Advanced Enzyme Technologies Ltd

NSE:ADVENZYMES

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Advanced Enzyme Technologies Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ronak Saraf from Advanced Enzyme. Thank you, and over to you, sir.

[Ronak Saraf, executive]

Good evening, everyone. Welcome to Advanced Enzyme Q3 and 9 months FY '23 Earnings Conference Call. I am Ronak Saraf, the Manager Investor Relations here at Advanced Enzyme. We hope you all have gone through our financial press release and the presentation, which has been posted in the Investor Relations sections of our website. We have with us Mr. Mukund Kabra, Whole-Time Director; Mr. Beni Rauka Prasad, Group CFO. Today, the management will discuss the performance and business highlights, updates on strategies and respond to any questions that you may have. As usual, for ease of discussion, we will look at the consolidated financials.

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 the predictions about the future because these statements are based on current assumptions and factors that may involve risk and uncertainty. Our actual performance and results may differ materially from our forward-looking statements.

With this, 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 quarter and 9 months ended 31st December 2022. Starting with a quick brief on global conditions, disruption continues in the business environment. Global economic scenario continues to remain uncertain with [indiscernible] of recession reverting in layoff and inflation remains elevated leading to sluggish [indiscernible] on the geopolitical, political crisis driven [indiscernible]. On the positive side, the raw material surges has started easing and so do the freight cost -- we sincerely hope this [indiscernible] gets stable in the coming quarters.

Despite all the uncertainties, our quarter 3 financial figures demonstrated an improved top line growth although our operating costs remain elevated, which impacted our profit margin. The growth in the quarter 3 numbers are driven by Animal Nutrition and Bio-processing segment.

Now as far as the quarterly performance, our top line stood at INR 1,421 million, grew 2% on a sequential basis. And on a yearly basis, we have grown about 6% in quarter 3. On year-to-date, 9 months stood at INR 4,019 million, that is just 1% growth.

Our EBITDA stood at INR 417 million, grew 5% on a sequential basis, while it declined by about 15% on a year-on-year basis and 30% in 9 months. We have experienced a growth of 6% in the bottom line on a sequential basis, while it declined 2% on year-on-year basis and 27% in 9 months.

On the margin side, EBITDA margin stood at 29% and PAT margin stood at 20% during this quarter #3. Our overall margins remain subdued on a year-on-year basis on account of elevated operating costs.

Talking about the segment-wise performance, Human Nutrition. The Human Nutrition segment remains highest contributor, as usual. It is at 66% of the total revenue. It grew by 2% on an annual basis, while it declined by 1% on sequential basis.

On 9-month year-to-date comparisons, it declined by 2%. Pharma API and Bio-catalysis in domestic markets and Probiotics in international markets primarily supported the numbers in Human Nutrition. There is softness in the nutrition business as an impact of inflation which remains subdued.

Animal Nutrition. The Animal Nutrition segment contributed 12% to the revenue. This segment is continuously improving from almost from few quarters. It grew by 33% on a year-on-year basis, 2% on a sequential basis and 23% on a 9-month year-to-date basis. Bio-processing, during the quarter, Bio-processing segment [ surpass ] the contribution of Animal Nutrition segment and contributed 15% to the revenue, which was 12% in the same quarter last year.

It grew by 41% on the year basis and 17% on sequential basis, both Food and Non-Food business grew by 38% and 49%, respectively, on a year-on-year basis.

The Specialized manufacturing segment contributed 6% and grew by 4% on sequential basis, while a negative 31% and 34% on a year-on-year basis and on 9-month year-to-date basis respectively.

With this, I will now hand over the call to Mr. Beni Prasad Rauka, who will walk you through the financial and key subsidiaries numbers. Over to, Beni Prasad Rauka.

[Beni Rauka, executive]

Thank you very much, Mukund. Good evening, everyone. I hope you all are in good health. On the company's financial for the third quarter of 2023, on a quarter-on-quarter basis, Q3 versus Q2, the revenue has increased by INR 34 million, a 2% increase from INR 1,387 million to INR 1,421 million. Our EBITDA has increased by INR 20 million, about 5%, from INR 397 million to INR 417 million, which is about 29% of our revenue. Profit before taxes increased by INR 62 million from INR 342 million, this is 25% of revenue, to INR 404 million, 28% of revenue.

