S H Kelkar And Company Ltd (NSE: SHK) Q3 2026 Earnings Call dated Feb. 09, 2026
Corporate Participants:
Kedar Vaze — Group Chief Executive Officer
Jagdish Agarwal — Group Chief Financial Officer
Analysts:
Unidentified Participant
Anoop Poojari — Analyst
Jatin Chawla — Analyst
Dhaval Shah — Analyst
Henil Bagadia — Analyst
Riddhesh Gandhi — Analyst
Madhav Marda — Analyst
Abhijit Akella — Analyst
Bharat Sheth — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to Shkalkar Co. 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 this conference call, please signal an operator by pressing Star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anu Pujari from CDR India. Thank you. And over to you Mr. Pujari.
Anoop Poojari — Analyst
Thank you. Good afternoon everyone and thank you for joining us on Shkar Co. Limited’s Q3 and 9M FY 2026 earnings conference call. We have with us Mr. Kedar Vazai, full time Director and Group CEO and Mr. Jagdish Agarwal 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 Vaze — Group Chief Executive Officer
Good afternoon everyone. For the order of matter of details, I would also like to inform that Mr. Ramakrishnan CEO, Fragrance Asia and USA is also with us on the call. With that, good afternoon everyone. Thank you for joining our earnings call. On behalf of the management team, I am pleased to welcome Jagdish to his first earnings call with the company. He brings over 28 years of experience across manufacturing, telecommunications, banking and a strong record in strengthening financial governance, driving operational efficiencies and supporting business transformations. His appointment reinforces the company’s focus on enhancing financial discipline and execution capabilities.
Jagdish will begin with the overview of the financial performance and outline the key financial priorities. Over to you Jagdish.
Jagdish Agarwal — Group Chief Financial Officer
Thank you Kenar. Good afternoon everyone and thank you for joining US for assets Kilker’s earnings call for the third quarter and the nine months ended financial year 2026. Let me begin by saying that I’m excited to be with Assets Kilker at a time when the company is investing to build the next phase of growth as the largest India origin flavors and fragrance company with a steadily expanding global footprint. It is a leadership business with a strong customer relationship and deep capabilities and I personally see a significant opportunity to further strengthen execution and financial outcomes over time.
With that context Let me now walk you through our financial performance for the period and outline the key priorities from a finance perspective, after which I’ll hand the call back to Kedar to share his perspective on the strategic direction of the company. During the nine months in date, the company delivered consolidated revenue of Rs 17.18crore reflecting a YoY growth of 10%. Despite a challenging operating environment across certain markets, demand remained resilient across our core categories supported by continued tractions with both existing and new customers. Our performance during the quarter was relatively softer reflecting a subdued environment and slower ramp up in certain product categories.
From a margin perspective, gross margins remained broadly stable during the quarter. EBITDA margins however, reflected the current phase of execution with costs associated with scaling strategic initiatives and strengthening organizational capabilities. On an adjusted basis, excluding the impact of new growth rate investments and high insurance cost, the EBITDA margin stood at around 13%. One of the key focus area for me will be to sharpen our approach to cash flow and balance sheet management. As we progress through the current investment phase, debt levels may see a near term increase aligned with our strategic initiatives and capacity extension plans.
At the same time we see scope to improve working capital efficiency which will be a critical lever in reinforcing balance sheet strength and moderating leverage over time. Another priority will be to enhance CAF conversion and improve the translation of operating results into bottom line performance supported by cost discipline, tighter capital allocation and improved working capital execution. Ensuring disciplined and well prioritized capital deployment across the business will remain an important focus as you continue to invest for growth. While these initiatives will take time to fully play out, our approach will be structured and disciplined with the benefits expected to emerge progressively over the medium to long term and I mean like two months into these organizations.
What are the little insights I have? I feel that our focus is at right place. We are investing for future. Many times we don’t see a quarter to quarter improvement but definitely the initiative which led across organizations to drive future sustainable profitable growth is definitely going to out. It’s a matter of time, maybe medium term to near future. We see that these growth initiatives are going to play in favor of the company. With that I will now hand over the call to Kedar for his comments.
Kedar Vaze — Group Chief Executive Officer
Thank you, Jagdish. Building on his comments, the investment we are making today are aimed at positioning the company for the next phase of growth, especially in the global fragrances and flavors market, strengthening our global creative development centers, expanding capacity and investing in capabilities that enhance innovation, execution and customer engagement, especially across new markets such as usa, UK and Europe. As discussed earlier, a key objective of these investments is to strengthen our competitiveness and positioning. The markets we are currently investing include UK, Germany, US, US, UAE together account for nearly 75% of the global fragrance market, while India represents a relatively small share of around 5%.
While the domestic market continues to offer attractive growth opportunities we expect to participate in based on underlying FMCG growth, expanding and scaling, Our presence in these international markets provides access to significantly larger opportunity time and supports a more balanced growth profile. We recognize that this is an organic build out and will take time with a horizon of over two to three years as capabilities scale and customer relationships deepen. Our experience in the Flavors business, where earlier investments are now translating into stronger growth, gives us confidence that a similar trajectory can play out in fragrances over time.
As part of this broader strategy, we have made encouraging progress in the U.S. during the quarter, our U.S. creative Development center secured its first customer order, marking an important milestone in our entry into the world’s largest flavor and fragrance market. While this remains an initial step, customer interactions have been encouraging and the center is increasingly integrated into our global innovation and delivery framework to support both the regional and other multinational clients. Our 102 year heritage we are now building stronger and more scalable operating platform with benefits expected to accrue progressively as capabilities mature. We believe that this is the right phase in the cycle to invest with conviction.
As these capabilities scale, they will enhance our ability to capture opportunities, strengthen our competitive position and enable us to drive consistent value creation for many decades to come. With that, I would now request the moderator to open the floor for questions.
Questions and Answers:
operator
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask the question may press star N1 on their 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles participants. You may press star N1 to ask a question. First question is from the line of Chatin Chawla from RTL Investments. Please go ahead.
Jatin Chawla
Yeah, hi, good afternoon and thanks for the opportunity. My first question is you mentioned in your opening remarks and in your presentation as well that you see this is the right time to invest in these initiatives. What specifically do you mean when you say this is the right time to invest?
Kedar Vaze
If you look at the global competitive landscape, a couple of large companies in particularly IFF and Firminique, have undertaken large M and A transactions in the last few years and they are now sort of reorganizing themselves. And this gives us opportunity for mid size and the next level of companies to grow into these markets. We see that the market is over consolidated with three or four players and the business opportunity is more and more with large number of smaller clients. With the direct to customer online e commerce businesses coming over or taking over or starting over in many parts of the world we see the opportunity landscape both from resources and opportunity for mid and small clients across the world at a very opportune time.
This is kind of the cycle where new green shoots are are seen in the FMCG business.
Jatin Chawla
Got it, Got it. That’s very useful. My second question is, you know at the start of the year you had mentioned that your gross margins will be impacted in the first half, but in the second half we will start seeing an improvement. But even in the December quarter when I look at your gross margins, they are very similar to the gross margins in the first half. So now is this the new normal for gross margins or do you see an improvement? And if you do see an improvement, by when should we expect an improvement on gross margins?
Kedar Vaze
So there are. So let me divide this into two parts. There is gross margin improvement on the underlying raw material availability and supply. As you know, the sales has been slightly muted compared to what we originally expected for this quarter. So part of the gross margin improvement will shift into the subsequent quarter as raw material at the older prices gets used up. So underlying business as I look like for like the gross margins have improved this quarter we have seen some business, particularly global ingredient having a little bit of negative headwinds which has affected the overall gross margins.
But we see the gross margin from a raw material point of view stabilizing and improving. Probably this January quarter onwards we will see improvement or definitely April onwards we will be back on a very strong gross margin level. Partly currency exchange rates have also dampened some of the Indian rupee businesses. From a gross margin point of view, while the dollar prices have come down, the rupee prices have not come down as much as we expected few months ago.
Jatin Chawla
Got it. So do we expect to go back to the 45% kind of gross margin that we used to enjoy earlier or that will take some more time?
Kedar Vaze
I think 45 last year was sort of the up cycle of the raw material where we saw very good jump. It will progressively improve whether it will reach 45 or little bit lower than that. It all plays out too many variables based on the geopolitical and currency and so on and so forth. So I don’t want to comment on that. I think directionally gross margins are improving across the board and we will see benefit flowing in. We are so at 2042.34 or something we are at the lower end of the gross margin range that the business will operate at.
Jatin Chawla
Okay, and just one last question. India signed a number of trade deals with, you know, uk, EU and with the US also some sort of deal has been signed. So any benefit that we as a company see from this.
Kedar Vaze
It’S a bit early to know. I think when we get the fine print and we understand the dynamics of if any change has happened for our industry or related industries, we will be able to comment. So it’s a good news that we have these FTAs announced and in the news. The fine print is the devil is in the detail. So once we have the detail we will know if there is any specific benefit that we will derive out of this.
Jatin Chawla
Okay, thanks a lot for along the questions.
operator
Thank you. Next question is from the line of Dhaval Shah from Girig Capital. Please go ahead.
Dhaval Shah
Yeah, hi sir, thank you for the opportunity. Am I audible?
Kedar Vaze
Yes, yes.
Dhaval Shah
Yeah. So my question is basically on the allocation of capital. So if you can help us understand over the last two years and going forward how much capital are we planning, how much have we deployed and planning to deploy further in various geographies, you know, in the center of excellence as we call it and as you see a lot of opportunity in those countries. So if you divide between us, Europe, India, you know, at various locations where you see there’s a lot of opportunity. So how much capital has been deployed and how much more you planning to deploy there? That’s my first question.
Jagdish Agarwal
Okay. So good afternoon Mr. Sir, let me answer this question. So when you talk about capital deployment, you mean to CapEx and if I. Look at CapEx,
Dhaval Shah
so yes, CapEx or acquisitions, what you have done. So for example, in Europe we have invested 80 crores so far, right? Also yeah. I mean expenditure you do in the R and D&CPEX. Yes. So both if any large money which is not giving you, you know, revenue immediately. So that, that sort of expenditure. Yes.
Jagdish Agarwal
Okay. So when I look at outside India, we had CAPEX going on into the Europe and we have a committed almost 7 to 8 million on that. A major part of that is already done. So I don’t expect much outflow out of India in next six to 12 months. It is going to be in the range of 2 to 3 million euro. That’s what we are expecting when I look at inside the country, you know that we had a fire two years back and then two of our facility in Maharashtra, Lauti and Wasabili are going on for construction phase and that outflow will be there.
But out of India the expected outflow would be in that 2 to 3 million and India would be in the range of 70 to 80 crores.
Dhaval Shah
So India capex you are expecting 70 to 80 crores. And what time frame
Jagdish Agarwal
this we are expecting in next? Maybe 12. 12 to 18 months.
Dhaval Shah
Okay, in 12 to 18 months. Okay. And all of this is going towards rebuilding Vashively.
Jagdish Agarwal
Possibly I’m allotted to facilities are there.
Dhaval Shah
Yeah. Okay. These two facilities. Got it. Okay. And next
Kedar Vaze
just to add to the discussion this when the new second facilities built we will close down one of the older facilities and some operating savings on lease and other things will come down. So OPEX cost will reduce.
Dhaval Shah
Okay? Okay. Understood. Understood.
Kedar Vaze
And so these are the two replacement. Second is a new new facility which will replace the old facility in Mumbai.
Dhaval Shah
Yes, yes, understood. So so this Europe another 23,23 million which will come to around say 25, 30 crores and 80 crores in India. So totally 110, 120 crore is what we are going to invest over next two years right from the balance sheet.
Jagdish Agarwal
Yes. You can say from now to 12 to 18 months.
Dhaval Shah
12 to 18 months. Okay. And in the US what have how much money have we put in so far behind developing centers or any other capex there in the U.S.
Jagdish Agarwal
in U.S. The development center is also already put in place and that’s sort of operational. Now we are starting our leased facility for a production. But in development center we had invested approximately one and a half million dollar one and half to 2 million in range of one and a half to 2 million US dollar.
Dhaval Shah
Okay, got. And any more so then more expenditure there in the US side?
Jagdish Agarwal
No. So we are starting this list facility for a production. So those are going to be a business as usual. But I don’t think that whatever we have as of today that will continue.
Dhaval Shah
Got it. So. So this is so now coming to the second question. Second leg of this question is is the debt Deb mentioned the presentation regarding will be a slight increase. So you know we are, we are currently at around 800 crores of debt and 1990100 crores of cash on the book. And if we see over the last three, three, four years, you know except for this, you know the large fire we had, you know that has eaten up a lot of our you know, cash flows. So what is the trajectory going forward? I mean we are going to peak at around another hundred crores of debt on this.
And how should we understand it? Because our debt equity ratio is really getting impacted. And the other side, we are investing money for growth. But how are you planning to strike a balance? Because we are unable to make ultimately the ROCs which as an investor you would want to see in this company. It is, it is completely under, you know, always under pressure. So because I’ve been tracking this company since past couple of, you know, couple of years initially we had, you know, things were going right. We had plans to achieve 17, 18, 19 kind of EBITDA margin.
It did happen also in between for a few quarters and again, you know, we are down. So can you, can you help us understand that? What sort of time frame should we keep in mind to look at those numbers? What sort of balance sheet over next two years, you know, should we think and what sort of ROCs, you know can it generate? Because we’ve done a lot of investments and as per your business plan, where do you see where will be this company two, three years down the line.
Jagdish Agarwal
So with the limited insights and understanding I have in last two months I can talk about more realistic situation. What I feel you are right. Debt level we are right now the GROSS is almost 800 and very frankly we really have to do a detailed exercise to come back what to do the right number. But if I look at, I think it is going to be range bound maybe somewhere in this range or maybe 20, 30 plus and minus kind of a range at least in immediate future. I see three to six months for sure.
For sure. When we look at a long term other things are definitely going to come back on.
Kedar Vaze
Just to kind of, you know, we are working out the detailed plan on this. So I don’t want Jagdish to put out his neck on kind of a month into the company. I think we are 13% adjusted EBITDA as we speak. It will take two years of time for all the investments we have done over this year to start to generate positive cash flow revenues in Europe and America, particularly including UK and these markets. So currently this quarter what we call adjusted EBITDA without new initiatives is roughly 13%. I expect that to be 17% over the next two years.
And we will put out a detailed like a quarter on quarter year, on year execution plan in a couple of weeks, maybe four weeks, six weeks as part of our budgeting exercise. I would just say that all the infrastructure that we need to operate is in place and the opportunities are in place. Now we understand that the cash flow and debt situation we may not be able to take all the opportunities. So we’ll need to focus on few and not defocus or kind of defer a few opportunities. So we will take that up and create a strong road plan probably by April for the next three years.
Dhaval Shah
Got. Got it sir. And some last suggestion, you know several investors will be in with the company since some time and you know after the finance and this investment phase our market cap has also taken big hit. You know as a, you know if promoter could show some, you know, some sort of, you know more confidence by you know doing some creeping in the company that will be, that would really restore a lot of faith in the company. So that just as a
Kedar Vaze
tempted every day.
Dhaval Shah
Okay.
Kedar Vaze
I have been asked in fact in reverse that don’t invest or divest, just keep it steady, don’t come in. But I am tempted every day at this value. So we will surely look at the, this feedback more strongly in the future.
Dhaval Shah
Yeah. And sir, last is 10 lakh shares a place which was created. What was the reason for this?
Kedar Vaze
This is a old pledge only because the market rate came down.
Dhaval Shah
There is a pledge more shares. Yeah.
Kedar Vaze
Again it is undone because the market has gone up. These are all, I mean this is old loans which are already standing. These pledges will go up and down based on the market cap.
Dhaval Shah
Got it. Got it. Great sir. And sir will hope to see you in person, you know soon. Okay, thank you.
operator
Yeah, thank you. Next question is from the line of Henel Bagaria from Equicorp Partners. Please go ahead.
Henil Bagadia
Thank you for the opportunity sir. So just a few questions so if you could also allude some a little more clarity on the cost in us both from the fixed cost side. That is coming from the new creative fragrance center that we have and the new G strolling facility that we have there. And how much time will it take or how many contracts or the size value contracts will it take to reach a breakeven point in the US market?
Kedar Vaze
I’m Ram Krishnan here. So basically I think our investment in us has been more by way of opex than Capex. There’s very limited or no Capex involved. So we have taken even the manufacturing facility on an operational lease of five years. We have already started winning business in the US and our road plan is that at the end of next year we should be able to win about 2, $2.5 million worth of business.
Henil Bagadia
So what will Be the fixed cost for, I mean the fixed operating cost for both the Creative Fragrance center, the facility and the lease tolling facility about.
Kedar Vaze
Between 3.5 to $4 million.
Henil Bagadia
Okay. So also secondly on the cash flow side, since we’re going to put about 70 to 80 crores in the Vashavli as well as the new replacement unit we had. So this is going, we are going to actually file an insurance claim for this particular thing. Right. So the cash flow is just going to be from our end initially and then we will file it for the insurance claim to see and probably get most of it from the insurance side if I’m not wrong.
Jagdish Agarwal
Yeah. So insurance claim is already under processing and we expect that should get settled in next six to 12 months.
Kedar Vaze
Some incremental cost will be there for the second facility, probably 30 to 40 crores, but that will be not in the, the immediate year, the year after.
Henil Bagadia
Okay, so what will be the savings in the lease cost that we have that we will save from the Mullen facility once we, I mean should close it down?
Kedar Vaze
3 to 4 crores of lease we will save in the Mullen facility.
Henil Bagadia
Okay. So lastly on the European side, so is the facility on stream? Because I think so. The existing facility is completely used. So we were actually planning to expand the facility and increase the capacity due to bottlenecks.
Kedar Vaze
Quarter four, the new facility will be operational maybe end of quarter four, March is the current expected timeline. So quarter one, I expect both the new facility in Europe as well as the new facility in India to be operational. And by quarter two or quarter three they should be fully up and running. And the older ones, we will sort of the transition in between quarter one and quarter three when both are operating and end of quarter three next year, quarter one calendar or quarter four financial, we should have the new facilities taking over the full manufacturing.
Henil Bagadia
Okay, sir. Lastly, just an insight. So since we are also doing business with the small and medium players as well as the new emerging startups which come on to E commerce and the scaling of the business. So when there’s an acquisition that happens by any of the large MNCs for these particular accounts. So what exactly happens post acquisition? Are they integrated into the existing supply chain for the MNCs or the existing vendor supplying fragrance, flavors, etc. Are retained and there is a periodic integration that happens.
Kedar Vaze
So I think the integration with the bigger company we have one or two examples like that. We have some companies which are acquired by Marico or which I acquired by Unilever and others. And our General business has continued, it has actually grown. We have been able to consolidate that and continue to grow. So there is no risk for us. Even the bigger companies acquire. Some of the startups do have suppliers who are much smaller or not let’s say professionally organized in which case that business does present opportunity for us for additional growth in this acquisition of any small brands.
Henil Bagadia
Okay, thanks a lot sir for the question answering questions and best of luck to the team.
Kedar Vaze
Thank you.
operator
Thank you. Next question is from the line of Ritesh Gandhi from Discovery Capital Management. Please go ahead.
Riddhesh Gandhi
Hi sir, just want to understand when we internally look at our capex and investment, what typically are the hurdle rates we look at? Do we look at payback period, equity, irr? Just want to understand that and how we look at it.
Kedar Vaze
So normally we look at a 20% hurdle rate. However some of the strategic for example the investments we are making now are on 10 to 12 times bigger market size than where we are currently operating. So obviously the investments are large in relation to the current business. So we will have longer gestation time but we normally look at a steady state after three years which is will be the kind of buildup phase that the businesses should run at 20% ROI or ROCE subsequent to the three years period.
Riddhesh Gandhi
Correct sir. And the other thing just to understand that obviously this is an industry where clients are reasonably sticky and the barriers to entry are reasonably high, you know, so and it’s obviously helped us with our own India business but as we look at expanding outside and especially in the States, is that going to be a hindrance and a difficulty? And just wanted to know from the initial reaction of the clients, the customers, are the things going as per plan, ahead of plan, behind plan. Just want to understand that the initial.
Kedar Vaze
Feedback is quite on plan. I would say we have the first orders now, we expect them to be executed in the fourth quarter this year and first quarter next year onwards. The US market which was the first external or new market initiative, we are now in 18 months starting to see business. Similarly for Europe and UK we will start to see more business coming in. So we are on plan. I think we have a good sense on the market where there is green shoots, a lot of business cycles also play a point. So there have been a lot of investments and a lot of growth with the big FMCG and I think globally and even in India some of the innovation now is being done by smaller brands which have access to the market with the E Commerce or direct to customer approach.
So a lot of innovation and lot of small Clients are mushrooming up and this is a sort of phase where there are new green shoots. So it is in a way a business, fragrance business, springtime, a lot of small business are springing up at this time so it is a good opportunity for us to catch them. As you know, existing businesses are quite sticky so only when there is a wave of new businesses coming up that we see this as a good opportunity.
Riddhesh Gandhi
Sir, the other question was, you know, historically if we’ve seen a lot of our global competitors have extremely high ROCs, even M& A s that happen in this space have happened at reasonably valuations whereas our ROC right now appears to be depressed. But this in your view is just a reflection of the timing of the capex and expansion being done right now, which you think should normalize over the next year or two?
Kedar Vaze
Yeah, so I think one is the expansion investment, second is the effect of the fire which has come about there same time when we have sort of looked at the big expansion. So if we had a kind of hindsight 2020 we may have staggered our investments in the expansion. So we’ve taken a big bet expansion and we also suffering from the fire incident which we need to pay attention and capex to recover and to restore. So I think it’s a bit of both. Purely if it had been normal running in the domestic we would not have seen such a big stretch on our financials and we are now well placed.
While it’s a low position where we are today, I think the market situation and the growth expectations are in place. We have taken, if you look at the history of the company, we have done some organic investments in Europe, inorganic investments in Europe in the past. We have now looked at organic expansion both in Southeast Asia, America, UK and Germany. So we are confident to take up entire market without having to overpay or start up with an inorganic sort of approach. So I think the confidence is there that we will be able to turn around and grow in these markets.
A lot of the difficult investments around new molecules, captives, processes, innovation platforms that we need for these markets, we have been continuing to build them over the last two decades. We have more than 25 patents in all these countries already with us. So that gives us a very strong base when we enter these markets. It’s not that we are starting today. So the first patents in the US for example are running out in 2030. So we have now only four or five years to capitalize on this patent cycle before they become kind of public domain.
So we see that this is the right opportunity which gives us five to seven years of trying to push the technology based innovation based business growth in this market.
Riddhesh Gandhi
Good sir. And how much is the receivables that we’re expecting from the insurance and just want to understand is this a normal how long the timeline does typically to receive it and are there any risks to that?
Jagdish Agarwal
So we are expecting in and around 100 crores and we don’t see a risk on that. The quantum may be plus or minus but I think we are pretty positive we’ll get this money within 6 to 12 months.
Kedar Vaze
Second question. Yes, the general sense when I talk to some other companies, yes it does take 18, 20 months. In fact our first claim has come earlier than many other companies in the similar situation. So we are happy about that it is progressed well we will still work on it, make sure that it is done timely and we get the cash flow as soon as we can.
Riddhesh Gandhi
Okay sir, thank you. I’ll be joining.
operator
Thank you. Next question is from the line of Madhav Marda from Fidelity International. Please go ahead.
Madhav Marda
Yeah. Any thoughts on the top line growth? It’s been a bit softer recently. Any specific reasons why that’s happening and when do you expect it to sort of go back to the 12% CAGR which we guide on a steady state basis?
Kedar Vaze
Yeah, I think the 12% CAGR is still intact. We seen a bit of softness in the early part of the year in Europe when the tariffs and some of the geopolitical situations were there. Most of these business softness is more from a timing issue. They kind of of orders got postponed by a month. So this, this year is kind of 11 months in the European context. But we are still seeing sales is at the same level as it it was earlier in euro terms. India, I had more expectations of faster growth and demand revival in the second half given the GST changes that were announced in the beginning of the year or second quarter of the year we have not seen that play out.
So we did see some uptick during the Diwali but after that we are not seeing a broad based demand jump as what we were expecting. In any case I think the market position we have we are quite strong. We will be able to recover our sales momentum in India fairly shortly.
Madhav Marda
So do you, I mean this year I mean we at about 11% which also has 1/4 1Q which had the low base impact. So going ahead which markets you think could do better? Any specific drivers for growth to get to the 12% next two, three years.
Kedar Vaze
So our Middle East, Southeast Asia, all these markets are growing very fast. So we, we don’t, I mean this quarter itself by end of March, probably 12% looks a bit difficult, but we are growing probably next year will be faster than 12%. We, I think the 12% CAGR growth still is a long term thing which we expect to grow.
Madhav Marda
Okay. And then just wanted to check on two more things. One was on our, the margin side obviously we are looking to front end OPEX and spending on these developmental initiatives. So the journey to get to the 17% in two years time, is that all operating leverage coming in or is it also gross margin like what helps us move from let’s say 13% like you’re saying right now to get to 17?
Kedar Vaze
Yeah. So I think the gross margin, it’s a combination of operating lever and cross product margin. We are at the low point cycle last year and we are improving as we go quarter on quarter. We will see gross margin slightly better and operating leverage, both of that coming in. Plus on the operations, particularly in India, once we stabilize and bring it back to our new factory, there are lot of logistics and additional cost which we will kind of go back to more efficient operating parameters. So I see these are all operating leverage plus new factory coming on stream which should benefit us as we look forward the new markets as we alluded first order in the US we are also seeing green shoots in other markets.
So those when that sort of kicks in, we will see further improvement. Improvement in the ebitda.
Madhav Marda
So have we already reached the peak OPEX spends for some of these new initiatives or is there some more cost which is yet to come into the P and L?
Kedar Vaze
No, we have reached the peak opex. I just want to, I think the OPEX number in INR may change in the currency fluctuations to some extent. But on dollar Euro terms we are at peak OPEX there will be. So when we say peak OPEX there is 20 people, couple of people come, couple of people go, this continue to happen. But there is no big jump which is expected, okay, 2, 3% plus or minus around these levels.
Madhav Marda
And the last question just on the insurance cost one is when do we expect the pending receivables which we, you know, you have to receive from the insurance company. When do we expect that? And secondly, I think even the insurance cost which is a bit elevated right now. When do you see that coming down normalizing to like a more steady state level?
Jagdish Agarwal
So we have already answered that, that we are expecting the next six to 12 months to get the insurance money claim with us and the higher premium maybe I mean we are trying but looks like that it might go for a year or so. Again.
Madhav Marda
How much is the money which is due pending from the insurance company?
Jagdish Agarwal
We are expecting in and around 100 crore plus minus.
Madhav Marda
Okay. And the higher premiums are how much are we spending which is more than the normal, the premium which you are spending?
Jagdish Agarwal
So roughly around 13, 13 crore to 13 and a half crores. We are expending higher than normal in a year.
Madhav Marda
Thank you.
operator
Thank you. Next question is from the line of Abhijit Agila from Quoted Institutional Equities. Please go ahead.
Abhijit Akella
Yeah, good afternoon and thank you very much for taking my questions. Just the foreign currency impact on the revenue growth this quarter, would it be possible to quantify that? How much of the revenue growth was actually driven by the rupee depreciation.
Kedar Vaze
Vis a vis last quarter? I don’t think there is much change vis a vis last year. It’s about 10% on the export revenue. So that’s been a big jump up. But this quarter we have done 3% growth year on year on the European underlying business in euro terms.
Abhijit Akella
Okay, got it. No, that’s helpful, thank you. And just the, sorry, the row portion of the fragrances that seems to have grown quite well in the nine months from about 215 crores to about 282 or something like that. Are there any specific geographies where this growth is coming from and what is your outlook for this side of the business?
Kedar Vaze
So Middle East, Africa areas, Central Asia, this is the areas where we are seeing strong growth and this is linked to also the markets in these areas. Growing, growing accordingly. So strong double digit growth is happening in the Middle east area.
Abhijit Akella
All right. And Mr. Ramakrishnan was kind enough to highlight the total investments on the US side of the business as well as the expected revenue budget over the next year or so. Would it be possible to similarly call out the investments and revenue projections for the Europe site? The two centers we are setting up.
Kedar Vaze
There, we have already set up these centers. The centers are in place. We have roughly 2 1/2 million euros extra cost in the center’s new initiatives that we have taken. And this will support the 45 to 50 million somewhere around that which we will end up in this year for the European business. Our new factory growth factory is expected to be ready in this quarter quarter. So we expect by quarter one, probably quarter two, it stabilizes in full operations. That gives us another position to aggressively grow the market because right now we are almost at 85, 90% capacity.
So we are not Aggressive on all the businesses in Europe for growth. We are ready with the new factory. We will be aggressive on on the growth rates that we can achieve there.
Abhijit Akella
Okay, and the increase in employee cost this quarter that we see, you know, 93 crores compared to 85 crores last quarter. Is that largely driven by headcount addition or is it more to do with foreign exchange movements?
Jagdish Agarwal
It’s a mix of all three, Abhijit. It’s a mix of some headcount additions. It’s a currency impact and there is some trope impact as well.
Abhijit Akella
Yeah, sorry, the last component I missed.
Jagdish Agarwal
In the social contribution, new labor code.
Abhijit Akella
Okay, understood. And from here on, I mean, how much of a further increase would you expect in the next quarter or so before, you know, all the investments fall into the base in employee cost?
Kedar Vaze
I think this quarter is fairly representative from the all in cost on the new initiative. There is no so all the centers are manned. You will see couple of people joining one or two people kind of moving. This is a normal churn, but we don’t have any very large sort of addition expected. We do see some relocation movement of people as we have different centers. Some people will move from one location to another location, this kind of thing. But overall cost impact, I don’t see additions. I see reorganization. Where the opportunity is there we will move the people.
Abhijit Akella
Okay, understood. Thank you so much and all the best.
Kedar Vaze
Thank you.
operator
Thank you. Next question is from Spark Capital. Please go ahead.
Unidentified Participant
Yeah, Hi. Good afternoon, sir. I just wanted to understand the linkage between your CDCs and manufacturing facilities. So what I sense is that you have basically three growth engines. One being your manufacturing facilities, second being a cdcs and the third being your global sales. Right. So does the demand arise from the CDCs and the products are manufactured from your manufacturing facilities and then transferred over. Is that how the whole scenario works?
Kedar Vaze
Yeah. So CDCs are the creation development centers which works together with sales and marketing. And these centers develop new business operations, then satisfies that business. So the operational growth is a CAPEX and a facility manufacturing facility that supports the growth. But the actual growth comes from the same CDC. So we have put in three new initiative CDCs that will generate additional businesses in different geographies and different customer categories that business. To fulfill that business, we have expanded our manufacturing footprint in Europe as well as in India and Asia.
Unidentified Participant
So currently what is the installed capacity, if I may ask? Overall the company and the utilization rates.
Kedar Vaze
So in Europe we have installed capacity which is catering to the 50 million and it’s about 90% utilized we will double the capacity at least sort of one and a half times the capacity in the quarter this quarter, by end of this year or first quarter next year in India we have about 20,000 tons of current capacity. We will expand by another 9,000 tons in the first quarter next year and build another 15,000 tons thereafter. We have good amount of headroom within India to continue to grow. There is no capacity constraint within India while the two factories currently are are pushing together.
And we have additional capacity built in Southeast Asia for 3,600 tons which will give us another 5 to 7 million of turnover sales in Southeast Asia.
Unidentified Participant
Okay, and the 12% CAGR that you spoke about is between what time frame is it between FY26 to 29 or FY26 to 28?
Kedar Vaze
So 25. So 2425 is the base year and we will grow at 12% year on year.
Unidentified Participant
12% is your YoY growth being 2425 the base year, right?
Kedar Vaze
That’s correct.
Unidentified Participant
And your return ratios are still on single digit levels at around 6 to 7%. Are we going to see a double digit growth post FY28 coming? These things turn 55.
Jagdish Agarwal
ROC. You’re talking about regional capital employed.
Unidentified Participant
I’m sorry,
Jagdish Agarwal
you’re talking about roc?
Unidentified Participant
Both ROE and roce. So ROE is in single higher single digits. So are we going to see some mid teams by FY28 29 once these things stand up?
Kedar Vaze
Yes.
Unidentified Participant
Okay.
Kedar Vaze
I expect around 14% is where we will end up in the business.
Unidentified Participant
By FY29?
Kedar Vaze
Yes, two or three years when the new initiative starts to generate cash breakeven we reach the 14%.
Unidentified Participant
All right. And one last question is regarding the EBIT. So what I am noticing is over the past couple of years your fragrance EBIT margin has remained under a higher single digits at around 6 to 8% and your flavors has quite increased to 2022% and it has maintained. So are we going to see this kind of EBIT margins at least till FY 2728 and then maybe grow for Flavors?
Kedar Vaze
As you mentioned we had a couple of years back quite heavy investments and we re sort of reoriented the business for the next phase of growth in India. So now Flavors is at a steady state India business. We have put in place all the, all the development center manufacturing capacity and we need there may be some incremental cost capex as we grow but it’s a steady state business. If we compare fragrances in India it is very similar and very steady state. The ability in Fragrances is now depressed and looks different with our investments outside India.
And that that will take two, three years, four years to play out. And we expect that to then be more steady state. It won’t be at the same mature level as the India business, but we expect it to be clocking 13, 14% EBITDA and improving year on year as we add operating leverage.
Unidentified Participant
So this you’re talking about ebit, right? Because I’m concerned about the EBIT margins. So for fragrance, you’re saying it will become 13 to 14% bisect in another.
Jagdish Agarwal
2 to 3 years outside India. Ramp up, it will be 13 to 14% a bit.
Unidentified Participant
And a blended EBIT considering both India and domestic.
Kedar Vaze
17, 18 in somewhere around there.
Unidentified Participant
So 17 to 18 is your blended EBIT in fragrance. Right.
Kedar Vaze
We will be EBITDA level 17%. I just got corrected by Jagdish. At the EBITDA level, I am talking 14 and 17%. At the EBIT level, it will be. 2 to 3% higher
Unidentified Participant
from current 8%. Right. In fragrance,
Kedar Vaze
yes.
Unidentified Participant
Okay. And this flavors is going to remain at around 20 to 22% if I’m not wrong, because it’s steady, kind of.
Kedar Vaze
Is a steady state till we are now addressing the India market and some of the exports at some point, if we look at the Southeast Asia, Middle east or European business, then we will invest. Once the fragrance investments have started to play out, we can look at expanding the flavor business globally.
Unidentified Participant
Okay. Okay, that’s all.
operator
Thank you ladies and gentlemen. We’ll take the last question from the line of Bharat Seth from Quest Investment Advice Managers, please go ahead.
Bharat Sheth
You said this, which new factory will start? Which, I mean Q1 and the one which has hours under fire will start. So when do we expect to start?
Kedar Vaze
So first the new facility will start in Q1 and the one which is in the fire, we probably have the building and when we migrate the first factory, then probably next year, first calendar quarter, first quarter or fourth quarter, next year starts the MIC session.
Bharat Sheth
Okay. To understand more on this gross margin, how much pricing power do we really have? I mean, so that to mitigate input. Yeah.
Kedar Vaze
So most of our products, 85% of our products are proprietary. We have very good pricing power on being able to pass on the cost increases to our clients.
Bharat Sheth
What is the real issue that we are not able to really improve the gross margin? I mean, as you were anticipating.
Kedar Vaze
There’S no real issue. Things are improving. I mean the numbers are a bit time lag, but otherwise things are improving right now.
Bharat Sheth
One question for JST receivable.
operator
So sorry to interrupt you. There is about a background noise from your line. Can you please move to a different location please?
Bharat Sheth
Yeah, sure. So. Hello.
Jagdish Agarwal
I got your questions. You have to go to GST different, right?
Bharat Sheth
Yeah.
Jagdish Agarwal
Okay. So we are working on that. And I do expect we should see some positive on that in three to six months time.
Kedar Vaze
Already seen.
Jagdish Agarwal
Yeah.
Kedar Vaze
So they what was stuck. I think the orders are in our favor. And the GST refunds have started to come. At one point, at the High point, roughly 50 crores of GST for exports was stuck. In the appeal or in the clarity on the basis. I think the GST refunds have started to come in. So this may be every. Every month, every two months we are getting refunds. And this 50 crore is expected to be brought down to normal levels in couple of months. Maybe six months.
Bharat Sheth
Thanks. Thanks. And all the best.
Kedar Vaze
Thank you.
operator
Thank you very much. With this I now hand the conference over to the management for closing comments.
Kedar Vaze
Thank you. I hope we have been able to answer your question satisfactorily. Should you feel any further clarification please reach out to the company or feel a. Feel free to contact our team or CDR India. Thank you once again for taking the time to join us on this call.
operator
Thank you very much. Thank you. On behalf of S.H. khelil Current Co. Ltd. That concludes this conference. Thank you for joining us. And you may now disconnect your lines. Thank you.