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

Ladies and Gentleman. Good day, and welcome to Q1 FY '22 Earnings Conference Call of Advanced Enzyme Technologies Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ronak Saraf from Advanced Enzyme Technologies Limited. Thank you, and over to you, sir.

Good evening, everyone. Welcome to the Advanced Enzyme's First Quarter 2022 Earnings Conference Call. My name is Ronak Saraf, and I'm the Manager Investor Relations here at Advanced Enzyme. I hope you all are doing well. Joining me on the call today are Mr. Vasant Rathi, Chairman Advance Enzyme; Mr. Mukund Kabra, Whole Time Director; and Mr. Beni Prasad Rauka, Group CFO. We have prepared a detailed presentation to supplement our comments during this conference call. This presentation is posted in the Investor Relations section of Advanced Enzyme's website and on stock exchange website as well. Before we proceed, I would request you all to please read the forward-looking statement disclaimer contained in the presentation. During our call, we will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and the factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. With this, I will now hand the call over to Mr. Kabra. Over to you, sir.

Thank you, Ronak. Good evening, everybody. I welcome you all again, along with the whole AETL family, to this conference call for the quarter ended 30th June 2021. First and foremost, we hope that you and your respective families are in good health and high spirits. COVID is still not gone, so I would request you all to take the necessary precautions. We at Advanced Enzyme are regularly being updated with the current COVID-19 scenario, and safeguarding our employees and customers, has an interest will always be our topmost priority. In the first segment of this call, we will be taking you through the earnings update and the business highlights and then we will open up the floor for the question and answers. Quarter 1 of financial year 2022 began with the second wave of COVID, we didn't expect. Even during these challenging circumstances, we are proud to announce that Advanced Enzyme has demonstrated tremendous resilience. We are again positive on all the parameters driven by consistent performance by all business segments. Our revenue grew by 24% on a year-on-year basis to INR 1,370 million. Our EBITDA grew by 21% to INR 628 million during the quarter. Our PAT grew by 15% to INR 628 million. EBITDA margin stood at 46%, while PAT margin stood at 29% during the quarter. Now I will take you through the segmental revenues. The Human Nutrition contributed 65%; Animal Nutrition contributed 10%; Industrial Bioprocessing contributed [ 15% ]; and Specialized Manufacturing contributed 10% in the total revenue during this quarter. The Human Nutrition segment grew by 3% to INR 892 million in quarter 1 financial year '22 as compared to INR 886 million in quarter 1 financial year 2021. The Animal Nutrition has shown a significant improvement and delivered a growth of 32%, INR 140 million in quarter 1 financial year '22 as against INR 106 million in quarter 1 financial year '21. The Bioprocessing segment outperformed by 56% during this quarter, which accounted to INR 204 million in quarter 1 financial year '22 as compared to INR 131 million in quarter 1 financial year '21. This quarter, we have a newly added revenue stream specialized manufacturing, which contributed INR 134 million to our revenue. On the geographical revenue front, our domestic sales accounted for 42% while the international sales accounted for 58% of the total revenue. During this quarter, domestic sales grew by 11% to INR 579 million. During this quarter, on a year-on basis, while the international sales grew by 35% to INR 791 million during this quarter. We are retaining our guidance provided during the last con call until we see any major events happening. I hope you all have gone through our presentation for the focus areas. We tried to make it comprehensive for more clarity. Also, we are very close to our launch of B2C nutraceutical platform, which will be communicated to you soon. Now let me hand over this to Mr. Rauka, our CFO, who will walk you through the quarterly financial review. Over to you, Rauka sir.

