Q1 21/22

Aug 11, 2021

Quarterly report

Ladies and gentlemen, good day, and welcome to Q1 FY 'twenty two Earnings Conference Call of Advanced Ensign Technologies Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Star 10 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ronak Karaj from Advanced Enzymes Technologies Limited. Thank you, and over to you, sir. Good evening, everyone. Welcome to the Advanced Enzymes First Quarter 2022 Earnings Conference Call. My name is Ronak Saraf, and I'm the Manager Investor Relations here at Advanced Enzymes. I hope you all are doing well. Joining me on the call today are Mr. Vasant Pratik, Chairman, Advanced Enzymes Mr. Mukund Kabra, Hold Time Director and Mr. Venipasadrakha, 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 Enzymes website and on Stock Exchange website as well. Before we proceed, I would request you all to please read the forward looking statement During our call, we will make forward looking statements regarding our expectation or predictions about the future. Because these statements are based on current assumptions and the factors that involve risk and uncertainty, Our actual performance and results may differ materially from our forward looking statements. With this, I will now hand the call over to Mr. Khabra. Over to you, sir. Thank you, Ronald. Good evening, everybody. I welcome your call again along with the whole AETL family to this conference call For the quarter ended 30th June 2021, 1st 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 Enzymes are regularly being updated with the current COVID-nineteen scenario And regarding our employees and customers, health and interest is always being 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 2nd wave of COVID, which we expect. Even during these challenging circumstances, We are proud to announce that Advanced Enzymes has demonstrated tremendous resilience. We are again positive On all parameters driven by consistent performance by all business segments, our revenue grew by 24% On year on year basis to INR 1370,000,000, our EBITDA grew by 21% to INR 628,000,000 during the quarter. Our PAG grew by 15% to INR 628,000,000. VIDA margin stood at 46% while fat 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 INR892 million In quarter 1 financial year 2022 as compared to RMB886 1,000,000 in quarter 1 financial year 2021, The animal nutrition has shown a significant improvement and delivered a growth of 32% INR140 million in quarter 1 financial year 'twenty two and against INR106 million in quarter 1 financial year 'twenty one. The bioprocessing segment outperformed by 66% during this quarter. It accounted to INR204 1,000,000 in quarter 1 financial year of 20 2 As compared to INR 131,000,000 in quarter 1 financial year 2021, this quarter, we have a newly added U. S. Steel, Specialized manufacturing, which contributed INR 134,000,000 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 579,000,000 During this quarter, on year on basis, while the international sales grew by 35% to INR 791,000,000 during this quarter, We are retaining our guidance provided during the last conference call until we see any major events happening. I hope you all have gone through our presentation for the focus area. We tried to make it comprehensive for more clarity. Also, we are very close to our launch of B2C nucleosurgical 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. Good evening, everyone. I would like to wish you about I think Mukund already Talk 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 RMB38 million from $1332,000,000 to $1370,000,000 And EBITDA is up from $549,000,000 to $628,000,000 and growth of 14%. Our profit before tax is up by 15% from 478,000,000 to 5 50,000,000. Add is increased 18%. It is close to about RMB 400,000,000, it's RMB 399,000,000. So registered growth of 18% in profit after tax. Our finance cost during the quarter remained at RMB5 1,000,000 And depreciation and amortization cost is slightly higher by about RMB16 1,000,000. This is because of inclusion of Citec Facilities and some amount of write off on because of this acquisition we need to do that Purchase price allocations, so whatever injectable assets are there, those have also been taken into account And the depreciation is increased because of that. A couple of Numbers which generally we share about our evokes. Evokes, our top line is 62,000,000, But this quarter, we had a negative EBITDA in Evox, about RMB10 1,000,000 as compared to the Previous year, we were not positive, but I mean, there was no negative also in EBITDA as far as Q4 is concerned. Dixie Biotech sale is at $123,000,000 and EBITDA of $31,000,000 And we had a PAT of RMB 14,000,000 as compared to RMB 84,000,000 RMB 16,000,000 RMB 3,000,000 respectively. Our largest anti inflammatory enzyme sales stood at about 245,000,000, About 18% of our total sales as compared to 217,000,000 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 $281,000,000 roughly 12% 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 2021 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. Thank you very much. And whatever questions you have, please go for raising your questions. Thank you very much. We will now begin the question and answer Participants are requested to use handsets while asking The The first question is from the line of Rohit Sinha from MT Global. Please go ahead. Yes. Thank you for taking my question. Congratulations, sir. So my first question is that we saw some Good recovery in animal healthcare and food business after pandemic and bird flu impact what we've seen last few quarters. So is there any pent up demand contribution or it's the new normal growth run rate we could be seeing going forward? So, Rohit, we see that it's Like in the food area, it's the run rate, which is going forward will be the same. In the animal feed area, the demand is little bit more driven Because of the inflation in the prices of chlor alkali and other commodities, some of the product sales increased. We hope that this trend will continue and At least for 2nd and third quarters and probably this sales will be maintained as we move on. Okay. I mean, if we remove SSPL revenue in this quarter, our sales growth was almost 12% on Y on Y basis. So again, 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 quarter? So the pandemic has affected somewhat of like Our like human business to some extent because of the pandemic. But yes, the 12% growth rate, whatever we are talking about is 19. Okay, Okay. I'll tell you, sir, I mean, in SSPL sales number, which was almost double from Q4 FY 2021, from 29,000,000 to 634,000,000. So is there any seasonality nature in the business or this is because of the integration with this Advanced Enzyme growth? It's a combination of both. In the Q1, like in the last quarter, the SSL sale was For the 79 days in this quarter, the sales 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 FSPL's Q1 FY 2021 number and just in case on Y on Y number if You want to compare? So, Raj, what do you want exactly? You want the top line of Yes. Top line of HCL21. Yes. So I think Mukundji has already spoke, it's about 134,000,000 of top line as compared to 84,000,000 for 79 or 80 days And if we can compare it with Q1 FY 2021, If at all you can forward the number. No, no. That is not available. So whatever relevant is like for us, it was Q4 and then Q1 of this year. Okay. Got it. I can provide you number secondly if this is okay. Okay. Sure. And lastly, I mean, on the gross margin side, has the gross margin improved on Y on Y as well as 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 I mean, what kind of benefits Advanced Enzyme has got in this quarter? So, I mean, I'll give it a little bit number side. SSP contribution is in the sense on overall in Absolute numbers because 134,000,000 of their revenue has given some gross contribution of SEK 1,000,000. I'm talking about gross contribution, which is only 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 trends in our sales mix. Okay? So that is like different products in a 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 one more, could you help us through the future product pipeline and Any new product launches in the different segments in the near future? Mr. Mukund will take this question. So, Rohit, we already talked about our focus areas, right? So the focus area, the products Which will come in the biopetadist area, in the food area, in the provided area. And these are all our focus areas, Right. So new enzymes, new things, whatever we are developing are coming into these areas. Okay. That's it for my pleasure. Thank you. Thank you. Thank you. The next question is from the line of Shikha Mehta from Equity Capital. Please go ahead. Good evening, sir. I just have a couple of questions. Could you tell us the R and D spend for this quarter? Yes, it's about just a moment, I'll give you the exact number of R and D spend. It's about 38,000,000. I'll come back with that number. All right. And if you could give us how much we did from probiotics and biocatalysts, particularly this quarter? Okay. Hello? Yeah. Yeah. Just just a moment. I'll give you the numbers. So you want the separate number of probiotics, right? Right. So probiotic sale as such for this quarter is about 142,000,000. 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 then, we could see decent growth in the sectors we've been talking about for the last couple of quarters. Would be helpful. Shikha, we expect the growth to come from the 3rd and 4th quarter From the biotechnics area, we are talking about food will do little better, But not like what we expected because of the pandemic and because of the travel restrictions, whatever we are discussing. The same story as of Nanimod. As you can 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 And then how quickly we can just ramp up on the growth bucket? Alright, sir. Thank you. Shikha, our R and D spend in Q1 of last year was 22,000,000 And Q4, it was RMB43 1,000,000. Okay. RMB34 1,000,000 in this quarter. Okay. Great. Yes. And 1. The next question is from the line of Shesha Patani from Ambleshare and Stock Broking. Please go ahead. Hi. Thank you for giving me the opportunity. I just I wanted to know there is a quite big jump In the other expenses and the employee costs, is there any particular expenses which has increased during the quarter? Because when you compare it to the same quarter last year, it is almost at RMB165,800,000 compared to RMB248,82,000,000. 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 1, it is because of Citec. Cytec, we have acquired in the month of January 21. So last year in the Q1, there was no Consensus of SSPL in our books, so this is roughly about a big chunk of about 30,000,000. And in addition to that, this year, in the Q1, our operational activities are more than last year's Q1, Last year, Q1 was first time that pandemic has affected everyone very heavily. And after that, a lot of precautions were taken. And then This year in the Q1, 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 RMB83 1,000,000. And Employee benefit expenses, if you really compare with the Q1 of last year, then it is because of your Annual increase and some incentives and then also the impact of inclusion of Cytec. So the payroll costs of Scitech is also included during this Q1 of FY 2022. So that has contributed in employee benefit expenses going up from RMB211,000,000 to RMB269,000,000 or so. There was also one more contribution. Last year, we are like doing a We raised in the month of August because of the pandemic which was there and this year it was from the airplane. So When we compare quarter on quarter, we can see there is a double impact rather than the single impact. Yes. I'm sorry, can you come again on that one? Yes. So last year, what he is saying, last year, the increments were even effective from 1st August 20, okay. This year, the enrollments are given from 1st April. So last year, in the Q1, that increase in salary was not there Okay. That's all from my side. If I have anything, I'll come back in the queue. Yes, please. Thank you. The next question is from the line of Alicia Mahavala from Envision Capital. Please go ahead. Hi, sir. Good evening and thank you for taking my question. 