Advanced Enzyme Technologies Limited (ADVENZYMES) Earnings Call Transcript & Summary

And welcome to Advanced Enzyme Technologies Limited Earnings Conference Call Q2 FY '21 and FY '21. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Tiwari from Antique Stockbroking. Thank you. And over to you, sir.

Thank you, Asha. Good evening, ladies and gentlemen. Thank you for joining us on the Advanced Enzyme Technologies Limited Second Quarter and First Part FY '21 Earnings Call. Today, we have with us the senior management team of the company, led by Mr. Mukund Madhusudan Kabra, Director; and Mr. B.P. Rauka, Group CFO. We will begin the call with opening remarks from the management, which shall be followed by a Q&A session. I will now hand over the floor to the management for their opening comments. Thank you, and over to you, sir.

Good evening, everyone. I'm Mukund Kabra. It is my pleasure to convey our quarter 2 results of the financial year 2020-'21. Firstly, we hope and pray that you and your families are in good health and spirit during this turbulent time. In the first part of this call, as Nitin said, we will be -- we will take you through the earnings and the business highlights, followed by the question-and-answers session. To commence with, I would talk about the nutraceutical industry as it is projected to grow substantially in coming years. The factor behind this growth would be rising awareness regarding calorie reduction and weight loss in countries like U.S. and India is expected to promote the application of nutraceutical. Use of nutraceutical is gaining attraction as preventive health care due to side effects -- due to no side effects of enzymes and probiotics and the increasing popularity of enzymes across various industries like food, non-food and nonfood process industries, the constant innovation in research and development activity to improve enzyme specificity as well as stability is further expected to propel the growth. Now I would like to give some color on operational aspects. Despite of COVID pandemic situation, we are able to maintain our healthy export levels. Even the margins have improved further comparing with past quarters. As we mentioned in our last earnings call that broken supply chain and logistical issues are hampering the export business, but now they are coming back to normalcy, except in INRope as a continent, which is again facing the second wave of lockdown. All over the manufacturing units are running efficiently and progressively and progressing well towards normalcy. We are following all the government guidelines in terms of keeping precautions and safety. Our R&D units are operational, and we are working with -- as per government guidelines and progressing well on achieving normalcy at pre-COVID levels. Talking about the business updates, our probiotics business is growing good and is expected to improve further in the coming quarters. Our animal feed business and industrial enzyme business has faced several challenges due to COVID in quarter 1, mainly [indiscernible] improvement in sales, but still far from the normalcy. [indiscernible] the call, we proudly announced that we are positive on all the parameters and working relentlessly towards the goal for this financial year. As you are aware, we strongly believe in delivering long-term value to our stakeholder. I'm glad to announce that we have a decent growth in profitability because of our product mix. In past, we explained that our annual financial results are more relevant to derive our performance and also for comparative purpose. We are happy to say that our EBITDA stood at INR 110.2 crore, 48% of sales, increased by 9% from INR 100.8 crore, 45% of sales in financial year '20, and our tax increased by 12% and stood at INR 73.4 crore, 32% as compared to INR 65.8 crore, which was 30% in last year. The outlook for financial year '21 is positive with lower single-digit growth is what we can see right now. The rest, it depends upon how situations plan out because Europe has again fell in lockdown due to second wave of pandemic. We are still in pandemic situation with the coronavirus pandemic still persisting, and has an effect on the supply chain front. So we get more clarity going forward in quarter 3, and we will be able to say more precisely and with clarity how the year would plan out, but we expect even in such a tough situation, we are here to defend and we are committed to grow -- committed to growth without sacrificing our margins and maintain the stakeholders' value. Now let me hand over this Raukaji, who is our CFO, who will walk you through the company's financial. Raukaji?

Thank you, everyone. Thank you so much, and good evening, everyone. The financial highlights for 6 months as of 30 September, 2020, the revenue is increased by INR 91 million. This is about 4% increase from INR 2,218 million to INR 2,309 million. And our EBITDA has increased by 9% from INR 1,008 million to INR 1,102 million. EBT increased by INR 126 million, which is about a 14% increase from INR 891 million to INR 1,017 million. And PAT is also increased about 12% from INR 658 million to INR 734 million. On Q-on-Q basis, our numbers are like -- growth is about INR 99 million in our top line, which is revenue. And this is about 9% growth from INR 1,105 million to 1,204 million. And EBITDA has increased by about INR 68 million, which is a increase of about 13% Q4, INR 585 million. EBT profit before tax is up by 4% by INR 21 million in absolute number from INR 498 million to INR 519 million, and PAT is increased by INR 38 million from INR 348 million to INR 386 million. Year-on-year, revenue is increased by about 8% from INR 1,114 million to INR 1,204 million, and EBITDA is increased by about 24% from INR 473 million to INR 585 million. Profit before tax is up by 25% on year-on-year basis from INR 416 million to INR 519 million. And PAT is increased by 21% from INR 318 million to INR 336 million. And the couple of questions generally being asked is about evoxx. The evoxx are -- the revenue -- I mean the top line for the 6 months is INR 111 million. And we have -- we are EBITDA positive in this company by INR 5 million. JC Biotech sale is about INR 214 million -- INR 214 million for 6 months, which is the procurement of serratiopeptidase from them by the parent company Advanced Enzyme. And the sale of serratiopeptidase for the 6 months is about INR 488 million. So this is from my side, and I can be -- I mean I feel we can open the house for question-answer session. Thank you.

