Advanced Enzyme Technologies Ltd

NSE:ADVENZYMES

Earnings Call Analysis

Advanced Enzyme Technologies Faces Challenges but Projects Recovery in H2 FY '25

Advanced Enzyme Technologies reported a 7% revenue decline in Q2 FY '25, totaling INR 1,461 million, alongside a 17% drop in EBITDA to INR 425 million. The PAT margin remained steady at 23%. Key factors included a significant revenue reversal of INR 83 million affecting recognition, and a slowdown in export sales. While domestic sales are expected to remain stagnant, the U.S. market has shown promise with a year-to-date growth of 24%. Management anticipates a single-digit growth rate and EBITDA margins between 30% to 33% by year-end, with a more positive performance projected in the second half of the year.

A Slow Quarter but Optimism for the Future

In the second quarter of fiscal year 2025, Advanced Enzyme Technologies reported a challenging period, marking their lowest quarter for the fiscal year. They achieved a top-line revenue of INR 1,461 million, which represents a 7% decline year-over-year and a 5% decrease sequentially. Despite this dip, the management remains confident about the long-term business potential and expects the second half of the fiscal year to outperform the first half.

Understanding the Financials: Profits and Margins

The company's EBITDA stood at INR 425 million, reflecting a year-on-year decrease of 17% and a sequential decrease of the same percentage. The EBITDA margin fell to 29%, down from 33% in the previous quarter. Profit After Tax (PAT) was reported at INR 334 million, resulting in a PAT margin of 23%, slightly improved from 22% a year ago. A significant element affecting these figures was a revenue reversal of INR 83 million due to stringent revenue recognition criteria.

Segment Performance and Challenges Ahead

The Human Nutrition segment, which accounts for 68% of the total revenue, saw a contraction of 6% annually and 2% sequentially. This decline was mainly attributed to lower revenue realization in their Pharma API business and increased competition in the anti-inflammatory market. However, the Animal Nutrition portion grew by 5% yearly, contributing 12% to overall revenue. The Bio-Process division struggled with a 31% year-over-year decline. The company reiterates that growth in domestic sales is not expected this year, but anticipates stronger performance in the U.S. market with a 24% year-to-date increase.

Market Dynamics and Future Guidance

In earlier communications, the management had indicated double-digit growth expectations for the year, however, this estimate has now been adjusted to single-digit growth, as they foresee the remaining quarters requiring greater sales to meet these targets. They remain hopeful that revenue from deferred sales recognized in the current quarter will provide a boost in Q3.

Investments in R&D and Long-term Strategy

Advanced Enzyme Technologies is committed to increasing its focus on R&D, having invested INR 151 million in the first six months of the fiscal year, up from INR 126 million in the previous year. Although the company is enhancing its capabilities and product pipeline, immediate quarterly trends show a need for improvement in sales execution to achieve strategic objectives. They identified ongoing investments in biocatalyst solutions as a key focal area for driving future growth.

Strategic Comments on Stockholder Returns

While investor concerns arose following the recent earnings release, the board highlighted its consistent focus on increasing dividends as part of its policy. Discussions on potential buybacks were deemed inefficient, focusing instead on sustainable growth and long-term shareholder value. The outlook for EBITDA margin remains targeted in the range of 30-33% for this fiscal year.

Summary and Key Takeaways

Despite facing setbacks this quarter, Advanced Enzyme Technologies retains optimism for recovery, underpinned by operational strength in international markets, particularly the U.S. Their commitment to R&D and strategic investments indicate a roadmap to greater profitability. Investors may need to manage expectations regarding growth rates this fiscal year, keeping a close watch on forthcoming sales recovery and profitability metrics in the latter half of fiscal 2025.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Advanced Enzymes Technology Limited Q2 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ronak Saraf. Thank you, and over to you, sir.

[Ronak Saraf, executive]

Thank you. Good evening, everyone, and welcome to the Advanced Enzyme Technologies Q2 and H1 FY '25 Earnings Conference Call. I'm Ronak Saraf, the Manager of Investor Relations here at Advanced Enzymes. We sincerely hope you have gone through all our financials, press release and the PPT which has been posted in our Investor Relations section on our website.

We have with us Mr. Mukund Kabra, Whole-Time Director; Mr. Beni Prasad Rauka, Group CFO. Today, the management will discuss the performance and business highlights, update on strategies and respond to any questions that may -- you may have. As is usual, for ease of discussion, we will look at the consolidated financials. So before we proceed, I would like to draw your attention to the forward-looking statement contained in the PPT.

During our call, we may make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that may involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. So without any further ado, we shall commence this call. Over to you, Mukund, sir.

[Mukund Kabra, executive]

Thank you, Ronak. Good evening, everyone. I really appreciate you all for taking out your valuable time, and I welcome you all to the conference call for the second quarter and half year ended 30th September 2024. This quarter 2 turned out to be the lowest quarter in financial year '25 for us. But I want to assure you that our long-term business potential remains robust. We are confident that the second half of the year will outperform the first half.

Quarterly performance. Now as far as the quarterly performance is concerned, we have achieved top line of INR 1,461 million, de-growth of 7% on a year-on-year basis and 5% on a sequential basis in quarter 2. Our EBITDA stood at INR 425 million, de-grew by 17% on a year-on-year basis as well as on a sequential basis. We have witnessed de-growth of 5% in the bottom line on a year-on-year basis and on a sequential basis.