Thank you very much, Mukund, and good evening, everyone. I would like to update you about -- I think Mukund already spoke about year-on-year growth and the numbers. I'll just give you on quarter-on-quarter numbers and the growth. Our revenue has increased by INR 38 million from INR 1,332 million to INR 1,370 million. And EBITDA is up from INR 549 million to INR 628 million, a growth of 14%. Our profit before tax is up by 15% from INR 478 million to INR 550 million and is increased 18%. It is just to about INR 400 million. It's INR 399 million, so registered a growth of 18% in profit after tax. Our finance cost during the quarter remained at INR 5 million, and depreciation and amortization cost is slightly higher by about INR [ 60 ] million. This is because of inclusion of SciTech specialities and some amount of write off on -- because of this acquisition, we need to do that purchase price allocations. So whatever [indiscernible] effects are there, those has also been taken into account, and the depreciation is increased because of that. A couple of numbers, which generally we share about our Evoxx. Evoxx, our top line is INR 62 million. But this quarter, we had a negative EBITDA in Evoxx, about INR 10 million as compared to the previous year where we were not positive, but I mean, there was no negative also in EBITDA as far as Q4 is concerned. Biotech. Best Biotech sale is at INR [ 123 ] million and EBITDA of INR 31 million, and we had a PAT of INR [ 40 ] million as compared to INR 84 million, [ INR 60 million, INR 3 million ] respectively. Our largest anti-inflammatory enzyme sales stood at about INR 245 million, about 18% of our total sales as compared to INR [ 217 ] million in Q1 of last year, about 20%. So we have seen a 13% growth in that particular anti-inflammatory enzymes. And the Q4, our sale was about INR 281 million, roughly 21% of our total sales. Top customers. Top 10 customers generally contributed about 34% of our total revenue as compared to 43% in Q1 of FY '21 and 32% in Q4 of FY [ 21% ] . So these are like some of the numbers, and I would request and we open the floor for question-and-answer session. So thank you very much. And whatever questions you have, please go for raising your questions.

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

Congratulations for a good set of numbers. My first question is that we saw some good recovery in animal health care and food business, after pandemic and about impact what we've seen in the last 3 quarters. So is there any pent-up demand contribution? Or it's the new normal run rate we could be seeing going forward?

So Rohit, we see that it's splitting the food areas. The run rate which is going forward will be the same. In the animal feed areas, the demand is a little bit more driven because of the inflation in the prices of [indiscernible] and other commodities. So some of the products increased. We hope that this trend will continue. And at least for second and third quarter and probably, the sale will be maintained as we move on.

Okay. Secondly, I mean, if we remove SSPL revenue in this quarter, our sales growth was almost 12% on Y-o-Y basis. So that is where, again, I mean this is where 12% kind of growth is what I think we were also guiding previously. So are we confident on that kind of run rate in the remaining quarters? Or is again something?

The pandemic has affected somewhat of like our like human business to some extent because of the pandemic. But yes, the 12% growth rate, what we are talking about is near term.

Okay. And so sir, I mean in SSPL sales number, which has almost doubled from Q4 FY '21 from [ INR 79 million to INR 134 million ]. So is there any seasonality nature in the business or this is because of the integration which is advancing like growth?

It's a combination of both. In the first quarter, like in the last quarter, the SSPL sale was for the [ 79 days ]. In this quarter, the sale is for the whole quarter. So some number has increased. And we are trying to integrate, right? So the numbers are going up.

Okay. And if you could help us have the SSPL Q1 FY '21 number? And just as a Y-o-Y number, if you want to compare?

What do you want exactly? You want the top line of?

Yes, top line of SSPL in Q1.

So I think Mukundji has already spoke, it's about INR 134 million of top line as compared to INR 84 million for 79 or 80 days in the last quarter.

Okay. And if we can compare it with Q1 FY '21, if at all, you can provide the number?

No, no, that is still not available. So whatever relevant is like for us, it was Q4 and then Q1 of this year. I can provide you numbers separately if that is required.

Okay. Sure. And lastly, I mean, on the gross margin side, the gross margin improved on Y-on-Y as a Q-on-Q basis even after SSPL inclusion. So if you could help us how SSPL contributing to the gross margin level or how we are -- what kind of benefit Advanced Enzyme has got in this quarter?

