Camlin Fine Sciences Ltd Q1 FY2025 Concall Summary

Key Takeaways

• A tale of two businesses: Blends revenue grew 13.4% QoQ and momentum is expected to sustain, while performance chemicals remain muted and the European Diphenol facility continues to drag with ~₹10 crore negative EBITDA per quarter.
• Vanillin green shoots emerging: Legacy inventory is nearly liquidated, a new Methyl Vanillin campaign has improved process stability and quality, and sale prices are steadily moving up in recent weeks.
• Anti-dumping tailwind building: US and European anti-dumping actions against Chinese dumping are in motion, with US expected first in 2-6 months; management says buyers are already seeking to develop Camlin as a long-term supplier.
• Vitafor acquisition adds geography, not earnings yet: The June 2024 acquisition extends blends into Northern Africa and Eastern Europe at a ~€1 million monthly run rate, but margins are low and improvement will take quarters.
• What to watch next quarter: Whether the European facility repurposing strategy is finalized and disclosed, the pace of Vanillin price recovery, and any anti-dumping ruling from the US.

Blends: The Growth Engine

• Strong quarter, stronger outlook: Blends revenue grew 13.4% QoQ, and management expects robust growth to sustain through the year, strengthening overall revenues.
• Vitafor extends the footprint: The acquisition of Vitafor Invest NV (Belgium, June 2024) brings a manufacturing facility near Antwerp and products spanning animal feed ingredients, nutritional products, hygiene products and disinfectants, with cross-synergy potential across geographies and product lines.
• Margin catch-up required: Vitafor currently runs at a low EBITDA margin; management expects improvement over the next few quarters to match other geographies.

Aroma & Vanillin: The Turnaround Bet

• Inventory overhang cleared: Almost the entire legacy inventory of Vanillin has been liquidated, removing a persistent drag on pricing and margins.
• Production quality improving: A new Methyl Vanillin campaign commenced by end of May, delivering process stability and quality improvement that strengthens the product's competitive position.
• Pricing inflecting upward: Vanillin sale prices have been steadily moving up in the last few weeks, a reversal from the prolonged softness driven by Chinese dumping.
• Validation in progress: The validation process with major customers is ongoing, and management describes the response as "more than encouraging."

Momaya: "US anti-dumping will probably come before the EU. Typically, that is what we understand. Timeframes can be two months to six months for these to come. But in which ways, since this is an open public information and action, we are already seeing that impact of that, specifically more so in US and Europe, where the buyers know that this is impending and around the corner so are wanting to develop us as a supplier in the long term so that is kind of giving us a benefit already."

Performance Chemicals: The Persistent Drag

• Pricing headwinds continue: Revenue from performance chemicals remains muted, with Catechol still selling at sub-\$1, compressing both topline and margins.
• Hydroquinone chain under pressure: Prices have trended negative in the last month while raw material costs rise with crude, squeezing spreads further.
• China impact softening, not ending: The onslaught of Chinese supply continues, but the pace of price softening has slowed; management believes pricing is likely at its bottom, with demand slowly returning in some products.

European Facility: The Unresolved Liability

• Shutdown costs persist: The Diphenol facility in Italy remains under shutdown, generating negative EBITDA of approximately ₹10 crore per quarter from fixed costs, expected to continue at least for the next quarter.
• Repurposing strategy imminent: Management is working on a strategy to repurpose the plant and expects to finalize it within the next month, with disclosure to follow; the repurposing activity itself will take six months.
• Revenue timeline pushed out: The repurposing project will take 6-9 months to complete, meaning revenues will only begin next year; management targets a minimum EBITDA of 10-12% from the repurposed facility, subject to pricing changes.
• Near-term drag unavoidable: The negative drag is expected to continue for a couple more quarters before any turnaround materializes.

Financial Health: Mixed Signals

• Gross margin holding: Gross margins at 44.9% remained steadfast, supported by sustained momentum in the blends business.
• Finance costs inflated by forex: The increase in finance costs is not from higher borrowing rates but from foreign exchange volatility, including a ~₹6.5 crore forex hit in some geographies due to currency depreciation.
• Tax rate elevated by geography mix: Higher tax expense reflects a conservative approach of not booking deferred tax on the ₹15 crore European loss, while profit-making subsidiaries in Mexico and the US face 30% tax rates.
• Operating costs largely stable: The major adverse impact came from foreign exchange volatility in the Brazilian subsidiary.

Guidance & Commitments

Momaya: "Profitability is very difficult to really say in terms of where this can go to because a lot depends on what happens in the market. But certainly we should be going into the double digits for the EBITDA margin and growth of topline also will be healthy and substantial as we had guided for the year. So, we are on target for that, to get to that around 2,000 mark."

Key Metrics