Talking about the margin profile. EBITDA margin stood at 29%, and PAT margin stood at 23% during the quarter 2. There are a few factors that has impacted our quarter 2, and I will throw some light on these factors as well as we proceed in this call. During the quarter, the company had a higher revenue reversal of INR 83 million compared to the previous quarter since revenue recognition criteria was not made as per the accounting standard. The revenue and margin towards this [ answer ] deferred to quarter 3. Rauka-ji will elaborate this point further.

A slowdown in our export sales lead to decline in international sales, excluding the U.S. And some of the -- some of this is because of the sales reversal as well. Our EBITDA margin is subdued majorly due to the lower top line, but we expect this to improve as we progress into the second half of this fiscal year.

Talking about the segment-wise performance. As projected at the start of the fiscal 2025, we do not anticipate growth in domestic sales for this year. However, our U.S. business is expected to perform stronger in financial year '25, with U.S. sales having already increased by 24% on a year-to-date basis.

Human Nutrition. The Human Nutrition segment declined during the quarter and contributed 68% in the remaining price. It de-grew by 6% on a year-on-year basis and 2% on a sequential basis. This decline in Human Nutrition is on account of low revenue realization in Pharma API business. As we mentioned in our earlier calls as well, there is certain competition in our anti-inflammatory market. In the international markets, Probiotic and Nutrition business performed well.

Animal Nutrition. Our Animal Nutrition business contributed 12% to the revenue in quarter 2. This segment grew by 5% on a year-on-year basis, while it grew by 6% on a sequential basis. Bio-Process. Our Bio-Process business contributed 12% to the remaining quarter 2. This segment underperformed during the quarter by around 31% on a year-on-year basis and 33% on a sequential basis. The Food business de-grew by 42%, while Non-Food business reported a growth of 24% on a year-on-year basis. The major Food business comes from export markets, and sales reversals have impacted this. The Specialized Manufacturing business contributed 8% and grew by 17% on a year-on-year basis and 9% on a sequential basis.

While the current quarter appears to be stronger, the previous quarter presented challenges based on the prevailing trends. Consequently, the anticipated growth for financial year '25 is expected to be in the single-digit range. Despite the influx of new competitors in our sector in recent years, we continue to observe increasing demand for our inventive probiotics in the U.S. market. This is largely due to the strength of our brand. At the halfway point of the year, request to feature our formulated ingredient brand names on finished consumer products have already risen by 58% compared to last year. This indicates that our customers see our branded ingredients as a key selling point, reflecting the strength of our brands.

We remain focused on our ongoing strategies and are also working on developing new biocatalyst molecules. In the last quarter, we introduced 2 new solutions and are collaborating with customers to finalize the optics. A significant challenge for our U.S. customer is the lack of familiarity with enzyme and probiotic testing, compounded by a fragmented and under-educated market for third-party testing services. This often leads to wasted resources as customers struggle with basic quality control requirements, which in turn places undue pressure on sales.

To address this, we are establishing a full independent Level 3 for enzyme and probiotic testing. This will allow us to leverage our testing expertise to support our customers in growing their brands, ultimately benefiting our ingredient sales as well. We also recognize that certain investments, particularly in the area of R&D, is essential for long-term growth. As reflected in our financials, significant resources are being allocated to these areas, actually exploring new opportunities and developing new products and molecular biofertilizers and bio pesticides within our agriculture portfolio. These offerings are expected to generate an additional couple of millions in revenues in the near future. With this, I conclude my remarks. I now hand over the call to Rauka-ji. He will walk you through the financials and key subsidiary numbers. Over to you, Rauka-ji.

[Beni Rauka, executive]

Good evening, everyone. I hope you all are in good health and wishing you all happy facilities. On the company's consolidated financial for the second quarter and half year fiscal year 2025. On a year-on-year basis, our revenue has decreased from INR 1,578 million to INR 1,451 million, 7% decrease. Our EBITDA has decreased from INR 513 million to INR 424 million, and it stood at 29% as compared to 33% of our revenue. Profit before taxes decreased by INR 57 million from INR 479 million to INR 422 million. Profit after tax. PAT decreased by INR 18 million from INR 352 million to INR 334 million. And this is 23% of our revenue as compared to 22% in the corresponding quarter.

On Q-on-Q basis, our revenues decreased by INR 84 million, which is about 2% decrease from INR 1,545 million to INR 1,461 million. EBITDA also decreased by INR 88 million from INR 512 million to INR 424 million. And this is, again, as I mentioned, 33% in the previous quarter as compared to 29% this quarter. Profit before tax decreased by INR 65 million from INR 487 million to INR 422 million, and PAT has decreased by INR 16 million from INR 350 million to INR 334 million.

On 6 monthly -- I mean, half yearly performance of the company, the revenues decreased by INR 45 million from INR 3,051 billion to INR 3,006 million. EBITDA decreased by INR 17 million from INR 953 million to INR 936 million. And this is 31% of our revenue as compared to 31% in the previous year half year and 6 months performance. Profit before taxes increased by INR 16 million from INR 893 million to INR 909 million. PAT has increased by INR 38 million from INR 646 million to INR 684 million.

As Mukund has mentioned, our Q2 is affected because of a couple of things. One is the higher -- this is incremental higher revenue reversal of about INR 83 million as compared to the previous quarter. So this is the requirement of NDS revenue recognition because if the significant risk and reward has not passed on to the customer before the cutoff date, this is 30th September '24, then that -- to that extent, the revenue cannot be recognized during that period. And generally, we have about INR 80 million to INR 85 million of reversal. But this quarter, this reversal is higher by INR 83 million. So this has impacted, in a way, the revenue. So to that extent, if you see the revenue has decreased. Otherwise, this quarter is flat as compared to the previous quarter. And if this revenue reversal would not have happened, then of course, because of the gross contribution of about 77% to 78% and gross profit margin of about 60% to 61%, our profits would have been higher. And as you know, the PAT is also about 23%. So to that extent, the PAT would have been higher in this quarter.

