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813012018 “The right blend | Outook Business THEBIGSTORY SPECIALS PERSPECTIVE PIXTORY ENTERPRISE STRATEGY MARKETS CESTLAVIE EVENTS Search Here. Home / Markets / Feature / The Right Blend | AUG 15, 2018, Feature The Right Blend Camlin Fine Sciences’ strategy of scaling new geographical and product frontiers is set to pay off after bleeding it for two years Khushboo Balani Leading from the front: Managing director Ashish Dandekar has turned Camilin Fine Sciences from a newbie to one of the world’s top antioxidant players Camlin Fine Sciences’ (CFS) topline received a mighty blow when it announced its entry into the antioxidants blends business. Its biggest client, US-based Kemin Industries was unhappy with its entry as a direct competitor and annulled its contract with the firm in August 2017, when it announced its foray into the US market. Kemin Industries accounted for 20% of CFS’ topline at 21 billion. CFS was also facing headwind from the Chinese market around the same time, in the form of pricing pressure and low demand. The resultant capital crunch put the brakes on its expansion plans. But this definitely is not the endgame for CFS which was formed after the demerger of the fine chemical division of Kokuyo Camlin in 2006. The firm is a global player with manufacturing and research presence across five countries, through a host of its subsidiaries. The firm started off as a manufacturer of intermediate antioxidant products and due to an enterprising management, quickly became a global leader in the market. Marching forward hitpsiwu-oulookbusiness.commarketslfeturlthe-ight-blend-4589 amt 813012018 “The right blend | Outook Business THEBIGSTORY SPECIALS PERSPECTIVE PIXTORY ENTERPRISE STRATEGY MARKETS CESTLAVIE EVENTS ‘Search Here. or antioxidant blends is in the range of 40-70% in comparison to the 30-35% level for the more commoditised tertiary Butylhydroquinone (TBHQ)/ Butylated hydroxyanisole (BHA) offerings, both of which are food additives used for animal as well as human consumption. crs already a global leader in less-specialised antioxidants, such as TBHQ and BHA, commanding more than 50% market share. But the opportunity in these markets is limited from here on ($100 million) and there has also been a steady rise in competition. The move towards antioxidant blends will not only extend its customer profile, but will also enhance its potential for cross-selling. The shift has enhanced its exposure to four end markets — human food, animal feed, pet food and biodiesel. For instance, the addressable market for the firm will expand from the current $54 million to $500 million in food and beverage ikhil Mathur, ass ciate vice- segment and to $200 million in animal feed segment president, Ambit Capital, says “While initial overhead costs are fairly high in the blends business, the high entry barriers should reduce the risks for the firm as it scales in this segment.” If complexity and scale are external drivers, there is more going for the company thanks to its past track record. Surya Patra, vice-president, healthcare research, PhillipCapital says “We are positive about CFS’ entry into blends because the firm has demonstrated the ability to successfully carve a niche for itself in new businesses in a short period of time.” Patra cites its suecess in the food ingredients business, where the firm began from seratch but achieved global leadership in less than six years. Normally, it is difficult for a new firm to break into food intermediate products, but CFS has. Patra adds, “Even though it will face competition when it ventures into the new segment, because of its Indian positioning and its integration spanning across the entire chain, it will be a cost competitive player globally.” hanks to that optimism, CFS raised 1.5 billion through a Qualified Institutional Placement (QIP) in December 2017 to complete its greenfield manufacturing plant at Dahej, Gujarat, which is expected to be the lowest-cost manufacturer of downstream products and of vanillin globally. The plant is expected to commence operations in FY19. Mathur states that the plant will reduce CFS’ import dependence on key raw materials considerably and hitpsiwu-oulookbusiness.commarketslfeturlthe-ight-blend-4589 at 813012018 “The right blend | Outook Business THEBIGSTORY SPECIALS PERSPECTIVE PIXTORY ENTERPRISE STRATEGY CESTLAVIE EVENTS Search Here. oad to recovery Expansion of vanillin manufacturing and antioxidants business will reflect in the FY20 topline Not Sales (€bilion) Ebitca margins) PAT(€ milion) ROE(K) ROCE CH) 4.89 5.33 7.22 10.03 12.89 19.2 72 3.0 11.9 17.4 358 18 241 593 1444 20.3 36 65 142 26.6 21.9 55 o8 ana 20.2 Fras Fvi7 Fvia* FY19* Fy20* ‘Estimates: Pritipcaptl Patra believes that the stock is set to re-rate as its past investments are set to bear fruit going forward. “CFS has already tied up its investments towards forward-integration and that should boost it y in the near future. The losses, which we have seen earning effic over the past few quarters, should subside and we will gradually see a ramp-up in the blends business. FY17 was the year of pain, when the key customer exited and the process of forward integration began. FY18 was the transition period, from making losses towards turning around the business, and in the meanwhile it also increased its footprint in the vanillin manufacturing business. Moving forward into this fiscal, we should see smart recovery in earning efficiency, with FY20 being the year when its expansion efforts will be more meaningfully manifested in its topline,” (see: Road to recovery). Acquired benefits ‘The firm’s track record on the acquisition front is equally impressi in-house initiatives have ensured that it has a presence across the globe and have enabled it to migrate towards high-margin produets. Apart from manufacturing and distribution presence in Brazil, Mexico and Europe, CFS has a contract manufacturing presence in the US. According to Mathur, local presence is a key factor which gives them confidence in the firm’s ability to replicate its past performance. “Close proximity to customers will enable CES to cater to their requirements better and to reduce its service turnaround time, a key performance metric for antioxidants blends.” hitpsiwu-oulookbusiness.commarketslfeturlthe-ight-blend-4589 ant