So I mean, I'll give a little bit number side. SSPL contribution is in the sense on overall in absolute numbers, because INR 134 million of their revenue has given some gross contribution of INR 80 million. I'm talking about gross contribution, which is on the raw material cost side. But other than that, whatever improvement as such you are saying about gross margin in terms of percentage, it's mainly because of change in our sales mix. Okay? So that is like in different products in different segment in that sense. So if one product has gone up in this quarter as compared to the previous quarter, so that is mainly because of that reason.

Okay. Okay. Lastly, if I can speak more -- could you help us through the future product pipeline and any new product launches in the different segments in the near future?

Mukund will take this question.

Sure. We already talked about our focus areas, right, so the focus area, the products which are -- which will come in the biocatalyst areas, in the food areas, in the probiotic area, and this at all our focus areas, right? So these enzymes, whatever we are developing comes into this areas.

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

I just have a couple of questions. Could you tell us the R&D spend for this quarter?

Yes, it's about -- just a moment. I'll give you the exact number of R&D spend. It's about INR 38 million.

INR 38 million? And the same quarter last year?

I'll come back with that number too.

All right sir. And if you could give us how much we did from probiotics and biocatalysts subtly this quarter?

Okay.

Hello?

Yes. Just a moment. So you want a separate number for probiotics, right?

Right.

Yes. So probiotics sales as such for this quarter is about INR [ 142 ] million.

Okay. So we've spoken about the different areas in which we see growth coming in over the next couple of years. If you could just give more detailed view on how we'd be ramping up, which sectors will be doing how? And by when we could see decent growth in the sectors we've been talking about for the last couple of quarters? It would be helpful.

Shikha, we expect the growth to come from the third and fourth quarter in the biocatalyst areas, as we are talking about. Food will be a little better, but not like what we expected because of the pandemic and because of the travel restriction whatever we have discussed. The same story is on animal. You see even though, like we are ramping up the process of hiring the people in this quarter into all of these areas in the marketing areas. So we are working on it, and we will see how this pandemic goes and then how quickly we can just ramp up on the growth.

Shikha, our R&D spend in Q1 of last year was INR 22 million and Q4, it was INR 43 million; and INR 34 million in this quarter.

[Operator Instructions] The next question is from the line of [ Sheshav Patani ] from Angel Share and Stockbroking.

I just wanted to know, there is a quite big jump in the other expenses and the employee cost. Is there any particular expenses which have increased in the quarter on the -- because when you compare it to the same quarter last year, it is almost at INR 165.8 million compared to INR [ 48.8 ] million.

Yes. So I mean, the first question is why the other expenses are up in this quarter as compared to the last year quarter, right?

Yes.

So number one, it is because of SciTech. SciTech, we have acquired in the month of January '21. So last year, in the Q1, there was no expenses of SSPL in our books. So this is roughly about a big channel of about INR 30 million. And in addition to that, this year, in the first quarter, our operational activities are more than last year first quarter, because last year first quarter was the first time that pandemic has affected everyone very heavily. And after that, a lot of precautions were taken. And then this year, in the first quarter, like we were operational -- operationally, we have done better. So our operational expenses like power and fuel expenses, stores, freight expenses, all these expenses have gone up. So that has contributed an increase in our other expenses of about INR 83 million. And employee benefit expenses, if you really compare with the Q1 of last year, then it is because of annual increments, some incentives and then also the impact of inclusion of SciTech. So the payroll cost of SciTech is also included during this Q1 of FY '22. So that has contributed in employee benefit expenses going up from INR 211 million to INR 269 million or so.

And also on more contribution, last year, we had again salary raise in the month of August because of the pandemic which was there. And this year, it was in the April. So when we compare quarter-on-quarter, we can see there is a double impact rather than the single impact.

Yes.

Sorry, can you come again on that one?

Yes. So last year, what he's saying, last year, the increments were given effective from 1st of August 2020, okay? This year, the increments are given from 1st April. So last year, in the first quarter, the increase in salary was not there in payroll cost.

[Operator Instructions] The next question is from the line of Alisha Mahawla from Envision Capital.