But yes, this is the impact, and the revenue to that extent is deferred from quarter 2 to quarter 3. So in spite of lower sales of 1% on YTD basis, if you see our profitability for the 6 months is improved. And the contribution is also on account of the higher income from other sources.

Now some of the numbers of our major subsidiary. JC Biotech during this quarter stood at revenue of INR 158 million, EBITDA of INR 20 million and PAT of about INR 5 million as compared to INR 174 million of revenue and INR 17 million of EBITDA and INR 3 million of PAT. So it is showing continuous improvement. And for half yearly, JC Biotech top line is INR 317 million as compared to INR 308 million of first half of FY '24. And EBITDA of INR 44 million as compared to INR 26 million. And PAT is INR 13 million as compared to INR 1 million during last 6 months.

Evoxx revenue stood at INR 49 million. But still, the EBITDA is negative INR 12 million. And PAT, because of depreciation and amortization, is about INR 19 million negative as compared to Q2 of FY '24 top line of INR 54 million and INR 3 million of positive EBITDA and PAT of INR 3 million negative. For 6 months, Evoxx top line is INR 96 million as compared to INR 117 million. And EBITDA of INR 19 million negative as compared to INR 4 million last year. And PAT is INR 35 million as compared to INR 16 million negative last year.

SciTech, which is a specialty manufacturing company for us -- but top line stood at INR 120 million as compared to INR 103 million last year. And EBITDA is about INR 14 million as compared to INR 18 million. PAT is INR 3 million as compared to INR 7 million last Q1. For 6 months, SciTech has posted a growth of 15% in the top line from INR 200 million to INR 232 million. And EBITDA has increased from INR 22 million to INR 36 million. And PAT is increased from INR 8 million to INR 13 million. So this is also continuously showing the upward trend.

Sale of our largest product, which is anti-inflammatory enzyme, stood at INR 275 million. And I think last quarter, it was same, INR 275 million. And for 6 months, the product sold is off, about INR 555 million as compared to INR 716 million last year first half. So it has like decreased significant, and the revenue is about 18% of total as compared to 23% last year -- 6 months. Top customers contributed about 25% in Q2. And if we take 6 months, the contribution of top 10 customers is about 22% as compared to 27% last year. B2C segment has contributed about USD 1.14 million as compared to USD 1.1 million in the previous quarter. And health care breakups, Pharma India is about INR 356 million as compared to INR 375 million in the last quarter. Probiotics and Biocatalysts together constitute about INR 52 million as compared to INR 113 million. So India sales from INR 488 million to INR 419 million during this quarter.

International sales in Human Health Care is up from INR 466 million in Q2 of last year to -- if we compare with the Q1 of last -- this year, it was INR 523 million. Now during this Q2, the revenues from international market is up to INR 573 million. So this is continuously staying above trend. In international business, the major contribution, as you all are aware, is from our U.S.A. company. So there, we see a continuously upward trend. In Q2 of last year, it was INR 403 million, to Q1 of this year, it was INR 494 million. And Q2 of current year, it stood at INR 532 million.

So I think our R&D expenditure, as we generally mentioned about our spending on R&D during Q2, we have spent about INR 72 million as compared to INR 62 million last year. And our CapEx is about INR 13 million as compared to INR 2 million last year. So total R&D expenditure in 6 months is INR 151 million as compared to INR 126 million last year. The R&D constituted about 6% of our top line as compared to the 4% in Q2 of last year. This is without considering the intercompany elimination. If you eliminate our Evoxx spending, then R&D expenditure is about 5% in Q2 as compared to 3% in Q2. That was all from my side. Now we shall open the floor for questions-and-answer session.

[Operator]

Thank you. [Operator Instructions] The first question is from the line of Harini Dedhia from Tamohara Investment Managers.

[Harini Dedhia, analyst]

Right. My question was on serratiopeptidase. We had called it out specifically as a reason for de-growth in India in Q1. And you had said that there's some inventory that's not being run down at the customer end, which is taking longer than expected. Is this still the problem in India? Or is the problem a little more structural in nature? Or is it a temporary issue? Just wanted to understand that.

[Mukund Kabra, executive]

So -- sorry, I didn't get your name, but...

[Beni Rauka, executive]

Harini. Harini.

[Mukund Kabra, executive]

Harini. Serra sales is down, but it is not down to the extent what these numbers are showing. Last year, the serra sale was there in the first half, and it was down into the next half. So on an overall basis, if you ask me, it is down somewhere around 7%, 8%. We expect that will be down by 7%, 8% on the volume basis.

[Harini Dedhia, analyst]

Got it. And so are we expecting then some sort of normalization in the sales in Q3, Q4? Or like in general, in the second half? Or this is continue -- the run rate has come off?

[Mukund Kabra, executive]

So we were already saying that there is going to be some competition, which we do expect in the serra area and this area particularly. And that is where like we are coming at it, like we've forecasted this year as well like our sales in this area will be down somewhere around 7% to 8%.

[Harini Dedhia, analyst]

Got it. But given that in H1, we are down much more, we are expecting that H2, we won't be down double digits in serra?