[Operator Instructions] The first question is from the line of Rohit Sinha from Emkay Global.

Yes. And congratulations for a good set of numbers. So as we are seeing that, I mean gradually we are inching up in the top line, and I think first time we have touched INR 120 crores on the quarterly run rate. So just wanted your thoughts going forward, when we can expect this run rate to touch somewhere INR 150 crore kind of figure. And where basically it would be coming from, from your human side or animal or bioprocessing side? Or it will be across the segment?

Thank you, Rohit. As we are like already talking, like we plan to double our revenue in next 5 years. This is the COVID time, and it's a difficult time to really predict when and when and how it will achieve. We still say that we have 3 horses or 3 [indiscernible], right, which will grow. One of them is pharma and nutraceutical. The second one -- second vertical is animal feeds and the third one is food one in this bioprocessing. Okay? So -- and urgent areas like we are providing. So the growth will come from this segment. It's difficult to say when the run rate will be INR 150 crore. Right now what we expect is for this year we should have a positive growth maybe in some lower digits. And as we move on, the clarity will emerge when and how we should really expect the growth to exceed that.

Okay. Okay. Sir, secondly, on the margin side, in this quarter, we have seen lot of other chemical companies getting benefit out of that lower crude oil prices. And because of that, margins kind of to a normal level. For Advanced Enzyme crude has nothing to connect rate, and despite that we have a significant margin expansion. So just wanted to know which are the factors playing for us in this quarter? And I mean it is a product mix or raw material benefits? And going forward, how we should see this.

So Rohit, there's couple of factors. The cost of the raw materials has gone up instead of going down on a pricey basis, like if you talk about per kg, raw material cost has gone up. But it's a product mix, at the same time, improvement in the efficiency in the production which has increased the margins. Crude -- you rightly said, crude has no impact on us. It's a very minor amount which we use. So crude has no impact right now, just the efficiencies and the product mix.

[Operator Instructions] The next question is from the line of Shikha Mehta from Equitree Capital.

I was wondering if you could help us with the pricing on the animal enzyme front because I think since meat consumption, et cetera, has gone down post-COVID, how is that shaping up for us? Is that -- are we seeing a decent amount of demand and improvement in pricing now or still not?

So Shikha, we have seen some improvement when we compare it with quarter 1. But if you compare quarter-on-quarter -- if you compare it on quarter-on-quarter, there is still -- we are like I think 10% below the level.

Okay. We're still 10% below pre-COVID level or below...

Yes, below pre-COVID levels, we can say that.

Okay. And sir, can you give how much sales you did from pharma this quarter and this half-year?

Raukaji?

Yes. So let me give you, for this quarter, the human nutrition, this includes nutraceutical, so the sale is about INR 885 million. And animal nutrition is about INR 132 million. Bioprocess, which is food, bioprocess food is about INR 123 million. So roughly 10% of our sales come from there. And nonfood bioprocess is about 5%, INR 63 million. So 11% comes from animal nutrition, human nutrition is about 73% and bioprocess is 16%. This is how like the quarter vertical-wise or depending upon the product bifurcations which we carry out.

Right. And sir, do we have anything on the -- on data about inorganic growth? Have we found any companies that we're looking to acquire or is anything on the radar on that front?

Yes. Of course we always work on that. And whenever we will find any suitable target, I think we'll be better looking for that.

Yes. At the appropriate time we'll come back, Shikha.

Okay. And sir, if you can give how much percentage of our revenue came from our top 10 clients this quarter?

Yes, so 10 customers, we have about 38% to 40%, that is the range which generally we get the numbers.

Right, sir. And if you could give how much R&D spend for the quarter and for the half-year?

R&D spend is about this quarter is INR 50 million. And total spending for the half-year is about INR 89 million as compared to INR 88 million last year for 6 months.

The next question is from the line of Ashwin Agarwal from Akash Ganga Investments Pvt Ltd.

Congratulations on a good set of numbers. So presently, we are utilizing around 60% of our capacity. I know you had hinted this year you're unable to give further guidance more than single-digit growth. But by when will you feel you will be able to utilize around 90% of the capacity in the next 2 years, you will be able to reach that number?

So Akash, 3 to 4 years, we should be able to there.

Which year?

Three to four years.

Three to four years. Yes.

Okay. I couldn't get the number.

Sorry. Can you please repeat?

No, the capacity utilization is around 60% right now. By when will you touch the number 90% capacity utilization?

So we think that we can double the revenue with this capacity, what is the existing capacity what we have. So we feel that in the next 5 years, we should be able to double the trends. That should give you somewhere at 3 to 4 years down the line probably we should reach to the 90% of capacity utilization.

So one of our large U.S. customers, the revenue had halved and we had made up by domestic sales. So could you give us light whether those revenue or lost sales with the customer again will we be able to meet that demand?

No, so -- yes, go ahead, Mukund.

No, go ahead. You can.

Yes, I just wanted to mention that -- so on the top customer, we have no sales in last 3 quarters. And we really look at the U.S. numbers, U.S. numbers in the second quarter, we could see a growth of 9%. So if I exclude on YTD basis the sales number of that particular customer, where we had some sense during last 2 quarters of FY '20, but no sales in this 2 quarters. So U.S. business has really grown very well. It is more than 35% of growth in the U.S. So the sales is led up by the U.S. expense in this 2 quarters.

Okay. Okay. So that business is a permanent loss, but in spite of that we have grown?

Yes, you are right. On dollar terms, if I really look at my U.S. numbers, we had about INR 14.5 million sales in YTD of FY '20. And this year again we are having about INR 13.80 million. So we already make up in that sense. So slightly -- yes, so slightly it is lower about 5% which I think we should be in a position to make up in this year.

Sir, lastly a side question. Inactive promoter recently sold a little less than 3% stake, and they still have 12% stake. So any transaction very -- haven't seen any impact on our operations of our company?

How...

Can you repeat?

No, one of the commercial group who is inactive sold around 3% of their stake, and they still control 12%. So any such transaction, will it have an impact on our operation, any management change or anything such?

No, they are not involved in the operation as such, no?

Okay. Okay.

Yes.

So that will not have a impact? Those will be financial investors only?

Absolutely.

Okay. Okay. And any plans are there by then to sell the balance stake also, sir, any idea on that?

We have no idea. We have no idea about it.

Sir, lastly, what is the expected tax rate for this year and next year?

You mean to say effective tax rate?

Yes.

So it is likely to be 28% this year as well as next year also.

The next question is from the line of [ Kiran Kumar from Soffel Capital ].

I just wanted to understand at Advanced Enzyme they operate -- cater to multiple sectors. Are we also planning to explore into new sectors in terms of applications of enzymes? Or how does it go?

So we have 3 verticals, as I was explaining. So our focus is right now on these 3 verticals. One is [indiscernible] in nutraceutical. We further categorize this into core pharma, the nutraceutical, biocatalysts and probiotics. The second sector is animal nutrition. And the third one is bioprocessing where we again bifurcate into food and nonfood. So our focus is on the 3 area. So right now all the application development and other things, whatever we are doing, is based on these 3 verticals. And the probiotics is the horizontal vertical which fits into all this segment.

Okay. And we have significant amount of cash on books right now. So do we have any plans -- concrete plans to if you like how to spend this cash? Like give out dividends or maybe look at strategic acquisitions? What are the plans we have right now for the cash?

So we always look for the cash is required for the company to grow. We are the growing company. So we believe that we need to have cash in hand for any right opportunity. Of course, we are always searching for the inorganic growth as well for the acquisition, and that is constantly going on.

[Operator Instructions] The next question is from the line of [ Amit Shah from HP Advisors ].

First, I wanted to understand basically the margin profile of enzymes in India, vis-a-vis USA? So what margin do we get in India? And what we get in USA?

Okay. Yes, margins are slightly better in U.S. because in U.S., we are into a business where we generally give kind of very, very customized solutions. So U.S. business is setting a slightly higher margin compared to India business.

So going forward, would we want to focus a lot on U.S. rather than other markets? Or what is our strategy and also geography?

So the focus will always be there whenever business is more and wherever the growth potential is more. But yes, I mean India is for us like the entire manufacturing activity, research and development activities, everything is happening in India. So India being -- you can say the core manufacturing happens here. So we need to always work on one side of like how do we improve our productivity. And U.S. of course we get lot of understanding what exactly market is looking for and how the life in the nutraceutical market is behaving, what kind of growth potential is available in U.S. as well as across the globe. So the focus assets will continue and the U.S., because we are already present, we have our own subsidiary companies in the U.S. So definitely that is the market where that focus will be more. But Europe, again, we are working on so many things to really expand our customer base in that particular market also.

The next question is from the line of [ Neeraj Prakash from Nathan Capital ].

I just wanted to know a couple of things. One is just on a previous participant's question I wanted to follow up on the loss of a large U.S. customer. Can you just elaborate on what was the reason for the loss? And can -- incrementally is there a risk of further losing other large customers?

So [ Nitin ], we had a IP-related issue with the large customer. We don't want to share our formulation and other thing with them. We decided to walk out with that business instead of we handing it to [indiscernible]. So we don't expect any further sale with the large customer right now. Moving to your other question, are we having any -- can we lose further the customers, yes and no, because you can never predict whether you will lose or not. But right now, the concentration of a large customer is quite reduced compared with the -- compared with this customer, which was about at one point of time like he was like controlling 22% of our sales. So right now we're quite diversified in terms of the sales. But even though we say that our business is sticky, but you never know.

Sure. Just a second question on utilization. As you mentioned, you are at about 50%, 60% utilization. But you still have very healthy EBITDA margins of 45%, 46%-plus. So as you mentioned in 3 to 5 years when you reach close to optimal utilization, what kind of margins do you foresee both on the EBITDA and the PAT front because you will definitely see some operating leverage play out on both those margins, right?

We always maintain that our EBITDA should be there between 40% to 48%. That is what we always project and always do that. Yes, as we move on, some of the costs will also go on like the salary costs and some of the fixed costs will also move on. Since -- even like R&D cost will also go up. So we think that we should be able to maintain the range of the margins what we say rather than saying that we will improve or do this or do that because we still need to grow.

The next question is from the line of [ Rajgeeth Singh ] from ASK Investment Managers.

Kabraji, you alluded that with current capacities, we will -- you plan to double revenues in next 5 years, which is 15% kind of growth. Sir, just wanted to understand qualitatively, the enzyme market per se is growing at 7%, 8%, annual growth rate of 15%, what would be the driver for this growth? Would it be the existing client addition, getting more wallet share from there or new client addition or would it be volume? Or would it be price? Would it be new products? And how do you approach your clients? Do you approach them or the clients approach you? Just qualitative understanding. And within each of the 3 segments between animal, human and industrial, which would be the growth driver which would grow faster?

So let me just break it out into the parts, right? So we believe that like all of the 3 segments should grow. We go into the different, different areas and there are different, different challenges. In the -- one of the thing is, if you compare it globally, we are still very small, still very tiny. So there is lot of potential to grow. And I think like that can answer you if the enzyme industry is growing at 7%, 8%, how you can grow at 15%. Yes, we are growing, even like last -- even like this quarter of the other quarters also we have grown more than 15%. But because of the top client, we can't see those numbers. If you just remove those numbers, you will see that the growth is more than 20%. So we don't have a doubt that we cannot grow. We feel that we will grow. The challenges are different in different industries. As I was saying, in the food industry, clearly, you need to target more into the Europe and U.S. areas where lot of opportunity is there. We have certain excellent products. We think that we can play -- we can play the second supplier role out there in the food industry because there is only one who is the leading one. And we feel our products are, even if not better, at least comparable in the baking industry, baking areas and the market are there. So clearly, that's the other area where we can have growth. In the animal feed there are lot of players, but you need to have a lot of registrations, and it takes time. We are in the process. We are halfway of the mark. We have a lot of registrations done in the last few years in the Asian countries, and we are working in the U.S. and other areas right now. So we believe that growth should come from nutraceutical areas or pharma areas, we think that we will grow in these areas too. We have certain excellent combination of products which we think that will grow like the immunity booster and other products, which have a lot of demand at this point of time in the market also. We are working lot of in the -- in this area to the biocatalyst areas where we think we can change the manufacturing processes, for example, statin or other API drugs, which is through the enzymes, which is conventionally being done through the lot of solvents. And lot of steps are involved. And economically it is not viable. So with the evoxx, we are working heavily. We are spending lot of money on the R&Ds to convert and to develop these enzymes, which can convert all of these APIs through the enzymes. So that will be also the growth driver. So we are banking on lot of 3, 4 different horses. We believe that at least 1 or 2 horses should take us to the path. Which one, I think that time will tell us that these are our areas to grow.

Sure, sir. That is helpful. Sir, what has been the client addition over last 3 years? And what has been our pricing growth over last 2, 3 years? Just wanted to understand that.

Prices in premium market is more or less stable. They don't grow, they don't go down too drastically. We do get benefit in the -- in terms of like export market, which is again like 40%, 50% of the market overall, including like U.S. sale because of the dollar fluctuations or the rupee depreciation. On the client additions, we don't track the numbers. But Raukaji can tell more about it. Raukaji?

So I think whatever growth we have in this 6 months, we have got a growth of about 4%. So roughly I think 1.5% has come from the new customer and balance 2.5% is from the existing customers.

Okay. And sir, what has been this number over last 2, 3 years? We have added clients?

No, the number of customers, please don't go because we are in a segment where we also supply B2C, so where we have more than 10,000, 15,000 customers. What I'm saying is, if the name is something new for us, so how -- that is how we track. So my growth on YTD is say 4% on the top line. So out of the 4%, 1.5% has come from the new customer and 2.5% has come from the existing customers.

Okay. Okay. And how do you see the geographical is changing in this 15% per annum growth trajectory? U.S. will still be the growth driver? Or it is the European market or the RoW market?

So are you saying going forward?

Yes, going forward.

So going forward, I -- that's what I mean as Mukund has mentioned, we have presence in Europe through our subsidiary companies. We have presence in U.S. since I think 2011, then after the acquisition, where this company was set up somewhere in 1976. So these are the 3 markets where we have our own subsidiaries. So definitely our focus will be there on these markets. And apart from that, other markets we are tapping from India. So we do export from India to African market and Russia. So our focus will always be there where we can really crack some customers. In terms of like food enzymes, Europe is a big market. We have registered those years which are the requirement of the European Food Safety Authority. And from this registered [indiscernible], we are going to get definitely a very, very good mileage because that will help us to expand our reach to other customers, the customers which we have, but we will be able to attract more customers because once the registration happened, it's like attraction in that sense that, yes, here is another company, this is offering the products which are equally competitive, equally efficient products. And there, like a couple of products as such where we are #2 in the sense, after like if you really consider another big player, which is Novozymes. So there like we will play a very major role to expand our reach to the European markets and to expand our sales in that particular -- of that particular food enzyme basically. And yes, of course, U.S. will continue to be our focus markets, and we are expanding our B2C business in U.S. And so far, we are doing like online sales, and we could see that there is a good growth in that particular business. And probably going forward, we do have plans that we can replicate the same strategy in India because now India, we could see that there is a lot of attraction in terms of like people are looking at the nutraceuticals, where immunity has become a big issue in last 8 to 9 months. So here we do have lot of opportunities which is untapped so far. So probably, that is the area where we will definitely focus on that going forward. And animal feed supplement, as Mukund mentioned that we have been working for registration of several products across countries in Southeast Asia. And now we could see that some of the countries we have got the approvals, and some countries, approval process is on. So once the approvals are in place, it will definitely help us to supply our products on those particular countries where the market is really big for the animal feed supplements, which is our enzymes for particular industry.

Sir, this is helpful. And lastly, sir, what is the B2C revenues in U.S.? And on the PLI side, are you planning to see that opportunity on the fermentation side?

I think the major manufacturing will continue to be happen in India. And B2B business, I think we have about...

This year it was around USD 5 million.

Yes, B2C.

Sir, you said online business is -- you have -- so just wanted that...

[indiscernible] That is B2C. That is B2C. On the Internet B2C. Yes.

Sir, I'm asking the B2C...

It is expected to be about USD 5 million.

USD 5 million?

We expected about USD 5 million, yes, USD 5 million.

USD 5 million?

USD.

The next question is from the line of Ayaz Motiwala from Nivalis Partners.

I hope you can hear me because it's been very, very difficult to hear you all. And since you do this call once a quarter, I will request me if you could have a slightly better line because just -- it's been very difficult to pick you -- some of the things that you mentioned. And so please pardon my repetition on the questions on the same. Sir, firstly, the question on capacity. You said you have a capacity utilization in the ballpark of 50%. Is that correct?

Right.

Right, 55%.

I'm sorry?

Yes, around 55%, yes.

Yes. Sir, the question that I have on the capacity is how could -- how does the capacity get created? While we are confident that this will get utilized, and as you have said that on the next 3, 5 year basis, you think your numbers could probably go up by a factor of 2. The [indiscernible], et cetera, how -- can you explain how does this capacity get created and why this level is a good level still to make the margins that you make?

I don't know -- I couldn't hear you exactly. But what I understood is how we calculate the capacity. So normally, we have a lot of products. We have more than 55 basic enzymes and probiotics what we manufacture. It's difficult to -- difficult to measure the capacity with each product because each product has a different cycle times. So we measure in terms of fermentation capacities what we have because mainly we are in the fermentation industry. So the fermentation capacity multiplied by the tails and the utilization of the fermenters, that's what gives us the capacity. So it's always a rough number. So that is how we come out at somewhere around 55%, 60%.

Yes, right. So this number of 55%, 60%, taking that at face value the way you put it, which is based on fermentation capacity, sir, would you expect larger batch runs and batch product sizing going forward, which will review this utilization because the basic nature of your business is not changing, which is you need that 60, 80 building blocks in the base enzyme, the way you described it, right? So how are you going to utilize this capacity from 55%, 60% to 100%, sir?

No. We don't compromise on the margin. So we go with the -- with our product mix and targets, right, instead of just making it cheap and giving it cheap, right? So…

No, sir, I didn't [indiscernible].

Deposit you will give.

I meant to say that with this population will grow. Maybe you have larger background on these products?

Sir, that depends on what exactly is the requirement because we need to keep some stock value of the semi-finished goods. So when we -- those -- I mean I don't know when you need to manufacture particular products, then we [indiscernible] in sequence, right? So we keep the stock.

We're on a minimum inventory basis normally because our product cycle time is very high. So if you want to start the product and to end the product probably you need more than a month's time. And again, if that slot is available.

Okay. Sir, on the key customer, or the 20% customer which you talked about, and that's, again as I said, the audio was not very clear, and please pardon me. That customer has bought nothing in FY '21 for the first 2 quarters is what you said, right?

Yes. Yes. No sale.

For the last 3 quarters?

Yes.

Right. And sir, what is the customer doing? Is the -- are they sourcing indirectly from your suppliers or have they gone out of buying this product?

Products, I think we are not supplying to them. And I think beyond that, we have no idea what exactly this people are doing.

Yes. So sir, we see a presentation where you have a 5-year number after you've gone public in 2015, '16. And the revenue growth has been 8%, 9%, whereas the profit growth has been pretty impressive even in this particular year, which is a very tough sort of COVID period. So what gives you the confidence? Have you done a lot of business development where you have lot of clients who are now going to scale up their business and operation, batch sizes, other sizes, where you think the business can double in 5 years, which you've not done in the last 5, 7 years if you look at your IPO prospectives even in the past?