So I just wanted to understand in our Human Health business, we see a constant decline in the run rate, if you see from Q3 to Q4 and coming into Q1 of this year. What is the reason for this decline? And how do we see this business picking up going forward?

So Alisha, we expect like this thing will be -- the human business will be constant from the quarter or so and then shift again, pick it up.

Sure. But what is the reason for this decline? Is it because...

It's because if you really look into the pandemic, all the focus is all on the pandemic rather than any other enzymes or any other areas. Even people -- the people are not working completely. In the pharma companies, they were working like, in R&D 50% or something. And all the focus in the R&D was like more towards the pandemic rather than other things, rather than any other areas. So we expect this trend will continue for another 1 quarter and then it should really pick it up, 1 or 2 quarters.

Okay. And coming to your Animal Health segment, while you did respond in all your participants. Is my understanding correct that one of the reasons we see a higher revenue run rate this quarter is because of higher feed prices? And maybe in a couple of quarters, when that normalizes, it should go back to it's earlier run rate?

It should not go to the earlier run rate, but this just gives us the opportunity to introduce the product where like now, once the prices are on the higher side of the field, then people want to try. Otherwise, a lot of people don't want to try, right? So this was an opportunity which we could in cash to put up the products in the market and that has given a good revenue. So we expect that this should continue.

Understood. And sir, just to comment on the gross margins. I didn't -- what was the reason for expansion in gross margins -- reason for expansions?

We always say that we should really look at our gross margin on a year-to-year basis rather than a quarter-to-quarter basis. It depends on -- in the quarter, how the product mix was there, which was on a yearly basis, it should be more or less come to the same averages. Like last quarter, our margins were lower because of the product mix. This quarter it has given us a higher margin because of the product mix.

So on a full year basis, number closer to 80% would be sustainable?

So I think you can say that, but whatever that number is, we always say that our gross margin -- or the EBITDA will always be there between 40% to 48%, and we believe that, that should -- that is maintainable.

So 80% is something, but please don't assume that. It can be anywhere between 70% to 75%.

Okay, sir. Sorry, what is your capacity utilization currently?

So it again depends, Alisha. But currently, it's about 60%.

[Operator Instructions] The next question is from the line of Amit Ganatra from HDFC Asset Management.

Yes. For Slide #22, you have provided some data points on how big is the opportunity. And the addressable market for AETL over the next 5 years seems to be around $100 million, plus there is a probiotic opportunity, obviously. So I just wanted to understand how do you address this market? I mean are you already addressing part of this opportunity today? Or this is completely new for you? It is over and above what you already are having as a part of your top line? And then I'll follow up.

Beni, could you please take this?

Yes. I mean this addressable market is somewhere like where we have already started working on it, and we have couple of like products. So that's the reason we are saying it is something which we can address. So biocatalyst segment in India, this is only our targeted Indian market where we already have a couple of solutions, and we have a sizable sale numbers in that segment. And basically is like areas which is mainly, now we are targeting in European countries and America. So this is -- what we are saying is addressable, because we have products and we have kind of solutions, which we will be offering to our customers. And Animal Nutrition, again, we have several products, and we are at a different stages of appointing distributors and registering our products in various countries. So this is a target based on the current -- our competence and kind of a product portfolio in which we already worked and we are working. And probiotics is, of course, again a major market, which is a very big market, and we already launched a couple of products over there.

And can you also talk about the B2C initiative that you are now trying to take in India? I mean what are you exactly trying to do there?

Our presence is there in the U.S. market in the B2C segment, particularly in the human nutraceuticals. We are trying to take the advantage of our knowledge for the U.S., and we are trying to launch big products in the Indian market. Now because of the SciTech which we have acquired, we do have capabilities and capacities to get into the nutraceutical products and also like the innovative like Effervescent Technology. We are trying to launch some of the products which are different, not only where like we can use that as a delivery system to put the products in baking areas as well as detergent areas and other. So on the B2C platform, we are going to place our own selling, our own website. It is like the new platform as well as some of the products we are trying to bring on the Amazon and other platforms.