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, Arish, we expect like This thing will be the C1 business will be constant for another quarter or so and then it should again pick it up. Sure. But what is the reason for this decline? Is it because It's because if we 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 company, they were working like the R and D is 50% or something. And all the focus in the R and 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 be better. 1 or 2 calls. Okay. And coming to your Animal Health segment, while you did respond to an all 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 its earlier run rate? We 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 in the field, Then people want to track. Otherwise, a lot of people don't want to track, right? So this was opportunity which we could encash To put up the products in the market and that has given a good review. So we expect that this should continue. Understood. And so just to comment on the gross margins, I didn't under what was the reason for expansion in gross margins? So 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 the in the quarter how the product mix is there, which was sold. But on a yearly basis, It should be more or less come to the same on an average. Like last quarter, our Margins were lower because of the product mix. This quarter, it has given us a high end margin because of the product mix. So on full year basis, number closer to 80% would be sustainable? So Probably you can say that, but whatever that number is, we always say that our gross margins or the EBITDA will always be there Okay, due to 48% and we believe that that should that is maintenance? No, 80% is something that please don't assume that. It can be anywhere between 70 to 75. Okay, sir. Thank you. Sorry, what is your capacity utilization currently? So it again depends, Alicia, but currently it's about 60%. Thank you, sir. Thank you. The next question is from the line of Amit Ganatra from HDFC Asset Management. Please go ahead. Yes. So Slide number 22, you have provided some data points on how big is the opportunity And the addressable market for ETL over next 5 years seems to be around $100,000,000 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. Raul, can you please take this? Yes. I mean, this Addressable market is somewhere like where we already started working on it, and we have a couple of 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 baking is like an area which is mainly now we are targeting in European countries and on end cards. 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 different stages of Appointing distributors and registering our products in various countries. So this is a target based on The current, like, our competence and kind of a product portfolio in which we Already worked and we are working. And probiotic is, of course, again, a major market, which is a very big market, and we already launched And can you also talk about For 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 B2C segments, particularly in the human nutraceuticals. We are trying to take the advantage of our knowledge from the U. S. We are trying to launch this product in Indian market. Now because of the CITEX, which we acquired, we do have Capabilities and capacities to get into the nutraceutical product and also like the innovative like effervescent technologies, 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 areas. So on the B2C platform, we are going with like our own Selling our own website, which is like the e platform as well as some of the products we are trying to claim on the Amazon and other platforms. Okay, understood. Thank you. Thank you. The next question is from the line of Lakshmi Narayan from ICICI Prudential, AMC. Please go ahead. Thank you. A couple of questions. First, in terms of the human nutrition, which is almost 2 thirds of our See, how does that break into different sense, mainly U. S, India and Europe. And in that human nutrition, we do some B2C Product selling via websites as well as e commerce in the U. S, what has what is the Plans for this year in terms of sales on that front, essentially the B2C part or the B2C part of Human Nutrition and how the geographical mix of human nutrition, that's my first question. Raufesh, can you break the No. I I can give the numbers. Yeah. I'll give you the numbers. As far as human nutrition is concerned, 45% of our businesses come from India of the human nutrition I'm talking about, out of which API is roughly 36% and Providigm is about 3%, biochemistis is 7%. So This is a different break sorry, break up of our sales in different segment. International sales is 55% and out of that 42% is like nutrition cell and 13% is probiotic cell. This is this includes even B2C sales. And now As far as the numbers going forward, what kind of sale will be there in B2C? Because I think we already spoke many times, much and angry about this particular Correct. Right. Yes. Yes. Hope these numbers are clear to you It's correct, sir. The human nutrition breakup is currently. Yes, sir. Yes. Now we directly sell in So what is the where did we close for the last year and what kind of market we have for this year? So, Mr. Narayan, is it closed like B2C segment in U. S. Around $5,000,000 And Vixar is there Who can give you the guidance on the B2C sale in U. S. This year? Lakshmi, Our B2C sale in the U. S. Market is pretty strong at this point in time. There are several areas, which are Really keeping a clean trust. Everybody wants to be in good health due to 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. We are introducing the product into the market. So we believe that this B2C sale Platform will keep on increasing in the U. S. Market. And as Mukun already explained to you, We are already trying to introduce these platforms here in Indian market also. It will be gradual. It is not going to be suddenly Art of sorry, but it is very sustainable long consistent increase in the marketplace. Thank you. And in terms of industrial bioprocessing, there has been a strong growth that we see. 