Our PAT has increased by INR 16 million, an increase of 6% from INR 263 million to INR 279 million, 20% of the revenue. On year-on-year basis, Q3 of current financial year versus Q3 of last year, our revenue has increased by INR 85 million from INR 1,336 million to INR 1,421 million. EBITDA, however, has decreased by about INR 74 million from INR 491 million to INR 417 million. And profit before taxes decreased by INR 8 million from INR 412 million to INR 404 million, 28% of our revenue from 31%.

PAT has decreased by INR 7 million from INR 286 million, 21% of revenue, to INR 279 million, this is about 20% of our revenue. Let me give 9 months number. So our revenue has increased by INR 43 million, an increase of about 1%, from INR 3,976 million to INR 4,019 million. EBITDA has decreased by INR 488 million from INR 1,611 million to INR 1,123 million. So EBITDA margin has decreased from 41% to 28% in 9 months of current financial year.

Our profit before taxes decreased from INR 1,371 million to INR 983 million, which is roughly 25% of our revenue as compared to 34% of last year. PAT is decreased by INR 267 million from INR 985 million to INR 718 million, about 18% as compared to 25% of PAT.

Let me give you some financial number of our subsidiary company. So Evoxx has performed, I mean, very well in this quarter, it's EBITDA positive from INR 4 million to INR 17 million in this quarter, and the top line has increased from INR 48 million to INR 55 million. For 9 months, Evoxx top line is INR 182 million as compared to INR 160 million of last year and EBITDA of INR 39 million as compared to INR 11 million last year.

And for 9 months, Evoxx has reported a profit after tax of INR 10 million as compared to negative -- I mean loss of INR 22 million during 9 months of last year. JCB has reported EBITDA negative during this quarter as compared to EBITDA of INR 14 million positive to negative INR 17 million. And the PAT is about INR 20 million negative as compared to INR 5 million positive during last quarter.

So overall, for 9 months, JCB has also reported increase in sales from INR 355 million to INR 394 million. But this year, is negative INR 8 million as compared to INR 55 million of PAT during last year 9 months.

SciTech has reported INR 86 million of revenue as compared to INR 84 million during last quarter. And for 9 months, SciTech has reported totaled INR 236 million of revenue as compared to INR 360 million in 9 months of last year. And SciTech is also EBITDA negative of INR 30 million as compared to INR 78 million last year.

Accordingly, the PAT is also negative, INR 51 million as compared to INR 35 million of net profit in last year 9 months. Our highest -- largest product, which is anti-inflammatory enzyme. The sales stood at about INR 333 million as compared to INR 279 million in quarter 3 of last year. And for 9 months, the total sales of anti-inflammatory enzyme is INR 963 million as compared to INR 792 million during last year 9 months, and it has posted an increase of about 22% and it constitutes 22% of sales as compared to 24% last year.

Top 10 customers contributes on YTD basis about 26% as compared to 28% last year. And our B2C segment has contributed about INR 1.6 million of sales in this quarter as compared to INR 1.55 million during the same period previous year. Overall, B2C sales for 9 months is 3.63 million as compared to INR 4.31 million. So a steady growth of about 15%.

Human Health care, we give a breakup of our sales, international sales, domestic sales. So quarter 3 India sale was about INR 393 million as compared to INR 440 million in the last quarter. And in the previous quarter -- I mean, in the third quarter of previous year, INR 382 million. International sales line at INR 541 million as compared to INR 499 million in the previous quarter. And the relevant previous quarter of the -- relevant quarter of the previous year INR 536 million. So overall, the sale has gone up from INR 918 million in quarter 3 of last year to INR 934 million in quarter 3 of current financial year. But yes, as compared to the previous quarter, it's down by INR 5 million.

Our R&D expenses has gone up. And -- for 9 months, the R&D expenditure is about INR 211 million as compared to INR 146 million during the 9 months of the last year.