[Mukund Kabra, executive]

That is correct.

[Harini Dedhia, analyst]

Okay. And my second question was in the start of the year, we were very clear in our communication and stating that India is unlikely to grow this year. I'm guessing because of serra, predominantly. And then in U.S., we were confident to grow ahead of the rest of the geographies. And we are still confident of a double-digit growth playing out for the full year. So what has not panned out according to our plan? So is it that India de-growth is steeper than our expectations? Or is it that something has gone up in the rest of the world that is really hurting us?

[Mukund Kabra, executive]

So Harini, like, let me correct you, like earlier, we were expecting a double-digit growth, but this time, like we feel that we will have a single-digit growth, and that is what I've made it clear in my initial remarks. We were thinking was like some of the sales from the other areas which we are expecting to come out, they are slightly delayed. And that is where we see that this year probably like on the Indian front probably we will not have any growth, right? And that will impact on our -- and that is where it's difficult for us to get into the double-digit growth here. We do feel that the next half will be better. At the same time, we may not be able to achieve double-digit growth.

[Harini Dedhia, analyst]

Got it. But even to achieve a single-digit growth number, the next 2 quarters, we will have to do about INR 350 crores or right of 170...

[Mukund Kabra, executive]

Yes. So if you really look at it, like as Rauka-ji explained you, like we had some sales reversal, which is already like if [ secure ] had been there, it probably would have been flat. And these are the accounting practices -- even though the invoices are there, the material has not reached to the customer. Some of the delays are because of the shipping delays and orders, the other airlines' delays or whatever we can call it. But that is not in our hand. Right? So those sales will be -- those sales will be realized in the next quarter.

[Harini Dedhia, analyst]

Got it. So that will actually add to the growth number in Q3 then?

[Mukund Kabra, executive]

Yes.

[Harini Dedhia, analyst]

Got it, sir. Sir, just 1 sort of feedback from our end. If this could have been cited in the presentation or we could have done the call on Saturday or Monday itself, that might have just helped calm some nerves around this. But thank you so much for answering my questions.

[Operator]

Thank you. The next question is from the line of Sandeep Dixit from Arjav Partners.

[Unknown Analyst]

Sir, earlier, you had guided that your EBITDA growth will be 2x of the revenue growth. Are we -- does that equation still hold given that -- given the revision in the guidance?

[Mukund Kabra, executive]

Can you repeat? I didn't get your question.

[Unknown Analyst]

Yes. In last quarter call, you said that the EBITDA growth will be 2x to 3x of revenue growth.

[Mukund Kabra, executive]

Right.

[Unknown Analyst]

So does that equation hold even now? So if you are saying that revenue growth for full year '25 will be single digit, will the EBITDA growth still be 2x that?

[Mukund Kabra, executive]

So if you really look at -- let me answer your question. If you really look at the de-growth. So if the equation if you are talking about, if sales is, say, down by 5% on Q-o-Q, the EBITDA is down by 17%. So that's how you can see the equation in that sense. On YTD basis, if you really see the sale number is down, say, about 1% but EBITDA is down by 2%. So the equation is, in that sense, when you have the incremental sales, your EBITDA always keeps on increasing by at least 2x to 2.5x or 3x. That's how it is. So you can see the impact in that sense.

[Operator]

The next question is from the line of Umang Shah from Banyan Tree Advisors.

[Umang Shah, analyst]

Sir, first question was what is the reason for the higher competition in our serratiopeptidase portfolio? Is it on account of a new product which is coming in the market or something else? Because we tend to have a very high market share in that product category. So what was the reason for higher competition?

[Mukund Kabra, executive]

So when you have like a very high percentage of market share, it's always we are bound to lose some of it. Because whatever you try to do, at some point, like some people will come up with the same product, right? So the competition is for the same product and not with the other molecule. So the molecule is still intact.

[Umang Shah, analyst]

Sure, sir. That is 1 question. Second is, sir, every quarter, you break down the Human Nutrition revenues between India and international. Can you give that number, please?

[Mukund Kabra, executive]

Rauka-ji, can you give those numbers?

[Beni Rauka, executive]

So Human Nutrition pharma sales has been INR 419 million in current quarter as compared to INR 593 million in the quarter 2 last year. Our international sales has been INR 573 million in the current quarter compared to INR 466 million in last year's September quarter.

[Umang Shah, analyst]

Sure. Rauka-ji, what would be the revenue, R&D expenditure for the 6 months as compared to last half?

[Beni Rauka, executive]

But I will give you the number. Yes, so in these 6 months, we have spent INR 143 million in revenue expenditure in R&D compared to INR 121 million in last year's 6 months.

[Mukund Kabra, executive]

Okay. We have already explained CapEx, right? INR 18 million and INR 5 million.

[Beni Rauka, executive]

Last year, it was 18 -- this year, it was INR 18 million. Last year, it was INR 5 million.

[Umang Shah, analyst]

Sure, sir. And sir, any news on how the new launches are doing in the current year, both in pharma and nutraceutical in U.S.?

[Mukund Kabra, executive]

In biocatalyst areas, we have just come out with a couple of solutions, as I mentioned. In the U.S., there are no new launches. It's the same products but we are like focusing more right now.

[Umang Shah, analyst]

Sure. Okay. And any traction on the launches that we are -- launches that you have made last year?

[Mukund Kabra, executive]

So those are -- we were talking about like on the [ state food ]. And like I think like we are talking about the sugar one, right? So those areas are growing, and probably those are the ones which are driving the sales at this point of time. We expect it to grow further as we move on.