Yes, I think that's what -- that is what was explained that a couple of verticals are there where we have some products. And where we have focused ourselves earlier issues were different. So now the focus is kind of laser-sharp, and depending upon the market requirements, now we have realigned ourselves. And our focus is on those markets where we have the products, and those are kind of our strength. And so those products, whatever work was deferred to be done in past, we have done in couple of I think years, 2, 3 years. We have spent lot of R&D on those area. And we have improved. Now we could see that there is attrition. And the attrition is so much that the market will open up for us, particularly when we were talking about the food enzymes in European market, and nutraceutical segment, not only in the U.S., but India too. Animal feed business is another area where like if you really want to export some products, that challenges were there. You need to have your products registered, you need to give them lot of studies. So in the last 3 years, we have done lot of work and we worked on getting our products registered and then appointing the distributor. So based on all this work which we have done, we are confident that now the opportunities with any adequate assets were available, but I maybe used to spend our time and focus on the products there. The strength was not there, but we were just looking to develop those products. Now we said, okay, that is the one which we also will carry out, but focus should be on the area where we are very strong. And that has really resulted us to give more clarity in this consolidation phase of last 2 years. And that gives us the confidence, yes, we can grow to doubling our sales in 5 years although this year is gone without that kind of effect because of this COVID situation. So maybe from '21 onwards 5 years down the line, this will happen. Hope I have clarified your question.

Yes. This is very helpful, sir.

The next question is from the line of Rohit Sinha from Emkay Global.

Sir, as we were talking about the opportunities evolving after this COVID thing, so any color or any clarity we got that -- how it would be shaping up going forward? Or still it is on the early stage of talking animal only?

I think, Rohit, this clarity, even nobody is able to give you in that sense because the pandemic now everywhere people are talking about the second wave of it. So I mean that is really difficult. But what I'm saying was the normalcy is there and after that, probably we have got more clarity about ourselves, that what is the area where we will definitely focus on growth.

No. I mean I am looking at the -- I mean obviously in the current whatever area we are working on there, we are -- obviously we are seeing some kind of growth. But any addition because of this COVID where we can -- I mean where the stocks are going on?

No. Even in COVID, like I think our couple of products, which are like immune boosters, and those are the products which are picking up in the B2C market. And we could see some kind of work on some of our products, which we see that it is definitely working on immunity development. So those are the products. Definitely, over a period of time, we will position ourselves to create a more robust market for ourselves.

Okay. Okay. And sir, as per my understanding, I think we have a good amount of product portfolio with us. I think we should be focusing more on the marketing side for these things. So are we I mean hiring something on the marketing team or how we are expanding our marketing team there? And if this will lead to some kind of increase in employee costs as well?

Yes, that is a consistent effort every I think entrepreneur has to do. So you need -- when you want to grow, you need to really grow your team as well as your resources and the spending. If there is a growth, I think the growth in terms of top line and the employee cost, it doesn't go in the same proportion. So that's the reason we always say that there may be some kind of extra force, but the profitability is another aspect where we always work.

So whatever, Rohit -- and whatever said and done, you need to improve your productivity all the time. We cannot say that we are at a level where we should only focus on the marketing. We need to focus on all the aspects. Just to give you some view, even if this causes improved lot of because of our productivity. So you will see that the raw material numbers have gone down. That has increased the productivity.

Right.

Yes.

And then last question, as you are also now indicating that it would be some acquisition angle also. So just -- I mean how big it could be? And where -- I mean which region or which segment you would be more focusing on?

So these are the 3 segments like the verticals what we explained. So we will be focusing on these 3 areas and something like related to this. So the opportunities are there, some small, some of them big. Let's see which materializes first. Okay?

Okay. So I mean are we still I mean also looking at the size of acquisition more than INR 50 crore, INR 60 crore, or it would be below INR 50 crores, I mean in the range of INR 30 crore, INR 40 crore kind of thing?

I mean we are open for everything, maybe INR 30 crores, INR 40 crores or max up to INR 500 crore.

The next question is from the line of Shubham Jain from Lucky Investment Managers.

Just a question on the -- you mentioned you filed in the European equivalent of the FDA.

Right.

You've been mentioning this for a while. And I want to understand, I know given the context it still -- it's going to take some time. But do we expect that to give our revenue this year? Or will it come in only next year?

No, it's already -- yes, sorry, go ahead, Mukund. I'm sorry.

So we stay in somewhere around like 2014, and we got it in somewhere around like 2019, '20. So that's a long process for registration. It takes more than 5 years for us to just get the approvals, and not for us, for everyone. We were among the first few ones who got it. Okay. After we explained this, this year for European markets you need to travel. And you need to make a lot of different customers. You need to do a lot of trials because this is application-based products. Now unfortunately this year is gone because of the pandemic. So there are all the travel restrictions. All the marketing people are still working from the home. Nobody is able to travel outside of India as of now on the -- for the marketing purposes and other purposes. So we don't expect lot of revenue to come this year. Clearly as we move on, we will expect revenues to get in. But this will be slow process.

Understood. Understood. Sir, most likely in I think this year, but next year we'll see where it goes.

