re likely to outline broader ambition for this?
Kedar Vaze
The flavor business is its business division that has started later than the fragrance business. So it is about 25 years-old compared to 100-year-old business which is the fragrance business. Having said that, it has its own trajectory. We have continued to build it up from zero with some acquisitions and we have now finished the investment as we are mentioning in the development and the production for the current size. And we expect it to be good strong 15% plus growth business. So eventually it will — it will grow faster than the fragrance on the current base. On the overall, the fragrance and flavor business globally is roughly split equally have where and so we see in the longer-term that the flavor business will have more-and-more, let’s say more-and-more percentage of the overall — overall business.
Amrish Kacker
Thank you. All the best. Thank you very much.
Operator
We’ll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Kedar Vaze
Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarification 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.
Operator
Thank you very much. On behalf of SHK Kilkar and Company Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines