Note: This is a preliminary transcript and may contain inaccuracies. It will be updated with a final, fully-reviewed version soon.
S H Kelkar And Company Ltd (NSE: SHK) Q4 2026 Earnings Call dated May. 18, 2026
Corporate Participants:
Jagdish Agarwal — Group Chief Financial Officer
Kedar Vaze — Group Chief Executive Officer
Analysts:
Anoop Poojari — Analyst
Riddhesh Gandhi — Analyst
Henil Bagadia — Analyst
Abhijit Akella — Analyst
Unidentified Participant
Jatin Chawla — Analyst
Bharat Sheth — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Shkalkar Co. Ltd. Earnings conference call hosted by CDR India. As a reminder, all participant lines will remain 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 conference call, please signal the operator by pressing Star then zero on your touchstone telephone. Please note that this conference is being recorded. I will now hand the conference over to Mr.
Anup Pujari from CDL India for opening remarks. Thank you and over to you Anu.
Anoop Poojari — Analyst
Thank you. Good morning everyone and thank you for joining us on Shkar Co. Limited’s Q4 NFI 2026 earnings conference call. We have with us Mr. Kedar Vazai, full time Director and Group CEO, Mr. B. Ramakrishnan, CEO Fragrances Asia and USA 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 Tirar to make his opening remarks.
Jagdish Agarwal — Group Chief Financial Officer
Good morning everyone and thank you for joining us for the S.H. Kelgar Co. Earnings call for the fourth quarter and financial year 2026. Financial year 2026 was a year of steady progress for the company as we continue to strengthen the platform for the next phase of growth. Despite a dynamic operating environment, we delivered an encouraging revenue growth supported by resilient demand across all our core categories and steady progress in the new markets. A key focus during the year was on building capabilities that support growth in the longer term.
Creative development centers across key markets are now playing an active role in new product development, customer engagement and market specific innovation. We are encouraged by the level of engagement with new and existing customers and as these centers become more integrated into our global innovation and delivery framework. In our industry, customer conversion and scale up typically takes time given the nature of product development, testing, approvals and adoption cycles. At the same time, once relationships are established and products are embedded in the customer portfolios, they tend to be long duration in nature.
Therefore, while these centers will contribute progressively, we believe they have the potential to meaningfully transform our business profile. Over time these capabilities mature. They will enhance our global relevance with customers support higher quality, higher margin growth and strengthen the company’s position across key international markets. We are also making good progress on our expansion initiatives. The Almere factory at Netherlands Greenfield facility is now fully operational, thus debottlenecking our European growth which was approaching full capacity utilization.
The Vanuati facility in Maharashtra is expected also to go on stream in the coming months. These additions will provide us greater operational capacity and support the ramp up of business across the regions over the next few years. Along with the rebuilding of the Vasivili facility, these capacity additions are expected to address our requirements in the respective geographies for the foreseeable future. It will also strengthen our ability to respond to customer requirements more efficiently as we scale across domestic and international markets.
This capacity additions, together with our investments in customer access, innovation, market specific capabilities provide a stronger capex ready foundation for growth over the coming years. The broader environment continues to be fluid, evolving geopolitical developments and supply side dynamics. Globally there are strong customer relationships, diversified presence and improving operating platform positions us well to navigate these uncertainties and capitalize on the emerging opportunities. With that, let me hand over to Jagdish to walk you through the financials and key priorities.
Over to you Jagdish.
Kedar Vaze — Group Chief Executive Officer
Thank you Kira Good morning everyone and thank you for joining this earnings call. As we know, the global environment continues to remain challenging with geopolitical and macroeconomic uncertainty impacting business across sectors. Despite this backdrop, the quarterly and annual results we shared last Friday reflect a performance that has remained broadly in line with our standard guidance. In many ways, the results reflect the preparatory actions we have been taking in anticipation of the current market situation.
You would have noticed that during the quarter we reported a one off sale of approximately 35 crores of low margin product or negative margin product. As a part of our ongoing portfolio optimization exercise, we are continuously reviewing our product and customer portfolio and taking conscious decisions to exit transactions that are structurally low margin and unsustainable, particularly in the current inflationary environment. Influenced by the Middle east situation and broader geopolitical developments, our key objective remains clear protecting margins while ensuring supply security for our customers.
The situation remains highly dynamic, especially with raw material prices witnessing frequent increases. In several cases, unless orders are booked or blocked immediately, pricing can change materially even by the next day. Therefore, we continue to work very closely with our customers to ensure continuity of supply and operational stability. This approach may temporarily result in some inventory build up and as a short term increase in borrowing levels. However, from a medium to long term perspective, our focus remains firmly on cash generation, strengthening the balance sheet and reducing debt.
From a profitability perspective, adjusted EBITDA Is stood at rupees 83 crores with EBITDA margins at around 13.5% remaining steady on a sequential basis. As highlighted earlier, the operating environment remains dynamic raw material prices witnessing an increase due to geopolitical development in the Middle east and evolving supply side conditions. The current quarter did not see a meaningful impact from these pressures supported by existing inventory coverage. However, these cost increases may reflect in the coming quarters and we are actively working on appropriate pricing measures and cost optimization initiative.
Protect margins. The profit after tax performance during the year was impacted by a higher effective tax rate at the console level reflecting the impact of losses in few subsidiaries. With that we can open the floor for questions or any feedback that you may have.
Questions and Answers:
Operator
Thank you ladies and gentlemen. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while we poll for questions. Participants, a reminder, if you wish to ask a question, please press star and 1. We take the first question from the line of Videsh Ram Gandhi from Discover Capital.
Please go ahead.
Riddhesh Gandhi
Hi. Hi. You know we’ve done about 350 crores of XD+.
Operator
I proceed with your question.
Henil Bagadia
Hi, you can hear me now. Hello?
Jagdish Agarwal
Hello?
Riddhesh Gandhi
Hello.
Operator
If you can please use your handset and proceed with your question.
Riddhesh Gandhi
I am unmuted. Hello, can you hear me? Hello?
Operator
Yes, now we can hear you. Please go ahead.
Riddhesh Gandhi
Yeah, hi sir, you know we have done about 350 crores of the Capex until the last few years, you know, and despite actually all of this at the EBITDA level, we’re just not able to show growth. I understand that we’ve had a few industry headwinds. I understand that there is some amount of expansion for which there are operating actually losses. But I mean, just wanted to understand your thinking around how long it’s going to take until CapEx and the business actually tends to give us the return ratios that typically this industry should be earning given how sticky and high quality of business this is.
Jagdish Agarwal
Yeah, you’re right. And the fact that we are going through the CAPEX cycle in our industry, we should also look at the development center OPEX as a sort of Capex because it takes two to three years before we start to generate revenue on that. So at this point we are, we have the new initiatives last year which we have started in Germany, Manchester just came on stream this year and the US which came on stream last year. So three centers, which is almost 70, 80 crores of cost per year in OPEX are also of the nature of capex and they will start generating revenue after progressively but after three years in term of breakeven.
Riddhesh Gandhi
So just to understand how much are our losses at the OPEX level right now in these new initiatives and development centers
Kedar Vaze
The
Jagdish Agarwal
Entire.
Kedar Vaze
So till that time these centers are not going to, you know, generate the revenue, they are going to the cost center only. Yeah. So just want to answer how large is
Riddhesh Gandhi
How, I’m saying how large are the losses which we are bearing in these?
Kedar Vaze
It’s roughly when you look at all these, we combined 80 to 85 crores annually.
Jagdish Agarwal
I would say the investments are to the tune of 80 to 85 crores because they’re not losses. We are producing products, we are giving samples. So the development work is happening, but it is to the tune of 80, as Jagdish mentioned, 80 crores.
Riddhesh Gandhi
So you know, so if we add up the let’s say 350 crores of the Capex and let’s say another, let’s say the 200 crores of operating losses which we are saying could be counted as opex, we’re talking about 600 crores of investment here. I’m assuming under the 5, 600 crores, our internal hurdle rates would be to make at least 18 to 20% return on equity on that investment over and above how much historically our business has been earning. So is that what we are expecting to play out in the next one to two years?
Jagdish Agarwal
That is what we are expecting. But it will not play out in one to two years. It will take longer than that. We are talking about markets which are 20 times bigger than our original Indian market. So we will take time to build the capability and the market size. But the growth, growth Runway is very, very large. We’re talking about markets which are 20 to 25 times bigger than the Indian markets.
Riddhesh Gandhi
But is there a risk that this doesn’t play out as per our plan? Or, or I mean is the traction which we are seeing in the response, which we are seeing, are we on track? Are we slightly behind schedule? Did we anticipate how hard it would be? Because obviously in these old markets it’s also harder to break into these clients. Right?
Jagdish Agarwal
So on these markets we are on track. We’ve also already seen business in the US upwards of 1 million contracted. So we are on track for these markets. We have not anticipated and planned for any large capex in India and unfortunately due to the fire incident we had to do substantial relook and reinvestment in the Indian capex. So this is the part where we have got a temporary setback when we will be able to build up our factories back this year and be ready to go again.
Riddhesh Gandhi
Is there any guidance you can give us for the year ahead?
Jagdish Agarwal
I think this is a very, very, I would say difficult question to answer. We are faced with an uncertain future on what is the raw material supply situation, what is the pricing and inflation as a result of the Iran USA standoff and given that we are not really in a position to give you a full year view I think quarter one we have secured our business as both price increases as well as supply contracts and inventories. So we are on track for a normal quarter one, quarter two as well. I believe we have initiatives ready that are allowing us to maintain our margins and continue to grow thereafter.
We will keep taking steps to ensure that we remain in line with the inflation and the market environment all the regions that we are operating. I think beyond the first half it’s very difficult to give a certain view of where the market is headed or what is the net results on the inflation and the growth rate that we can assume. As of now we don’t see any cause for concern for the first half of the year. We are adequately covered. We see enough growth, more than enough growth and good win rates in terms of our product range developments for last year.
Riddhesh Gandhi
Okay, fine. And just in the event that there are any issues with RM pricing etc, I’m assuming we would be able to pass it on as product contracts, right?
Jagdish Agarwal
Yeah, we are in a position to pass on the raw material price increases. What we are also preparing is in terms of raw material situation getting worse. As Jagdish already mentioned, we have transitioned out of 35 crore which is roughly translating about 50 crores of business which was low margin or negative margin. In the new environment we have transitioned out of that business with a one time sale to these clients. We will continue to observe and closely monitor the sales given the raw material expected shortages and current price inflation.
We will monitor closely where we are using the raw material. Our overall strategy would be to move the raw material which I believe globally will not be available in its full entirety to use the raw material for the right long term clients and right margin profile clients
Riddhesh Gandhi
And so we expect margins at least going forward to now slightly Normalized towards the teams routines at least.
Jagdish Agarwal
Yes.
Riddhesh Gandhi
Okay. And this we expect to happen at this year. It’s it, I mean itself.
Jagdish Agarwal
Yes, I think we will reach there quickly.
Riddhesh Gandhi
Okay. All right, thank you, sir. I’ll rejoin with you. Thank you.
Operator
Thank you. We take the next question from the line of Hinel Bagadia from icpicorp. Please go ahead.
Henil Bagadia
Thank you for the opportunity, sir. I hope I’m audible.
Operator
Yes, please go ahead.
Henil Bagadia
Given the current situation, sir, what is the impact in terms of your RM price increases given that even the citrus terpene, I.e. Orange, lemon, grapefruit also have been impacted and the crude derivative? And since you suppose that you have taken increases, is there will there be an aberration what happened in the past where we had actually piled up on high cost inventories and it further took us 1, 2/4 to get back to normalize EBITDA even after the situation actually cooled down? So do you see something like that even happening right now?
Jagdish Agarwal
Not really. I think the inventory prices are going up. Very difficult to put an exact number, but upwards of 12, 13% plus pretty much across the board. There is inflation in operations, in power and fuel, and we expect further inflation on these operating parameters. We are prudently ensuring that we have raw material at the right prices and we have contracts in place and material coming in. And then we are looking to sell to our clients based on the stock in hand rather than any future raw material pricing or contract.
So we are more or less looking at two to three months of inventory, raw materials in hand, and communicating and committing to the clients the prices based on those raw materials. And we will continue to do this process every 2, 3 months to ensure that we are not caught with excess inventory and or with mismatch between the selling prices and raw materials.
Henil Bagadia
Okay. If I come to the international markets, sir, we have seen that the US has actually ticked about a million dollars in terms of revenue. So what do you see in the timelines where US could be profitable on first the EBITDA level and second on the PAC level and also in the case of US markets, if we see it’s going to take us at least one and a half years for breakeven is according to my estimate on the EBITDA level and much further growth and much more timelines for even the pat and even if we consider the US market to be homogeneous and a large opportunity, but it’s way more competitive even compared to the Europe one.
So how do you see US growth strategy other than the inorganic one where you can actually Scale the growth in a very significant way given the current headwinds.
Jagdish Agarwal
So I mean, if you look at the growth strategy, when we talk about inorganic, we end up paying 12, 13 times of EBITDA which translates to roughly 5 to 6 years of breakeven time on our organic strategy. What we are investing in the US we will have a breakeven of roughly four years or earlier. So we are well positioned to make the make the growth happen. We are seeing very good signs. I mean disturbances like we are kind of seeing now are good opportunities rather than disturbance because clients will look at alternatives in this environment.
Henil Bagadia
Okay, so when we entered the US market we did have some plans to use some of our patents. So also there you could allude us to the timelines where the patent that we filed are due for expiry. And also if we consider the patents for other FMC for other FNF companies which is due for expiry, what are the timelines where you see? So first of all, are we interested in getting into those products and technologies and blends? And secondly, if we are interested in what is the timeline from actually re engineering the product to the batch orders to actual large commercial orders out there.
Jagdish Agarwal
So we are not like in the pharma looking at patents as a way of entering existing market or taking over market share. Our patents are more in line of new innovations and help us to create products that are differentiated for our clients. So the patents are not products that we sell directly. We use these patented products in our design.
Henil Bagadia
Okay, coming to the European since the plant is commercialized, so what kind of timelines do you see where we can actually reach to an optimal levels? And given that we have actually added almost the same capacity that we are operating right now, which geographies in Europe, the countries that you plan to as a new entry and secondly as increasing the penetration.