Yes, as we move on and as this COVID situation it clears.

Understood. The second question I had was on the B2C business, the online sales, which -- not normally started only this year. And we're saying we reach -- we should be doing around USD 5 million this year. So my question was what is the kind of growth you're seeing quarter-on-quarter? And what do you think can be the potential of this product or this application?

So we haven't started recently. We started this business 2, 3 years, 4 years back. I'm not sure exact date right now.

Yes, 2013 -- '12, sorry. 2012.

We started initially in the U.S. market. Last year, the revenue was about USD 3 million. I mean like from March '20, the revenue was about USD 3 million. This year we expect it to grow to USD 5 million. And in the next 2 to 3 years, we expect lot of growth to come from this even into the U.S. market. Probably, we believe that we can develop from here from this year in the next 2 years. So the growth drivers mainly are like our own products like the products like immunity boosters, weight loss, systematic enzymes, which we have created lot of formulations, even like some of the formulations we are taking lot of traffic on the COVID and other areas as well and which we have a lot of good success. These are the formulations, our end-to-end customers. And we believe that this area is going to grow. Did I answer your question or I missed something?

No. I think that was pretty helpful. Just one follow-up on that. What is the brand under which we sell the products? Is it direct to customer? So the brand...

So we have a company named AST Enzymes. These -- all these products are sold under the AST Enzymes.

AST, that's correct, right?

Yes, AST, yes.

And do we sell it through Amazon or do we sell it through our own website?

Yes, it is through Amazon also.

It's a combination of all?

Yes.

Understood. And typically what brands or companies do we compete with on this? Like is there some local competition, or is there any global competition you get in these kind of products?

There are several nutrition companies in that sense.

Typical nutrition companies only, right?

Yes, yes.

Yes, understood. Understood. Then last...

Our USP is like we are an enzyme expert, right? So we know the enzymes better than anyone who is there in the market.

Okay. Understood. The other last question that I had was, like you had mentioned in one of our interactions that we were able to develop this whole baking line of products with a R&D that you were doing. Just to understand, are there any molecules or are there any -- sorry, not molecules, but enzymes or processes that are developing that you think are closer to execution or fruition?

So there are a lot of molecules. We're always on a 4, 5, molecules at least every year, right? So there are a lot of additions in our basket. The difficulty in our business is we don't get the revenues for the next 2, 3 years, even if you have added anything, and it takes time. So this is always a process, constant process. We always had 4, 5 different enzymes at least every year when you had different products in your portfolio as you know. But to see the converting into the business, it takes time.

The next question is from the line of [ Bhavesh Jain from ITI Mutual Fund ].

Sir, the way you highlighted out of this 4% year-to-date revenue growth, 1.5% was from new customers. Can you highlight from the same number for new products, whatever you have launched 2 or 3 years back, the way you said you get revenue after 2, 3 years after launching these molecules or enzyme, so how much growth out of this 4% that you have got from these new products?

No, it's not so easy because most of the enzymes are sold in blended form, right? So it is really very difficult because we have several different enzymes which are supplied in bulk in a combination. So I mean from -- how much is coming from one product because when you give to the customer, you give it a combination. So it really becomes difficult to track in that sense.

Okay. And then what will be...

Excuse me.

Yes, go ahead.

Sorry, sir. Go ahead.

No, it's very difficult, but at the same time, I can see that some of the revenues which are coming right now into the biocatalyst area is like being developed 2, 3 years back.

Yes, biocatalysts, probiotics, in that sense we can say, yes. That is a growing business where we can see in that sense. But then probiotics is mixed with some other product there because it's difficult to track that particular in the...

Okay. Okay. And sir, any outlook on this R&D spend? Because I guess from last 2, 3 years, it will be hovering at around INR 18 crore, INR 19 crore? Yes. Before that, it was at INR 11 crores. So any outlook, whether it will go up or it will remain at the similar amount for next couple of years?

I think it will remain in the range of 4% to 5% because as the top line grows, then the R&D spend is also, if it is based on the top line, so the growth in terms of increase in the -- increase on the top line is growth in the R&D spending as well. But yes, there are some plans going forward. I think Mukund can highlight those plans. We already acquired the land in Indore. So going forward, we will be spending some money on development of our R&D capabilities in the Nasik area, so Nasik, where we have done land acquisition, we have acquired the land. So probably there will be a time period of about 3 years where we'll be spending about roughly I think INR 60 crores to INR 70 crores.

Okay. Okay. And sir, anything -- any further scope to reduce net working capital tighter?

Very difficult because this is several products, and we are increasing our portfolio again. So inventory level always we need to maintain. And the inventory, again, there are several inventory. You have the raw material, semi-finished. This is a major issue which constitutes a major portion of our inventory. And we have 3 different plants to manufacture the enzyme. One is like in Hyderabad, two in -- one in [ Indore ] and one in MP. And apart from that, couple of subsidiary companies. So everywhere, you maintain some kind of a stock. So inventory level is always high, higher in that sense. And now in spite of -- although the COVID situation is very bad, but yet our latest level is kind of in a constant, but yet we also need to maintain the latest level, which is about 50 to 65 days of the debtors. So we feel like about 105 to 116 number of days of the sales will continue to be our working capital investment.