[Umang Shah, analyst]

Sure, sir. And sir, biocatalysis, biocatalyst segment pharma driven. We were thinking that this year would be the year where the segment sales ramped up significantly. Can we expect a positive surprise in the second half?

[Mukund Kabra, executive]

We're expecting in third and fourth quarter, but over like what we feel is, which is a little bit delayed. We do have the molecules ready, but to commercialize it and take to the sales on a higher level, probably, this may not happen in this year, but maybe the next year. But yes, the fourth quarter will be a little better than like what we had on all the 2 or 3 quarters, what we can say.

[Operator]

The next question is from the line of Sagar Tanna from Alchemie Ventures.

[Unknown Analyst]

Sir, we've been in existence for such a long time, more than 50 years. Even today, we are a INR 600 crore company in terms of top line. What do you think will it take for us to grow at 25% consistently considering the size of the market and the addressable TAM that we have? Do you think we are lacking on products, R&D? Or is it our sales engine?

[Mukund Kabra, executive]

It takes time. Even though I feel like 25% growth is a little impossible or a little difficult to do it, not impossible, but difficult to do it. But what we need is more R&D support and more products to come out as we move on. And we are focusing on many of these areas, particularly into the R&D areas. We are trying to increase our R&D capacity. Probably, it will take some more time. Till that time, probably, we will not see the 25% kind of growth, which is a little difficult to achieve.

[Unknown Analyst]

Sir, which are the Indian companies who are our competitors, both in India and overseas? And what would be their size?

[Mukund Kabra, executive]

So in India, I won't say like there is much of a competition, but a lot of the competition comes from the global players, where their R&Ds are much stronger. And probably, it will take some more time for us to reach to those levels.

[Operator]

The next question is from the line of [ Navia Gautam ] from Sicomoro Advisors. The line for the current participant has been disconnected. Moving on to the next question. The next question is from the line of Lakshminarayanan K.G. from Tunga Investments.

[K.G. Lakshminarayanan, analyst]

One question. Sir, if you look at our August meeting, where we actually mentioned...

[Operator]

Sir, could you come a bit close to your handset?

[K.G. Lakshminarayanan, analyst]

Is it better?

[Operator]

Yes, sir, go ahead.

[K.G. Lakshminarayanan, analyst]

In the August conference call, you had mentioned that you would actually grow somewhere between 12% to 15%. And part of the year, you mentioned that we'll actually grow in a particular range. Now, were you surprised in terms of the difficulties which you are facing now? And how do you think you will end the year at? And what actually changed in the last 7 to 8 weeks?

[Mukund Kabra, executive]

What we see is like some of the sales which we are expecting from the biocatalyst area to come into the next 1 or 2 quarters, those are going to be deferred, right? From the very beginning, we were anticipating that the Indian sales will be more or less muted this year because we were anticipating the growth to come from the U.S. For India side, we are expecting the growth to come from the biocatalyst and other areas. Which is deferred, and that is where we feel that double-digit growth is a little difficult, but we will be having single-digit growth at this point of time. That is what we feel. That is what we are communicating.

[K.G. Lakshminarayanan, analyst]

That's for India, right? Or for the entire company?

[Mukund Kabra, executive]

For the entire company.

[K.G. Lakshminarayanan, analyst]

Entire company. Okay. Okay. So in terms of -- within India. And last year, I think serra was almost like INR 131 crores or so. So this year, at this trend rate, what will be in that for serra?

[Mukund Kabra, executive]

We will be expecting about INR 115 to INR 120 for the year.

[K.G. Lakshminarayanan, analyst]

And the SciTech business, right, I mean, have we seen growth in SciTech? Because I think in FY '24, they're growing pretty healthy there. Yes. So how do you anticipate growth in that part of the India business?

[Mukund Kabra, executive]

This year, we expect a good growth to come from the SciTech.

[K.G. Lakshminarayanan, analyst]

Okay. Okay. Okay. And overall, India would grow at what rate this year?

[Mukund Kabra, executive]

Single digits, probably. If you consolidate everything.

[K.G. Lakshminarayanan, analyst]

Okay, okay. And how is Europe shaping up? Because we see a decline in the first -- I mean, in this quarter. But how do you think about Europe?

[Mukund Kabra, executive]

Evoxx revenue is on the lower side in the first half, but we expect that it showed like smaller growth in the last year at the end of the year because as we were talking and I think like we might have talked last time, probably, we were expecting like some of the contracts in the Evoxx which has been signed. So we expect a positive this year, particularly at the end of the year. The next half will be better from the Evoxx side.

[K.G. Lakshminarayanan, analyst]

Yes. I mean, I believe we had some approvals in the food side in Europe. And I think not recently, but even several quarters back, you had mentioned that you're getting some approvals and that would actually open up a lot of opportunities in Europe. So on the food part in Europe, what are we tracking? Is it -- is it the gestation period is longer? Can you just help me understand that?

[Mukund Kabra, executive]

Yes, there is a gestation period, which is a little bit longer. At the same time, there are like certain issues like -- some of the issues are coming with the freight and all of those areas, the freight cost is also on a higher side. Some of the other areas are also affecting some credits and some other areas, and we are working on how do we solve those problems.

[K.G. Lakshminarayanan, analyst]

Got it. Just one last question related to the rest of the world. And if you look at the rest of the world in animal feed and non-animal feed, where do you see growth? Is the growth coming from animal feed business or the non-animal feed business?