The next question is from the line of Lakshminarayanan from ICICI Prudential AMC.

[ Three questions ]. First in terms of the human nutrition, which is almost 2/3 of our feed. How does that break into different sections, mainly U.S., India and in Europe? And in that human nutrition, we do some B2C product selling via websites, sell e-commerce in the U.S. What has -- what is the plan for this year in terms of sales on that front? Especially, the B2C part or the B2C part of human nutrition and how the geographical mix of human nutrition. That's my first question.

Raukaji, can you break the number?

I can give the numbers. Yes, I'll give you the numbers. As far as human nutrition is concerned, 45% of our business has come from India of the human nutrition I'm talking about, out of which API is roughly 36% and probiotics is about 3%, biocatalyst is 7%. So this is the different breakup of our sales in different segments. International sales is 55%. And out of that, 42% is like nutrition sales and 13% is probiotic sales? This is -- this includes even B2C sales. And now as far as you know, the numbers going forward, what kind of sale will be there in B2C, because I think we already spoke many times Lakshminarayananji, about this particular aspect, right? Hope these numbers are clear to you as far as the human nutrition breakup is concerned.

Now we [indiscernible]. So what is the value we closed for the last year? And what kind of targets we have for this year?

So Lakshminarayananji,we closed like B2C segment in U.S. around 5 million. And [indiscernible] is there who can give you the guidance on the B2C sale in U.S. this year.

Lakshminarayananji, our B2C sales in the U.S. market is pretty strong at this point in time. There are several areas which are really taking a keen interest. Everybody wants to be in good health with the conditions which are worldwide right now, as you know it. And second part is, there is a new innovative ways we are introducing the market into the product. And we are introducing the product into the market. So we believe that this B2C platform will keep on increasing in the U.S. market. And as Mukund already explained to you, we are already trying to introduce these platforms here in the Indian market also. It will be gradual. It is not going to be suddenly out of site, but it is a very sustainable long, consistent increase in the marketplace.

And in terms of industrial bioprocessing, there has been a strong growth that is seen. Seeing the growth in industrial bioprocessing, can you talk about any new enzymes you have actually introduced or what is leading to such a strong growth in industrial bioprocessing, not only for this quarter, but even if you look at historically, the growth has been very strong in this.

So industrial bioprocessing, we divide it into 2 areas. One is like food and another one is nonfood. So the nonfood area was affected, like which compromises detergent and this area was affected during this pandemic badly, and we are at a negative growth, while the food area has a better growth as we were already talking about. They should pick it up as we move on. And some of the pickup has happened in this quarter, and we expect like quarter -- the guidance we are giving, we should be able to achieve it in the next 5 years, whatever, in that area.

Got it. And any new events you have introduced in industrial bioprocessing giving you a strong growth?

Otherwise, we are already looking to introduce something.

Sorry, I didn't catch it.

No, it is always -- there is always -- we are trying to introduce something new.

Got it. And in the animal nutrition, I think 2/3 of the business is the domestic and 1/3 is international feed. How has been the journey so far? And how do you look at it in the next couple of years, talking about 2 to 3 years?

We were talking about this quarter, like our domestic business has again picked up, and it has come to the original level, what it used to be, which was really affected because of the pandemic. On the international front, yes, the growth opportunities are there, but the travel restrictions and other restrictions are still there, and that is where we couldn't do much better on the growth front, and this is the situation. Now unless until -- I'm not in a position to predict how the third quarter or the fourth quarter will happen or the second quarter will happen in this area, because till the pandemic is there, or the COVID is there or not there, it all depends on this, right? So but yes, we are working on this area. We are appointing few people into these areas. We have already started to expand the marketing in this area right now internationally, so that we can cater to these areas as the situation normalizes.

[Operator Instructions] The next question is from the line of Ashwin Agrawal from Akash Ganga Investments Private Limited.

Sir, you have highlighted in your press release your plans for inorganic expansion. And also in the past, you have successfully integrated 3 acquisitions. So which are the geographies you are looking for a marketing presence? And what could be the size of these acquisitions, if you can give us some indication?