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, in the cell bioprocessing, we divide it into the 2 areas. 1 is like food and the other one is non food. The non food area was affected like which compromises bitter gents and Yes. And this area was affected during this pandemic badly and we are in negative growth, while the crude area has Better growth as we were already talking about, we should pick it up as we move on. And some of the pickup has happened in this quarter. And we expect like quarterly the guidance we have given we should be able to achieve it in the next 5 years in that area. Got it. And any new enzymes you have introduced in industrial bioprocessing giving you a Strong growth. Always, we are always 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. Yes. Good. And in the animal system, around I think 2 thirds of the business is domestic and one 3rd will be international, right? How has been the journey so far? And How do you look at it in the next couple of years? You mentioned talking about 2 to 3 years. We were talking about this quarter like our domestic business has again 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 Q3 or the Q4 will happen The Q2 will happen in this area because until the pandemic is there or the curve 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 this area. We have already started to expand the marketing in this area right Internationally, so that we can cater to these areas as the situation normalizes. The next question is from the line of Ashwin Agarwal from Akash Gambhara Investment Private Limited. Please go ahead. Good evening, sir. 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 Areas which are our prominent interest, which is Asia, Europe and North America. Is that your question? So what would be the size of the acquisition Sales or something if you can give and 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 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 which you are looking at in terms of valuations as such opportunities available? Yes. There is always the opportunity available provided You know, what price you want to pay, obviously, and it has to It has to fit in our proper our sequence to see that not only Price is right, but also it is between our growth path. So does that mean if we get an opportunity, we will also take on debt to fund the acquisition? It's necessary, yes. And lastly, can we expect the acquisition to happen this year? You can expect anything. It's a constant process of looking at it and evaluating. So we'll do that. Our department, one of our department constantly looking into this. Thank you. The next question is from the line of Alicia Mahavala from Envision Capital. Please go ahead. Thank you so much for the follow-up. Sir, your tax rate is not at 25%. Is there any plan of moving to the tax regime? Can you explain the reason for higher tax rate? Yes. Because of, you know, we have different subsidiaries. So we do have a subsidiary 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 the 27%, 28% range where it has Yes. Right. Got it. And sir, just on Evox, We acquired this company more than 3, three and a half years ago. It's still making loss, and I think we had big plans of scaling this and also leveraging their portfolio. 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 and D company, madam. This is basically a research and development company Basically doing only research as such. And apart from that, what you are saying, it is constantly I mean, not a loss making company as such. This is the Q1. Again, we have seen that it's the EBITDA negative because of This Europe is highly affected because of this pandemic. So the activity is very at a very miniscule level in that sense. So This quarter, we have faced this problem. But otherwise, I think Evox is, as such, kind of a company, which is in In spite of being in business and development and of late, we are also in a position to some extent leverage our exposed to Europe through that company. But yes, because of last 15 months, the situation is Being different, as Muken 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 situation. So we are looking into it that how we make this company Sustainable and of course, always on yearly basis as last 2 years, you might have seen that it's EBITDA positive as such. So we are working very Aggressive on that one, but inside because of this COVID situation, much could not be done because of this issue. Okay, got it. Thank you. Thank you. Anyone who would like to ask The next question is from the line of Rohit Sinha from MK Global. Please go ahead. Yes. Thank you for the follow-up, sir. Just one clarification, if you could provide, I mean, the inclusion of this SFPL revenue, I mean, how much domestic and export sales were there for SFPL? And if any sense we can get on the geographical side, basically where this SSTL revenue is contributing to our growth? Okay. So out of 134,000,000, 84,000,000 is exports Rohit, in Q1. Okay. And on Q4, the exports were about 41,000,000 out of 79,000,000 of revenue of Citec. Okay. What is your next question, sorry? And in geographical terms, if at all, we can get something that Where this SFL contribution is actually reflecting on the numbers? So it is you're right. You 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 sports are in Asia ex India. So I'll give you exact numbers later on. Yes. We'll come back to you. Yes. Okay. Thank you. That's all for my time. Thank you. Thank you. As there are no further questions from 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 from this pandemic. Please take care and bye. Thank you again once again. Thank you, everyone. Thank you so much for your participation and your question. Thank you for these good question and answers and participation in Thank you. On behalf of Advanced Enzymes Technologies Limited, that concludes this conference. Thank you for joining us, And you may now disconnect your lines.