[Mukund Kabra, executive]

Animal Feed, like we will be expanding into some other areas, particularly and we are working on those. At this point of time, this year, I don't see much of the growth to come from the animal feed, but we are trying to explore like some other areas like the ruminant areas and like solutions for aquaculture, and all of those other areas, we are trying to explore at this point of time. Nonanimal or like nonfood bioprocessing area is looking very decent for this year, particularly.

[K.G. Lakshminarayanan, analyst]

That profitability, when compared to last year, this year, would we end at a better picture than last year in terms of our operating profit or the net profit?

[Beni Rauka, executive]

No, I think we should look at the kind of numbers we had last year, at least we are likely to outperform once we get a single-digit growth.

[K.G. Lakshminarayanan, analyst]

Got it. Got it. Is there any surprise that actually came in the last few months? Has actually changed...

[Beni Rauka, executive]

Some of the sales as Rauka has mentioned, has not picked up. Like young customers, they are taking their own time there. Initially, when as you mentioned in the month of August, where we could see some kind of visibility. But then there are like several things which I think customers are also like looking at it. And therefore, the Indian sales is not picking up. In the U.S.A., if you really see -- the growth is there and now they are working that most of the nutraceutical customers. So they use our branded formulated product name in their product. So instead of using any kind of specific ingredient, now we are trying to convince our customers that look, this is our brand name and which we are supplying. So you use on your nutraceutical, the name of our product. So it becomes more, in that sense, customer-centric as well as the kind of brand visibility we create over a period of time. So a couple of such issues are there, which I think are taking some time to shape up.

[Operator]

The next question is from the line of Nikhil from SIMPL.

[Nikhil Upadhyay, analyst]

Just continuing with the question Lakshmi asked. See, how does -- because -- and sorry to harp on this, but -- just to understand your business better, when you say we have some visibility, but that -- so that visibility in most companies, we see is based on the POs which they get from the customers. And this is the schedule with which they will supply the product. So how does your business work?

[Beni Rauka, executive]

Sometime, you know, prices are going on like on biocatalysts. And customers also making trials. So getting an order for a big, you can say, commercial order takes time. So initially, you gave it, yes, I think a couple of trials are going successful. Hopefully, now next quarter, we shall be getting the big order. But then customers, they may take their time because they have to also reschedule various -- internally, many processes also. So for that, sometime, it takes time.

[Mukund Kabra, executive]

But Nikhil, to answer your question, our business doesn't go with the PO basis. We hardly always have any peers. The number of peers at any given time is not more than 10, 12.

[Nikhil Upadhyay, analyst]

Okay. So sir, just 2 questions here, 2 follow-ups. One is when you say the customer is undergoing trials or validations. In that sense -- and it could be naive to say, but does it mean that the business which we were expecting gets deferred over time? Or do you think that the business is lost completely? Because if he is taking some time and validation and that time line has shifted, then probably it will come in FY '26, what we were thinking of growth in this year. Would that be right assumption? Or is it like the project gets scrapped completely?

[Mukund Kabra, executive]

No, it's most of the time, like -- this is a novel solutions, what you come out. And basically, it takes time because a lot of times, they need to file the DMF, they need to file many other areas. And there can be multiple possibilities which are not in your hands, how long it can take. You can only always estimate based on the feedback and other areas, but sometimes, it always differ. And this is what the case is. Sometimes we are optimistic. We were a little bit more optimistic that this should come up like as early as possible, but we realize that it will take some more time.

[Nikhil Upadhyay, analyst]

Okay. And secondly, coming to your near-term guidance on second half, you said for the full year, we should grow at single digit. Even if I adjust for this INR 8 crores, it seems we have to grow in second half by at least 15%, 20% on a year-on-year basis to get that number of 6%, 7%. Now considering the lack of visibility, which you also have, how do you build confidence that this kind of growth is achievable in the near term?

[Mukund Kabra, executive]

The way I can look at it is basically whatever the numbers I can see is forecast at this point of time, I can see that we are not going to de-grow. We are going to grow. What will be that number, that still we need to really work out, which will be the really realistic numbers.

[Nikhil Upadhyay, analyst]

Okay. But you don't have any direct communication from the clients in terms of -- so between the time you get an order and your delivery, what would be the time period generally? Like, is it a 1-month kind of a time period when you have to supply from the day you get the order?

[Mukund Kabra, executive]

It differs on product to product. Sometimes it's 6, 7 days, sometimes, like it's a month.

[Nikhil Upadhyay, analyst]

Okay. Fine. I'll come back in the queue.

[Operator]

The next question is from the line of Shreyans Gathani from SG Securities.

[Shreyans Gathani, analyst]

I had a couple of questions. So the first one was on the Europe business, we see like a very sharp decline. So does that indicate like we've lost any customers or lost market share over there? And even the rest of the world, we see like a sharp decline. Even if we adjust for the deferred revenue, even then just trying to understand that 35% drop.

[Mukund Kabra, executive]

I don't see there is any customer loss as of now. Yes, there is a small one, which was like $1 million, which we realized last year, which we are knowing that this year will not be coming up because of some other reasons because the -- they changed the process in other areas. Besides that, there is no customer loss, what we can expect this year in the European business. We expect that this should pick up.

[Shreyans Gathani, analyst]

Okay. Okay. And a second question. So basically, are we like lacking on the product innovation side? So for -- like if I look at Novozymes, Chr. Hansen and other combined entity commentary and their guidance, they just upped their guidance and they are even more positive versus we are like losing sales. We're actually increasing guidance and we are losing. So are we like falling behind on the R&D front compared to them in terms of product? Or -- just trying to understand that.