So this was from my side. Now we will open the floor for question-and-answer session.

[Operator]

[Operator Instructions]

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

[Shikha Mehta, analyst]

I just have a few questions. One is to understand when will be able to go back to a historical EBITDA margins or what guidance we have on that front when our margins will normalize to, say, north of 40%?

[Mukund Kabra, executive]

So notice, Shikha, there is some recessionary pressure in the U.S. market and the U.S. market sales are down. U.S. market contributes to the higher EBITDA and higher margins. We have launched a couple of good products during this quarter. And I expect the new products should give the sales after another 4, 5 months. So I think that will be the time when we will come back to our original trajectory.

[Shikha Mehta, analyst]

So over the next, say, 2 quarters, we should see our margins come back to 40%, north of 40%? That's what we're...

[Mukund Kabra, executive]

Yes.

[Shikha Mehta, analyst]

And also, another thing on the Animal Nutrition side, we were witnessing swine flu and all these other problems. But this quarter, we've seen a sequential improvement. So can we assume that's been addressed and going forward, this segment should do well?

[Mukund Kabra, executive]

So, a lot of focus is there on the animal market. The major growth is coming from the Asian market at this point of time. We expect this growth to continue in the coming year as well. And this year also like we should do a decent growth.

[Shikha Mehta, analyst]

All right, sir. All right. I'll come back in the queue.

[Operator]

[Operator Instructions] Next question is from the line of Rohit Sinha from Sunidhi Securities.

[Rohit Sinha, analyst]

Sir, with all these global -- I mean, geopolitical things going across, how we are seeing our Evoxx and -- mainly Evoxx performance going forward? And overall, with all the logistic costs, freight costs are reducing, so are these going to benefit on our side on the margin front?

[Mukund Kabra, executive]

So Evoxx, [indiscernible] will be more or less the constant because it's doing more on the R&D front rather than the real [indiscernible] generation. So I expect Evoxx to be more or less neutral and the remaining -- and it will be rather positive. This cost when it goes down, of course, it helps on the margin, but our major margins will come for the U.S. market. As the U.S. market [indiscernible], we will come back -- as I was telling to Shikha, we will come back to our original trajectory.

[Rohit Sinha, analyst]

Okay. Okay. And if I heard correctly, in JC Biotech, I think, has reported a loss in this quarter. So is it because of, I mean, cost pressure only? Or has there been a lower realization or lower volumes as well?

[Mukund Kabra, executive]

It's mainly due to the cost problems and there were like a couple of issues, which we addressed this quarter. They will be to on a higher side on the maintenance cost as well in this quarter. That should come back to the normalcy by the next quarter.

[Rohit Sinha, analyst]

Okay. Okay. And any guidance we can give for FY '24 in terms of top line and EBITDA growth?

[Mukund Kabra, executive]

Rohit, we are not right now worked on that. But I feel like next year should be much better than this year.

[Operator]

[Operator Instructions] Next question is from the line of [ Sarvesh Saini ], individual investor.

[Unknown Attendee]

I have a question regarding competition. Has the competition building up right now?

[Mukund Kabra, executive]

[ Sarvesh ], we do have competitions in different, different segments. There are different, different competitors. If you can elaborate more, I can give more light, which area you're talking about?

[Unknown Attendee]

On the animal health care side and human, both.

[Mukund Kabra, executive]

So animal side, it's the same competition, which is there, right? It's like you were talking from a long term like we wanted to penetrate the market with all the registrations and some other things, and we are working on that from a long time. So that is working in some kind of results right now, and that is where the growth is coming from the animal side rather than the competition.

Even in the human side, the competition is more or less same. And major typical competition is more intense at this point of time, particularly in the U.S. because when there is a recession, the competition will become more active.

[Unknown Attendee]

Okay. So margins have not been impacted because of the competition, right?

[Mukund Kabra, executive]

It's never been because of the competition.

[Operator]

[Operator Instructions] The next question is from the line of Rohit Sinha from Sunidhi Securities.