Jagdish Agarwal
So as you know, we’ve started our center in Germany. We have now fully established the center with all the capex done system IT system people, raw material for all the laboratories. So the labs are fully functional. Last couple of months we have now the additional facility in the Netherlands, in Almere. So we look at Northern Europe, East Europe, Poland, Germany and the Benelux region. For the continued growth. We have roughly closed the year last year with about 10 million of sales in the Netherlands production site or sale.
And then we continue we move this to the new facility. So on day one it has already fully operational with the 10 million yearly sale.
Henil Bagadia
Okay. And lastly we’ve seen the antitrust regulate antitrust. I Mean judgments that have come against the FNF companies and the FMCG companies have also voiced that they want they are willing to actually invest into joint development with other fragrance companies. So do you kind of see for some kind of a strategic tab with some FMCG companies where there’s a co ownership on IP and we’ve got a framework order or is this just going to take a lot of time?
Jagdish Agarwal
No, on the bit on the antitrust there is no further work that or nothing that we are doing. But we do see that as an effect on some of the buyers so that they look at alternative suppliers. Second question. I mean, I mean there is not a question.
Henil Bagadia
So you don’t see something like a co ownership with the FMCG companies that we are currently working with?
Jagdish Agarwal
No, we. What do you mean co ownership which my.
Henil Bagadia
In co ownership I mean the large FNO companies actually own the patent or the blend and they don’t usually share the formulation secrets and due to which this entire thing is actually clogged up. These guys want access to the IP blends.
Jagdish Agarwal
I. I think we are doing a bit of this in Europe in tolling manufacturing, but it’s not our core business.
Henil Bagadia
Okay, thanks a lot for the opportunity, sir. I mean right back to the group.
Operator
Thank you. Ladies and gentlemen, in the interest of time and fairness to others we request you to restrict to two questions per participant. We take the next question from the line of Anurag Patil from Quest investment managers. Please go ahead.
Kedar Vaze
Thank you for the opportunity. So sir, what percentage of our raw material is linked to the crude?
Jagdish Agarwal
So about I would say 40% is directly linked to the crude and another 30% are indirectly linked to the crude in some part like freight and logistics etc. Will affect across across the board.
Kedar Vaze
Okay. If we consider current situation persist on the raw material side. So in the first half can we maintain this 40% gross margins or there is further risk on the downside,
Jagdish Agarwal
I believe for the first half we will be able to maintain this margin. As of now we are covered the raw material and unless there is anything further we will be able to continue the business in 40% plus gross margin.
Kedar Vaze
Okay. And so on the flavor side you have your margins have improved sequentially quite well. So any specific reason on that side?
Jagdish Agarwal
No, I think the flavor growth has kicked in so the margins are accordingly better. We also have you know, operating leverage as a result of the rapid growth in the volumes.
Kedar Vaze
Okay sir, that’s it from my side. Thank you very much.
Operator
Thank you. We take the next question from the line of Abhijit Akela from Kotak Institutional Equities. Please go ahead.
Jagdish Agarwal
Yeah, good morning. Thank you so much. First one, just on the revenue growth side. You know, if I adjust for the 35 crore one off liquidation, which I believe was for the India geography, it seems like India revenues would have been a little bit down year on year. So some sluggishness there across India, maybe a little bit across Europe also if we adjust for the impact of the depreciation in the rupee. So just your comments regarding the demand environment and
Kedar Vaze
Revenue growth
Jagdish Agarwal
Profile.
Kedar Vaze
I mean how are we seeing the market and do we expect to sort of accelerate on this growth in the coming year?
Jagdish Agarwal
So let me address this in two parts. On the European side like we talked even last year and throughout the few quarters we have seen muted growth largely because our capability to execute. We were reaching to the full capacity level. So we tried to take only businesses which were meaningful. We have now the new capacity in Europe that will allow us to grow rapidly and restore the double digit plus growth rates that we want to achieve in the next few years because we have doubled our capacity and I think we can grow that business aggressively.
On the India side also or Asia side, there is demand. There has been some delays in shipments going to Middle east and some uncertainty which came in month of March which sees the India business like volume drop. But these businesses have restored our supplies have continued thereafter. So there is no demand per se reduction as we speak. We however remain cautious. I think the full impact of inflation in India has not been felt as the oil and. Oil and petrol and diesel prices have not moved up. But I believe that as we, as we see the, you know, the writing on the wall, we see inflation hitting us, we are prepared for it.
And the environment of high inflation, our large sort of higher inventory strategy always plays out and we always see good demand in inflationary environment. So even the overall business growth may be sluggish in the competitive space. Our growth tends to be faster than the market when there is high inflation.
Kedar Vaze
Okay, just sorry, one clarification here regarding the comment regarding Middle east shipments. So when you look at the row sales for this quarter, they’ve grown by some 34% year on year. So I’m just sort of trying to reconcile that with the comment regarding some disrupted shipments in the month of March.
Jagdish Agarwal
Yeah, so the growth has been strong in the Middle East. We continue to see that growth.
