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 Rs.1 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.
It is now amidst a structural shift as its portfolio is transitioning from competitive shelf life offerings towards high margin antioxidant blends, alongside increasing penetration in vanillin (the synthetic version of vanilla) and performance chemicals. The gross margin for 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.
CFS is 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 segment and to $200 million in animal feed segment. Nikhil Mathur, associate vice-president, Ambit Capital,