We are continuously looking to expand inorganically in areas which are our prominent interest, which is Asia, Europe and North America. Did that answer your question?

Sir, what would be the size of the acquisition sales or something if you can give, by when could you conclude it? You would be doing a few acquisitions this year or?

No, we have no limits to size of acquisition. We are interested as long as they are compatible in our growth path and innovative companies, and we are looking from small to any size. Any size. Financially, it gives us a lot of leverage and a lot of different options to looking to any size of the company. There is no limit.

So do you -- are you finding such opportunities available right now within the price band in which you are looking at in terms of valuations as such opportunities available?

Yes. There is always opportunity available, provided what price you want to pay, obviously. And it has to fit in proper, our sequence to see that. Not only price is right, but also it is to do our growth tap.

So does that mean if we get an opportunity, we will also take on debt to fund the acquisition?

If necessary, yes.

And lastly, can we expect the acquisition to happen this year?

You can expect anything. It is not a -- it's a constant process. Looking at it and evaluating. So we do that. Our department -- one of our department constantly looking into those things.

The next question is from the line of Alisha Mahawla from Envision Capital.

Sir, your tax rate is not at 25%. Is any plan of moving to the tax regime? Or can you explain the reason for higher tax rate?

Yes. Because of [indiscernible], we have different subsidiaries. So we do have a subsidiaries in USA. So U.S., the tax rate is higher. So because of that, it is not exactly 25.12%, which you are, I think, probably looking at it.

Okay. So it should be in this [ 27%, 28% ] range, where it has been?

Yes, right.

Got it. And sir, just on Evoxx, we acquired this company more than 3, 3.5 years ago. It's still making loss. And I think we had big plans of scaling this and also leveraging the portfolio. Why I understand on the leveraging of portfolio, could you explain why this company is still not profitable at operating level also? And how do we see this business scale going forward?

This is R&D company. This is basically a Research and Development company that will be doing only research as such. And apart from that, what you are saying it is constantly -- I mean not the loss-making company as such. This is the first quarter where again, we have seen that it's the EBITDA negative because of the Europe is highly affected because of this pandemic. The activity is very -- at a very minuscule level in that sense. So this quarter, we faced this problem. But otherwise, I think Evoxx is as such kind of a company, which is in spite of being in research and development and of late, we are also in a position to some extent, leverage our exports to Europe through that company. But yes, because of last 15 months, the situation is being different. As Mukund has already mentioned, many things could not be -- we wanted to do a lot of things. And still, we could not do because of this pandemic situations. So we are looking into it that how we make this company sustainable. And of course, always on yearly basis, as the last 2 years, you might have seen that it's EBITDA positive as such. So we are working very aggressive on that front, but in spite because of this COVID situation, much could not be done because of this issue.

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

Just one clarification. If you could provide, the inclusion of this SSPL revenue. I mean, how much domestic and export sales were there for SSPL? And any sense we can get on the geographical side, basically where this SSPL revenue is contributing to our growth?

Okay. So out of INR 134 million, INR 84 million is exports in Q1, okay? And on Q4, the exports were about INR 41 million out of INR 79 million of revenue of SciTech. What is your next question, sorry?

In geographical terms, I mean if at all, we can get something that where this sale contribution is actually reflecting in the numbers?

So it is -- you rightly said it is in different segments, in the different geography. I think major is in European countries and followed by rest of world, and I think some kind of exports are in Asia, ex: India. So I'll give you the exact numbers later on.

As there are no further questions in the participants, I now hand the conference over to Mr. Mukund Kabra for closing comments.

Thank you, everyone, for your questions and participating in our conference. I hope that you all will be safe in this pandemic. Please take care and thank you again, once again.

Thank you, everyone. Thank you so much for your participation and your question.

No, it was -- thank you for this good question and answers, and participation in this conference call. We highly appreciate your participation. Thank you.

Thank you. On behalf of Advanced Enzyme Technologies Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.