[Mukund Kabra, executive]

If you ask like about Novozyme and these people, they are much ahead [indiscernible]. But that is where like we have our own niche areas and other areas. We are like really focusing on the R&D area. We are developing our R&D capabilities. We have a plan to increase it by threefold. And this is what like our overall focuses are. We will need some more time to really go on and take on like the Novozymes and other people in all the different segments. At the same time, we are working really hard to go to that level.

[Shreyans Gathani, analyst]

Got it. So by when do we expect the R&D to pick up to 3x, 4x that you are mentioning?

[Mukund Kabra, executive]

We are building up our new R&D center right now in [ ASIC ], probably. This should be fully operational by the end of next year. Then we will have like, slowly, slowly, we'll really ramp up on the R&D front.

[Operator]

The next question is from the line of [ Anuj Kakar ], who is an individual investor. Please go ahead.

[Unknown Attendee]

Good evening, everyone. Am I audible?

[Mukund Kabra, executive]

Yes, [ Anuj-ji ].

[Unknown Attendee]

Although most of the things that have been discussed is something was on the top of my head also, I'm not too -- like too much knowledgeable on accounting and other things, but I'll ask very different questions which investors would like to know. I'm invested in the company for about 2 years or something. You can easily see a panic in the share price in the last 2 days. I think it dropped 25% after the results were released. You have explained the sales were down because of some accounting or some booking of the sales changes that have happened, which I understand. But right now, we are already 1.5 months into quarter 3. So you will have some kind of visibility in terms of how would the sales look like in quarter 3, in which we are currently, if we do a 2x of what we are as on date. So do you see we are growing from the quarter 2 results that we have already declared?

[Mukund Kabra, executive]

[ Anuj-ji ], it's a forward kind of a guidance, but I can see that probably we should -- we should do better than quarter 2. That's all what I can say.

[Unknown Attendee]

Okay. And the other one is, I can see that -- looking at the balance sheet that we are constantly going on the reserves part of it. So is there any plan of -- any kind of reward to the shareholders in terms of buyback or bonus in the future?

[Mukund Kabra, executive]

That -- those decisions have to be taken by the Board. Like if you really look at it, we increased the dividend, and we continue to cover dividend policy. That's all what I can say. Probably, like buyback is not -- not possible. But Rauka-ji can give more clarity on that. Rauka-ji?

[Beni Rauka, executive]

No, I think buyback is not inefficient. Because it is also taxable again in the hands of the recipient. So for shareholders, there will be a cash outflow. So as you rightly mentioned, I think dividend is worth every year, we have been increasing. So that is what is the way forward.

[Unknown Attendee]

Sure. So one small last question. I was listening on the news that there might have been some impact to this quarter because of Red Sea related issues in terms of the deliveries along that corridor. Was an impact of the Red Sea concerns?

[Mukund Kabra, executive]

The freight cost is on the higher side, [ Anuj-ji ]. We have, in fact, of about INR 1.5 crores in this quarter, particularly because of the freight cost.

[Unknown Attendee]

Okay. And is that because...

[Mukund Kabra, executive]

[ In the region point ].

[Unknown Attendee]

Okay. Okay. So the operating profit margin, that's the reason why it came down from the range of 30 to 35 to now 29 in this quarter. Is that the reason? Or is there something else contributing like a product mix or something else?

[Mukund Kabra, executive]

It's also like the nature of growth because like when you talk about the profit and other things, your expenses are more or less fixed. And if your revenue growth is on a downside then surely like you will see that the percentage has to go down, right?

[Unknown Attendee]

So it was purely because of the...

[Beni Rauka, executive]

This is a major impact. As Mukund rightly mentioned, that is a major impact. If the sale is down because of your higher gross margin -- gross contribution and fixed expenses remaining at the same level, the impact is measured on EBITDA as well as on PAT.

[Unknown Attendee]

Okay. So if we use that INR 77 crores to INR 80 crores which was not booked, then we will be at the same level, around 33 or [indiscernible]?

[Beni Rauka, executive]

It's not INR 77 crores to INR 80 crores. It is, I think, INR 83 million. That is what we have explained to you.

[Unknown Attendee]

Okay. So if we account for that, then we'll be around the same margin, that 33%?

[Beni Rauka, executive]

Yes, yes, yes.

[Operator]

Thank you. [Operator Instructions] The next question is from the line of Vivek, who an individual investor.

[Unknown Attendee]

Yes, sir. I have 2 questions, sir. How many R&D scientists do we have as of date, sir? This is my first question. And I would like to ask another question, sir. At what EBITDA margin we are expected to close this financial year '25?

[Mukund Kabra, executive]

No, I think I don't have exact number. We will achieve -- actually, we have more than 150 scientists at this point of time. There may be more. But I don't have an exact number as of now, but should be more than 150 plus. That's what I can say. Your second question is how...

[Unknown Attendee]

How much EBITDA margin we can expect for this financial year, sir?

[Mukund Kabra, executive]

It's a difficult question. Rauka-ji can answer that.

[Unknown Attendee]

No, the thing is that we are on the declining trend as our revenue has decreased.

[Beni Rauka, executive]

So I mean, once the revenue increases, I think the improvement will definitely be there. So we expect that the EBITDA margin should be in the range of anywhere over 30%. It will be in the range of 30% to 33%.

[Operator]

The next question is from the line of Harini Dedhia from Tamohara Investment Managers.