[Rohit Sinha, analyst]

Yes. Sir, just wanted some clarity on this merger of the subsidiary, U.S. subsidiary into 1 entity. So what's the rationale behind that? And what would be the -- or would there be any kind of tax benefit or tax change -- tax rate change would be there?

[Beni Rauka, executive]

So, Rohit, this -- the company which we have merged is in the similar business. I mean, the products were same. Only the distribution model was different. So keeping 2 entities were causing a lot of administrative issues and the compliance issues. So that is only the reason we have merged, but there's no as such impact on directly in terms of tax benefit and all that. So it's like definitely, there will be some kind of reduction in expenses, but that's not substantial because that is a very small company.

[Rohit Sinha, analyst]

Okay. Okay. And secondly, what would be the working capital days for us for this quarter? And how we are looking at for the year-end FY '23?

[Beni Rauka, executive]

Yes. So working capital in terms of number of days of our sales continues to be in the range of about 110 to 120 days or so.

[Rohit Sinha, analyst]

Okay. Any possibility of improvement there?

[Beni Rauka, executive]

Well, I mean, I don't see immediate impact -- any kind of improvement in the sales because the issue is you have so many plants and so many companies. So you need to maintain different kind of inventory of raw materials, finished goods, concentrate materials. So I think this will keep on -- it will continue to be in the range of about 110 days to 125 days or so.

[Rohit Sinha, analyst]

Okay. Okay. And 1 last thing on CapEx side. And our earlier announcement on that R&D facility. So what is the CapEx number for FY '23 and at least for 9 months, what we have did until now?

[Beni Rauka, executive]

Yes. So we have spent -- I mean other than lands, acquisition and cost related to land, we have spent about INR 30 million so far.

[Rohit Sinha, analyst]

Okay. INR 30 million is for 9 months?

[Beni Rauka, executive]

Right.

[Rohit Sinha, analyst]

And for -- I mean, full year '23, what number we will be ending?

[Beni Rauka, executive]

I think another INR 3 million -- INR 30 million will be spend in a couple of months.

[Rohit Sinha, analyst]

So all these is towards that R&D facility or any other?

[Beni Rauka, executive]

R&D. Yes, it's only on R&D facility.

[Operator]

[Operator Instructions] The next question is from the line of [ Ketan Saraf ], individual investor.

[Unknown Attendee]

My question is on bio-catalysis products. In the investor presentation, it is mentioned that we have this as a focus area. And I see that in FY '22, we are mentioning that we've done a revenue of $2.5 million. So could you throw some light on this segment, please?

[Mukund Kabra, executive]

[ Ketan ], what do you want to know exactly?

[Unknown Attendee]

So what I want to know is like how many products are under trial and with how many manufacturers are we doing these trials right now? And by when do we expect any commercialization from this product category?

[Mukund Kabra, executive]

So there is about 5 to 6 products which are under trial at this point of time that the customer is -- some of them are just [indiscernible]. I think these all the products will be revenue positive, maybe 1 or 2 quarters down the line, we should grow much faster.

[Unknown Attendee]

You're saying that in the next 6-odd months, we should get some commercial sales, some revenues from these products?

[Mukund Kabra, executive]

We started to see all the commercial sales right now, but the investment [indiscernible]

[Unknown Attendee]

Sorry. Could you say that again? I'm not able to hear you clearly, volume dropped.

[Mukund Kabra, executive]

We started taking 1 or 2 products, commercial orders from this quarter, but the volume tilt-up will require some more time. And there are a lot of -- 3, 4 products are under trail. So overall, it will take 2 quarters.

[Unknown Attendee]

Okay. And how many API manufacturers are we in touch with for these product categories?

[Mukund Kabra, executive]

It depends on the different, different APIs we are approaching those people. So I don't have numbers right now in my mind.

[Operator]

[Operator Instructions] As there are no further questions, I now 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 kindly send in your questions that may remain unanswered. An audio recording and the transcript of this call will be uploaded on our website in due course. Looking forward to host you all in the next quarter. Until then, stay healthy, stay safe.

[Mukund Kabra, executive]

Thank you.

[Beni Rauka, executive]

Thank you, everyone. Bye-bye.

[Operator]

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.