Kedar Vaze
Yeah. So Middle east is separate from the India geography, right? I mean, or are there exports from India as well to that Region which are shown within India revenues.
Jagdish Agarwal
No Middle east is separate. But it, I mean there are people who also buy in India and there are kind of dependent on export to Middle east from their final product.
Abhijit Akella
And just the other one I had was on the impact of Forex, given the sharp depreciation in the rupee.
Jagdish Agarwal
How should we sort of see the impact on our business from a revenue perspective as well as from the perspective of employee costs and other costs which you have built up significantly in Europe and the us and also, is it possible to just call out how much the FX
Abhijit Akella
Contribution to revenue growth was in the fourth quarter and in FY26?
Jagdish Agarwal
You may want to take this.
Kedar Vaze
So it’s in the range of 3% Vijit when we look at either in quarter or in the full year. So three to three and a half percentage of revenue due to the FX gain.
Jagdish Agarwal
Okay, 3, 3.5% for both the quarter and the full year.
Kedar Vaze
Yeah, more or less similar lines.
Jagdish Agarwal
Okay. And are we a net beneficiary of rupee depreciation given that we have, you know, spent, I mean, invested so much in employees and everything in Europe? So are we still a net beneficiary or would you expect some, you know, pressure on the margin?
Kedar Vaze
We do see some pressure on the margin because we do have a dollar loan into our books and that will have a transition impact. Otherwise, when you look at only revenue transactions, we are more or less neutral.
Jagdish Agarwal
Okay. All right, thank you so much and all the best.
Operator
Thank you. We take the next question from the line of Dipanjana Chatterjee from Spark Capital. Please go ahead.
Unidentified Participant
Yeah, hi. Thank you for taking my question. I just, I’m just going through the financials and I can see that if we exclude the current scenario, even for the past three quarters, your profitability was quite down even though your revenue increased. So now that this added scenario has come in, so had this scenario not been there, so could we have like expected a growth in profitability in this, in this year?
Kedar Vaze
But I could that you are talking about the growth numbers, right? Yeah.
Jagdish Agarwal
What, what is the question that this is? What if the inflation environment was not there? Without this disturbance, where would we ending up the year? So as we’ve given a guidance and even if you look at the fourth quarter this year, we are at 13 and something percent EBITDA from the operating, sustainable operating business, we would be upwards of 13 and a half, 14% EBITDA. In, in a normal environment, we believe that we have taken adequate steps to keep close to this number, at least for the first half of this year and we will wait and watch and see and take a corrective steps as necessary to ensure that we don’t fall below the 12 13% EBITDA level which we want to keep as a minimum.
Unidentified Participant
FY26 year EBITDA margin was 10.2% for the full year. FY26,
Jagdish Agarwal
That’s correct. I’m talking about the fourth quarter this year which would be one off sales. If we exist for the one off sales we have 13 point in EBITDA and that’s what we expect going forward.
Unidentified Participant
Coming year as well. Right.
Jagdish Agarwal
For the first half of the year I am very confident and then we have to wait and watch if there are any major disruption changes accordingly we will adjust our strategy and tactics. But for the first half of the year I’m very confident to reach these numbers.
Unidentified Participant
So this 13 includes other income, excludes other income and other things or just, just a core EBITDA number you’re talking about.
Kedar Vaze
I’d like to like. Deepan, you know like to like when we are talking about adjusted ebitda the visibility is that we should be in a position to maintain that in the first half. Definitely first quarter is more clarity. But second quarter we didn’t watch. But we are driving all the required actions to ensure that this in the first half we should be able to maintain the adjusted EBITDA at a current level.
Unidentified Participant
Okay, okay. And going forward, can you just list down what are your major growth drivers which will drive the business going into upcoming quarters? If you can list down, you know, so if you can just give us a consolidated kind of.
Jagdish Agarwal
So let me, let me talk about the business in three parts. We have basically the mature businesses where we talk about the India fragrance and the flavors business. These are businesses that have been around more than 20 years. We have regular engagement with the clients. These are steady state, continuous engagement, continuous growth. There is no major capex requirement. Factories are in place, laboratories are in place. So this is roughly 1300, 1400 crores of our business. Then we have the aroma global ingredient business which is affected by whatever is the inflation and the global global outlook for the business.
The areas of Southeast Asia, Middle east are what I would call phase two. We have been in these markets good period of time. We continue to grow in Southeast Asia. We built our factory last year. We have the full centers in Jakarta, Singapore. So that’s now kind of in the rapid growth phase with the engagement and breakeven of that business is there. Middle east is also growing rapidly in the last few Years European acquisitions we had a slowdown due to the capacity constraint in the last couple of years.
We have now the new factory, a new development center in Germany. So the European business we look at restoring to a fast growth, double digit growth. This is the, I would say mature and existing business. Apart from this, we have a center which we have just starting in Manchester for UK and global accounts and last year which we started in the U.S. These two are what I call seeds. It will take three to four years for the revenue to ramp up in these geographies. But these geographies are fairly large markets.