Okay. And sir, final question. What will be our organic CapEx apart from this inorganic acquisition which you have highlighted?

I think it's about INR 12 crore.

Normal CapEx, INR 10 crores, INR 12 crores a year.

Okay. And this R&D which you have highlighted over next 3 years?

Yes, yes, 3 to 2 years.

Okay. That INR 60 crores, INR 70 crores?

Yes, roughly.

The next question is from the line of Shikha Mehta from Equitree Capital.

I just had one follow-up question. You had highlighted that [Technical Difficulty].

Shikha, your voice is not audible. Hello? Shikha, are you there? As there is no response from the current participant, I have muted the line. The next question is from the line of [ Tapan Modi ], an individual investor.

Yes. Congratulations for the latest set of quarter 2 numbers. So just one thing I wanted to understand as well. So basically as you have explained and spoken earlier wherein U.S. set of numbers are quite impressive with 35% growth as such.

Yes. Yes.

So since we are in mid-November as such, so do you foresee the same level of growth in quarter 3 and 4 as well?

I mean it is really in this pandemic situation, very, very difficult to let me tell you give any kind of estimate because the problem is now in some of the countries, again facing the COVID situation. So is it really very difficult to say about it, yes, that we are kind of going to have the same kind of a growth.

Okay. But for October and November, sales are little bit improving as compared to previous months or something?

So we won't be able to comment on that.

The next question is from the line of [ Sumit Palsi ], an individual investor. No, just -- you were not audible. There's a lot of disturbance in the line.

Is it clear now?

Yes, much better.

Okay. Sir, my question is on Page 4 of investor presentation, you have said second-highest market share in India, and second is integrated enzyme here. So can you name the first one?

Second-highest market share in India, that is what you are saying, right?

Yes. So the first one, name of the first one?

First one is the multinational company which is I think Novozymes.

Pardon?

Novozymes.

Novozymes.

Okay. Okay. And second question is, since your general guidance of doubling the revenue in 5 years, so what was the CapEx level? Will it be the -- will it be similar or a bit increase?

I think we don't have to spend any substantial amount on expanding our capacity as of day. But once we reach to a level, at least we need to plan 2 years ahead of the time by which our capacity utilization is going to be, say, about 100% or so. So next I think 3 years, our CapEx will be in the range of about INR 12 crores or so other than R&D, which I just now spoke about it. And once we reach to a level where our capacity utilization is still around 90% or about 80% to 85%, that's where we will have to add some I think infrastructure in our existing plant, which has already been built up in such a way that all the utilities are in place. So by adding couple of fermenters, and we can double our capacity. So that will happen once we reach to that threshold of about 80% to 85% utilization.

Okay. And the last question. What is the geographical revenue split we'll see 5 years down the line, the U.S., Europe and India percentages?

Yes. It should be continue the same way because our focus is in India market, Europe market and U.S., 3 markets. And of course Asian markets now because of the registration of our products, particularly in animal feed business. So we will focus on all the aspects of our business to make sure that we have that kind of a consistency in that terms. And then that depends how actually it happens.

Okay. Because the European revenue share is quite low currently, the 5% to [ 8% ]?

Agreed, yes.

So it's expected to remain the same level [indiscernible]?

Going forward, as we have mentioned, that the sale of couple of enzymes which are particularly for the food industry has been growth. So definitely, the likely trend will be there. But again, we...

Those will be captured mostly from the India. It will not come directly from the Europe company. So it will come under the India company. So more or less it will remain the same on the percentage basis.

The last question is from the line of Shikha Mehta from Equitree Capital.

I just had one follow-up question. The R&D plan that we were talking about, which has been delayed by 6 to 8 months, is there any guidance on when that will commence now?

So it will take some time, Shikha. Right now we are doing in the [ MA ] processing of other things. All the government agencies are really very slow at this point of time. So there is not too much of a clarity because of all of this COVID and other situation. So maybe like from the starting of the next year probably we should be able to start.

Right. And how much would that increase our PAT by approx on the PAT-based result?

59.

No, no. 59, directly...

It is not like give you a direct number, so that...

We were speaking of some amount of efficiencies, right, due to the R&D plant?

No. So the R&Ds are always mirrored in our business. It's a very interesting business where we say that one plus one is not two, but we always say that one plus one is 11, okay? The reason for this is like we can increase the productivity to the multiple poles with the continuous R&D. But it requires time, Shikha. We can't expect the results to come out right away the moment you put the R&D plant and R&D equipment right away.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you.

Thank you, everyone for your -- no, Rauka, you can continue.

Please go ahead. Please go ahead.

Thank you, everyone, for your questions. We hope to deliver in the future as well. Thank you, everyone, and have a good happy Diwali.

So wish you all a very happy Diwali and a happy new and prosperous year, and please stay safe and healthy and take care of yourself and all the family members. Thank you so much for your time and question and answers. Thank you.

Thank you.

Thank you. On behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.

Thank you.

Thank you.