[Harini Dedhia, analyst]

Just 1 question on when we say R&D, where we would like to invest more? And that's one piece that's sort of we feel that we can do better on. If you can help us understand what are the kind of things that we want to do? Would it be more on hiring of new scientists? Or would it be some infrastructure or some equipment or some segment? I guess, you can just help us understand what do we want to add on that side right now?

[Mukund Kabra, executive]

It's a combination of all. If you really look at it, we don't have a space as of now. Because of the space, we cannot hire the people. And there are a lot of like new equipments which we will have to do that. We need to increase the number of products as well.

Yes. So it's a combination of all. We are working on all the different technologies as well at this point of time. We have some breakthroughs, but we will have to scale it up, basically.

[Harini Dedhia, analyst]

Okay. Would it be possible to just share the kind of things that if you can just help us understand. Maybe at a later stage, if you could put out some -- something along the lines of the kind of breakthroughs we have had or what are the new things that we are working on. Just help us understand better.

[Mukund Kabra, executive]

In terms of R&D, is what you're talking about?

[Harini Dedhia, analyst]

Yes. Because I remember in the February call, when Mr. Rathi was also on call, he had specifically called out that he was very proud of the work that they've done in the R&D team for the last 2, 3 years. So just wanted to know that -- what was being done and where is it that we want to go?

[Mukund Kabra, executive]

So there are like a lot of biosolutions which are specific, and you need to do a lot of [ protein ] on that, right? And we are now getting the hands to that. We are doing and we are developing a lot of molecules. We understand how the development now, but we really need to scale it up. If you talk about like all these biocatalyst and other areas, clearly, those are the outcome of our [ protein ], basically. It's a difficult science, but at the same time, it's possible. You need to do many other areas, particularly, not only like development of the strains, but applications, fermentation R&D, formulation R&Ds. And all of these, we are like trying to work at this point of time. And we will have to expand those. I wouldn't be able to give you more specific because those are going to be the -- those are going to be -- some are like the IP kind of a property, and I don't want to talk on those in the public domain.

[Harini Dedhia, analyst]

Okay. Fair enough. Got it.

[Operator]

The next question is from the line of Rohit Ohri from Progressive Shares PMS.

[Rohit Ohri, analyst]

Sir, 2 questions from my side. First 1 being, with the changes in the U.S. market as well as the political scenario over there, do you think it is a boon or is it a bane for AETL?

[Mukund Kabra, executive]

I don't know, honestly, time will tell. But what I can say is we have a strong base in the U.S., in particular, [ Pureit ] it should help. But you never know what kind of like input duties and other things come -- will come up. And what will be the impact.

[Rohit Ohri, analyst]

Sir, because his focus was to make America great once again. And we do have quite a lot of cash and other equivalents in the U.S. So will you be looking at some acquisitions over there to boost the sales from the U.S. market?

[Mukund Kabra, executive]

I can't comment at this point of time. So like, we'd like to see how the things pan out, Rohit-ji.

[Rohit Ohri, analyst]

Sir, anything -- any rough work that you have done or anything that we should anticipate over the next 1, 1.5 or 2 years or something like that?

[Rohit Nagraj, analyst]

In the next 2 years, I don't expect like any acquisition at least in the U.S., particularly.

[Rohit Ohri, analyst]

Okay. Sir, my second question is related to Evoxx. In the previous quarter, you did mention that you were looking for some sales that were supposed to come through from there, somewhere around INR 1.4 million, INR 1.5 million kind of sales that was supposed to come from there. Has that passed through? Or are there some difficulties over there as well?

[Mukund Kabra, executive]

No. What I said was that is fine, like that is what we were expecting. We do have a view of that, which is like pan out for a whole year, and that is where like we expect that the next half year will be the better for the U.S. And probably like we will have higher sales than the low last year, particularly in the U.S.

[Rohit Ohri, analyst]

Sir, many of these customers' clients from the international market, they must be trying to make their own budget as the year is coming to an end. So what sort of outlook exactly are they sharing with you in terms of sales as well as the margin profile for us?

[Mukund Kabra, executive]

Are you talking on the Evoxx?

[Rohit Ohri, analyst]

On Evoxx and other customers as well, other European, Latin American or maybe North American customers that we have.

[Mukund Kabra, executive]

Can you please repeat your question, Rohit-ji?

[Rohit Ohri, analyst]

For many of these customers, they must be making their budgets, right, for the next year. I think we are -- financial year comes to an end very soon. So what is their outlook? And what sort of conversations are you having with them in terms of the growth for AETL?

[Mukund Kabra, executive]

No, I won't be able to give you that number because a lot of times, like these customers won't come out with their numbers or the expectations, what they do. Because our business doesn't run on the -- it runs on the PO basis, but there are not liquidate anything like which is a long-term contract. So it's very difficult to tell me how that will be really come out with what generally, we anticipate is how many customers, new customers may be added and what business they can give. So that is how like generally, we work rather than like taking the POs for the whole year. So it's an ongoing process. So at this point of time, I don't have the exact number, honestly.

[Operator]

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

[Ronak Saraf, executive]

Thank you, everyone, for taking your valuable time for attending our earnings conference call. We will keep you posted for any further updates. I request you all to send in your questions that may remain unanswered. An audio recording and a transcript of this call will be uploaded on our website in due course. Looking forward to host you all in the next quarter. Till then, stay healthy, stay safe. Thank you.

[Mukund Kabra, executive]

Thank you.

[Beni Rauka, executive]

Thank you, everyone.

[Operator]

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