They are as I said 20 and 10 times bigger than the market in India. So these are the growth, revenue or growth areas for let’s say sort of 10 year horizon. India, Asia will provide us the growth, continuing growth that we have and Middle East, Southeast Asia, Europe and Southeast Asia will give us the interim, three to four years rapid growth.
Unidentified Participant
Okay, so you are saying that Middle Eastern will give you three to four years of revenue visibility. India is already there and total. This is a 10 year kind of a horizon, right?
Jagdish Agarwal
Yeah. So this is 10 year horizon. We have long term future investments in UK and USA midterm in Germany and Southeast Asia or Europe and Southeast Asia and the short term growth which continues in India, Middle east in flavors and ingredients.
Unidentified Participant
Okay, and what kind of borrowings are you planning? Capex and borrowings in the. In the current fiscal year 27.
Kedar Vaze
So gross date end of March we had a 850, 851 and temporarily we do see that it is going to go up a little bit because we are just ensuring a supply security and in that bargain we might have to build some inventory. But when you look at a long term horizon for sure that we are expecting every passing year we should reduce our debt by 10%. That’s a target. We have
Unidentified Participant
A reduction of 10% each year, every
Kedar Vaze
Possible year. But in an interim we might see in the next three to six months you might see it’s going to go up from where we are as a two
Jagdish Agarwal
Capex side. Our factory in Almer has started. The vanity factory will come in this couple of months and the Vasili factory thereafter. So the first six months of this year we still have CAPEX completion to be done. There will be some delay between the Capex and the insurance amounts coming in. So we will see this debt levels remaining higher and thereafter the debt levels would start to come down.
Unidentified Participant
If you can give us a number for Both borrowings and capex for F27
Jagdish Agarwal
Come again
Unidentified Participant
If you can give us a number for both borrowings and capex for FY27.
Jagdish Agarwal
FY27 capex we will be around 140 crores of capex. This is all the Capex. Most of it is in front ended first two quarters.
Unidentified Participant
Right. And borrowing.
Jagdish Agarwal
Borrowing should remain around the 800 crore mark.
Unidentified Participant
Okay. And what would be your cash conversion cycle? Will it like increase 150 days or will it like remain under the 100 days level? How can you see that?
Jagdish Agarwal
So the cash conversion cycle is around 140 days at the moment. We see that remaining like this till the time that the inflation sort of becomes a steady state because at the high inflation we are keeping higher inventory levels.
Operator
Thank you. We take the next question from the line of Jatin Chawla from RTL Investments. Please go ahead.
Jatin Chawla
Hi, good afternoon and thanks for the opportunity. My first question is when I look at your employee cost and depreciation they both continue to increase this quarter as well. So on a yoy basis there is a big increase almost on employee cost from 75 crores to 100 crores and depreciation from 25 to almost 40 crores. So I thought by last quarter end we were saying our CDC investments are largely done these numbers would start stabilizing. Why are they still continuing?
Kedar Vaze
So when you look at our employee cost on a sequential quarter basis 93 has gone to 101 and in March quarter we had a one off impact on an MTM which came to our trust. So around 6 crore is a one of impact we had in the March quarter our normal employer cost in the range of 94 to 95cr on a quarterly basis at this point of time. So which is more or less in line with what we have in December quarter. Depreciation we have one reclass item which has moved from other expenses if you look at other expenses is lower compared to what we have in December.
So there’s a one off impact of around five to six year that has moved from other expenses to depreciation. So that’s a reclass one. We have
Jatin Chawla
Got it. Got it. I think on the last conference call you had mentioned that you will be putting up a detailed plan as to how your adjusted EBITDA margins can move from 13% to 17% over the next two to three years. We haven’t seen that yet. Any particular reason for the delay and by when can we see that?
Kedar Vaze
I think in last investor call we talked about our three year outlook. We have stated that our reported EBITDA which is a 10% is going to be 14% by end of FY29. We talk about 100 basis point by this point of time the situation has changing every alternate day and kind of a dynamic situation. We’ll come back on that. But at this point of time it’s a different priorities and different situation.
Jagdish Agarwal
Let me just reiterate, I think the environment post 7th or 10th of March has completely changed. So we are very much focused on ensuring the quarter on quarter delivery for the next few quarters rather than the longer term strategy or the longer term strategies in place. Nothing has changed there. So we continue to focus on ensuring that we don’t get sort of don’t fall behind the costing, pricing and communication to the clients. I must say that we are pleased that even large global accounts have sort of responded and confirmed their commitment to the supply with price increases to us.
We are placed well for the first half of the year and we will continue to keep monitoring the raw material and communicating with our clients on a weekly daily basis to ensure we don’t have any slippages in orders and ensure that we can maintain our margins in this scenario.
Jatin Chawla
Just a quick follow up on that. I think last quarter you also mentioned that some of your lower cost raw mat could not flow through two numbers because the revenue was a little bit lower and you were expecting that latest by 1Q or 4Q. We seen the results in 4Q. It does not happen. But in 1Q we were expecting gross margins to actually start improving given the lower cost RM that we had. So is it that now we should not expect any gross margin improvement and at best they should be kind of at the similar 42.5% level that we had in 3Q.
Jagdish Agarwal
So I think the gross margin improvement has happened which is why we see this improvement in March, especially in the last sort of last few weeks of March we had to buy some of the solvent and some lower cost materials at market prices which suddenly shot up. So we had some small dip in the margin as well. But 42.3 net of one off we have maintained in the quarter four we will see that the margin continues to be under pressure but we will be able to maintain and thereabout for the first half of the year.
When you translate this on inflation, this is, this will be better margin because the both top line and bottom so cost and revenue both will move up as a percentage. This is a. This will create a pressure on the gross margin percentage. But in term of absolute gross margin and profitability we are very confident to maintain and push the pricing to our clients accordingly. Our objective this year is to ensure we keep the right kind of business. And we have already taken big steps to get low margin business out of the, out of the sort of portfolio.
So there will be a portfolio reject. We were planning for good gross margin cash conversion business. So businesses which have long lead times on long payment cycles, low margins, these are all businesses which we want to eliminate. We want to use the raw material that is available for the right kind of clients.
Jatin Chawla
And given that you have given up on almost like you said 50 crores of business, will that have a negative impact on the growth that we expect in FY27?
Jagdish Agarwal
My sense is no. I think overall there is strong demand. What we expect is to ensure that the margin portfolio profile of the business remains in the correct way. I don’t expect this 50 crore to create growth challenge for us. I think we will continue to grow. We have very strong indications in the, in the 45 days of this quarter as well. And there is, I mean there is strong demand and we are preparing this for the worst case scenario on the raw material that we don’t have a sort of a negative margin product in our portfolio at all.
This was one of the reasons for big jump or big, big dip in the gross margins in inflationary time. So we’ve taken structural change. But I don’t think this will affect our overall growth because our European growth will now kick in at a faster pace.
Jatin Chawla
Got it. Thanks a lot.
Operator
Thank you. We take the next question from the line of Rohit Nagraj from 361 Capital. Please go ahead.
Abhijit Akella
Thanks for the opportunity. So first question is given that our industry is dominated by mid and small size enterprises and you gave a confidence outlook that for the next six months we are secure from raw material supply as well as from the orders front, have we seen any kind of or shutdowns or maybe orders transferring from those mid or small size players to us given that we have the capability to serve those customers consistently. Thank you.
Jagdish Agarwal
So I don’t have let’s say an exact number or exact quantum. I think the sense of what has happened in the past is clearly that when the raw material prices jump very quickly because of our higher inventory, our selling price jumps are sort of calibrated and not sudden. We tend to gain market share. I think first, first few weeks of this quarter also we believe that we have gained market share in the Indian market especially. So yes, I think the smaller, smaller you are, the less inventory buffer you hold, the more exposed you are to this volatile situation.
Abhijit Akella
Sure. And second in terms of slightly again on the outlook front. So FY27 we had absolute EBITDA of almost 300 crores on a consolidated basis this year it has slipped by almost 18% on a YY basis. Do we foresee that FY27 will be able to make up the FY25 numbers or probably it will be slipped to maybe mid FY28 or FY28.
Jagdish Agarwal
I am actually confident that we will hit the 300 crore plus EBITDA for this year. Very much so for the first half where we have more visibility. But I am confident that we can do better than 25 or at least at the 25 level for this year.
Abhijit Akella
Thank you sir and all the best.
Operator
Thank you. We take the next question from the line of Tanish Javeri from Boring ams. Please go ahead.
Bharat Sheth
Hi. Yeah, so my question was more on the demand front. How do we see our demand shaping up over the next year and two and with the like you said that inflation going higher is good for us but do you think that demand will be impacted because of higher inflation?
Jagdish Agarwal
I think yes. Overall demand will be muted. I don’t see, no, I don’t see the same kind of growth rate as these normal years. Demand will be muted. There will be a transition phase probably first half of the year while the demand, the new sort of post inflation scenario plays out. There will be some, the overall industry level growth rates will come down but our benefit in term of the market share gain, we will see normal growth.
Bharat Sheth
Okay, so can you quantify the normal route and any way in which we can be sure of this? Like are you seeing any green shoot in this?
Jagdish Agarwal
So we are, you know we, I mean we’ve seen this in various, various times when there has been big disturbance in the pandemic or in other times there is a big disturbance, we’ve seen faster growth.
Bharat Sheth
Okay. Yeah, thank you. That’s it from my side.
Operator
Thank you. We take the next question from the line of Bharat Chet from Quest Investment managers. Please go ahead.
Jagdish Agarwal
Hi Kedar and Jagdish, thanks for the opportunity. First understand little more. I mean this optimizing of the portfolio. So this 35 crore that’s
Kedar Vaze
And or still there is a room for further optimization of the portfolio in its viewers. What extent do we expect?
Jagdish Agarwal
So this is an ongoing exercise from discussion with the clients in term of pricing and you know where we expect the cost and where is the new price and corrections in prices as we, as we go along. What we have Done is some of the clients which are structurally low margin have been low margin and you know, long lead times, credit crunch, all of the cash conversion cycle. And when you look at the sustainability of this business vis a vis the inflation, we taken a call to exit those businesses. This is also been a strong case with some of our clients and we happy to commit that.
We have got price increases with many of the clients. So we have a good situation at the moment but we will continue to monitor. We have set up a monthly monitoring system that every time there is a production order costing when the impact of the inflation is then communicated to the account manager and to be directly or indirectly to the customer. So we don’t fall behind the curve anytime throughout the year. If the inflation continues, we have shortage or supply disruption on any material. We will pass on to the clients as soon as we have information.
And we have taken additional inventory in last quarter and to make sure we have additional 3040 days of inventory in hand to offset the additional time to pass on the effect of inflation.
Kedar Vaze
Fair understanding this as on today there is no further rule. We, I mean optimization we are expecting correct.
Jagdish Agarwal
So I, I, I mean we are not expecting any significant quantum. We will continue to work with clients and continue to ensure that there is a fairness in the transaction and dealing. We cannot have a scenario where we see further compression in margins. So we will pass on the cost to the clients and I believe that we will be able to get these increases.
Kedar Vaze
To understand what the moral is the commissioning of this new factory that we are expecting in coming months. So when we really start expect to. I mean it’s really reaching the production level that way to
Jagdish Agarwal
Make it, I mean a positive EBITDA level. I mean and second thing again same line approval how long it will take from the client. So if you can give some color. So maybe a one year time or two year time. So the the factory will be up and running hopefully end of this quarter it will take six months of transitioning from one factory to the other. So it’s not that on day one all factory, all operations. So by let’s say first quarter next financial it will be fully operational with all the products transferred and one other factory being sort of moved out and closed.
So in this year we will have transition between two factors. Next year the one of the factories in Mullen will close.
Kedar Vaze
Okay. And this one hour TV what is the status? When do we expect to start it?
Jagdish Agarwal
The one outer factory will only start first will take some time. We will, we have basically we are, we have Restarted the building. So anytime this year, probably third quarter of this year that facility will be available. We may not need it in the current environment as we don’t see so much growth. And we will implement that sort of slowly again that factory should be up and running by next year.
Jatin Chawla
Okay,
Jagdish Agarwal
How we see this now with the European business which you said as again we start and
Kedar Vaze
I is that fair understanding that it’s a little higher margin business than the other business? So how do we see, I mean when we think of. I mean again that can help us on some way in improvement in ebitda?
Jagdish Agarwal
Sure. I think the. There are two, two parts of it. One is the cost in euro because of currency exchange also affect us bigger way. So the more sales we have in Europe or euro or USD helps us in protecting our margins and overall operating cost in a better way. We have now the twin growth engines in basically having the Germany creation center fully ready with salespeople joining and taking up East Europe. Germany as a new market for growth and the factory in Almere, Netherlands. So these two initiatives are now sort of pushing the European business in high growth phase again.
Kedar Vaze
And you say that from us. We have got a 110 million or kind of order. So what will be the implementation time and so will it be over? What time frame do we expect converting into revenue?
Jagdish Agarwal
No, it is 1 million order. It is already converting for the year. So we have some 200,000 order business in in US already which we have. So it is. It is not sort of to be converted. It’s already orders in hand. We expect further orders as we go through the year.
Kedar Vaze
Okay, and last question on this flavor side you are anticipating to get a order from larger MNC like what? We got it on Frankel side so any color on that.
Jagdish Agarwal
So no further update on that flavor side we have good position. We continue to see strong growth. There is no specific one off order but we have. Our plant is audited, our plant is approved. So the sort of the signs and directions are in the right way. I think from flavors as well we have some very, very attractive long term contracts with sort of our buy our vendors. Now we are not sure if all the contracts will be honored in the way that they should be. So far we have seen that they are honored and there is no cause for concern.
If that is the case in the next two, three months we will know that. I mean the position of our cost structure vis a vis competition. We will be very well placed. Okay, thank you and all the best. Thank you.
Operator
Thank you ladies and gentlemen. We take that as the last question and conclude the question and answer session. I now hand the conference over to the management for their closing comments.
Jagdish Agarwal
Thank you. Yeah. So thank you. I hope we have been able to answer your questions. Should you need any further clarification, 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
Thank you. On behalf of S.H. Kalkar Co. Ltd. That concludes this conference call. Thank you for joining us. You may now disconnect your lines.