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Advanced Enzyme Technologies Ltd
Earnings Call Analysis
Q3-2024 Analysis
Advanced Enzyme Technologies Ltd
The company demonstrated a solid financial performance this quarter, reporting a 13% year-on-year top-line growth to INR 1,609 million and a 2% sequential increase compared to the previous quarter. These results highlight the company's ability to grow its revenues consistently. EBITDA margins improved significantly from 29% to 33%, and PAT margins from 20% to 26% year-on-year. Improvements in the product mix, increased other income, and overall business uplift contributed to impressive bottom-line growth of 52% year-on-year and 21% sequentially.
The Human Nutrition segment remains the company's primary revenue driver, contributing 69% to the revenue and growing 19% year-on-year. The U.S. market significantly bolstered numbers in this category. However, the Animal Nutrition segment lagged, shrinking by 8% year-on-year. Meanwhile, the Bio-Processing segment increased modestly by 5% year-on-year, despite a slight sequential decline. Specialized Manufacturing, although a smaller segment, showed promising growth of 20% year-on-year. This diverse segment performance underlines the company’s reliance on its core operations, as well as efforts to drive growth across multiple product categories.
The company stated the positive progress of JC Biotech, with a revenue growth of 22% over nine months and a swing from a loss to a profit year-on-year. The continued acquisition of additional stakes in JC Biotech reflects confidence in its potential. However, the subsidiary Evoxx reported a 9% decrease in top-line and remains EBITDA-negative. These mixed subsidiary performances show the firm's focus on nurturing growth areas while managing more challenging aspects of its portfolio.
Despite competitive challenges, the company expects continuous growth, especially in the Human Nutrition market in the U.S. New product developments and customer acquisitions suggest resilience against global regulatory pressures and a competitive landscape. Furthermore, the company shows optimism about the progression of its probiotics segment, despite currently flat international sales and a focus on domestic growth.
Management indicated that despite hurdles, including regulatory approval processes in regions like Europe, they are diligently addressing such challenges. The successful approval of two food dossiers in Europe exemplifies the company's patience and methodical approach to overcoming regulatory obstacles. This speaks to the gradual, though potentially lucrative, journey towards tapping into developed markets with their products.
The company has a historical benchmark of 40% EBITDA margins but acknowledges the difficulties in the current competitive environment. Nevertheless, there has been a consistent margin improvement over the past three quarters, which indicates disciplined efforts to enhance profitability within the limitation of competitive market pressures.
With investments in unique molecules like serratiopeptidase and systematic increases in stakes in JC Biotech, the company is pressing its competitive advantage. Despite the significant presence of players like Novozymes and Hansen in longstanding sectors, the company positions itself well, particularly in Human Nutrition, a segment that is recognized as a core area for future growth.
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Ladies and gentlemen, good day, and welcome to the Advanced Enzyme Technologies Limited Q3 FY '24 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.
Thank you. Good evening, everyone. Welcome to the Advanced Enzyme Technologies Q3 and 9 month FY '24 Earnings Conference Call. I'm Ronak Saraf, the Manager, Investor Relations here at Advanced Enzymes. We hope you all have gone through our financials, press release and the presentation, which has been posted in the Investor Relations section of our website. We have with us Mr. Vasant Rathi, Chairperson and Non-Executive Director; and 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 you may have. As is usual, for the 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 predictions about the future. Because these statements are based on current assumptions and factors that involve risk and uncertainty, 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, sir.
Thank you, Ronak. Good evening, everyone. I really appreciate you all for taking your very valuable time. And I welcome you all to the conference call for the third quarter and 9 months ended 31st December 2023. I'd like to start off by giving a brief summary of macroeconomic conditions that could affect the company.
In U.S., things have started to improve. Geopolitically, tensions are increasing in the flow, which might affect commodities, interest rates and consumer spending. As we all know, yesterday, U.K., Japan, both of them, those countries are going into recession. The domestic economy is also doing well. So we see an adequate demand overall. The trade due to ongoing Red Sea issues could have an effect, mostly on freight, which could lead to longer supply chains. And we all know what happened with longer supply chain during the COVID. During the quarter, we have recorded a growth, and last 9 months, we have witnessed top line growth of 16%, and our profitability has also improved on a sequential basis for 9 months by 49%.
Now this quarterly performance. We have achieved top line of INR 1,609 million, a growth of 13% on year-on-year basis and 2% on a sequential basis in quarter 3. Our EBITDA stood at INR 538 million, grew by 29% on a year-on-year basis and 5% on a sequential basis. We have witnessed a good growth of 52% in bottom line on year-on-year basis, while sequential basis, it grew by 21%. There is an improvement on the margin side as well. EBITDA margin stood at 33% and PAT margin stood at 26% during the quarter 3 as compared to 29% and 20%, respectively, for quarter 3 of the last year. Double-digit growth in the bottom line is because of our improved top line, change in product mix, and higher other income. The overall trend across our business has remained upbeat.
Talking about some segments -- segment-wise performance. Human Nutrition, which is our main engine of the growth. Human Nutrition segment as usual remains the highest contributors in the revenue pie of 69%. It grew by 19% on a year-on-year basis and 5% on a sequential basis. International market, primarily in USA, supported the numbers in Human Nutrition. Animal Nutrition. Our Animal Nutrition business contributed 10% to the revenue in quarter 3. This segment is a little lacking and de-grew by 8% on a year-on-year basis and 6% on a sequential basis.
Bio-Processing. Bio-Processing segment grew by around 5% on a year-on-year basis, while we have witnessed a slight decline, 2% on a sequential basis. This segment contributed 15% to the revenue. The food business grew by 21%, while nonfood business reported a decline of 36% on a year-on-year basis. The Specialized Manufacturing segment contributed 6% and grew by 20% on a year-on-year basis and 1% on a sequential basis.
As you can see, overall, our confidence in the business remains very high and we are moving ahead with a clear focus on our target segments.
During the quarter, we have also acquired an additional stake of 5.89% in JC Biotech for the total cash consideration of INR 56.07 million. Post completion of this acquisition, the shareholding of Advanced in the JCB will increase to 95.72%.
With this, let me conclude my remarks and now hand over the call to Mr. Rauka, who will walk you through the financials and key subsidiary numbers. Thank you.
Thank you very much, sir. Good evening, everyone. I hope you all are in good health. Let me brief you about the financials of the company during the quarter gone by on the company's consolidated financials for the third quarter and 9 months of the fiscal year 2024.
On a year-on-year basis, our top line grew to INR 1,609 million as compared to INR 1,421 million of last year Q3, an increase of 13%. EBITDA is increased from INR 417 million to INR 538 million. This is 33% of our revenue as compared to 29% last year. Profit before tax increased to INR 589 million from INR 404 million last year quarter 3. It is 37% of our revenue. Profit after tax increased to INR 425 million, and the increase is from INR 279 million. So this works out to be 26% of our revenue.
Quarter-on-quarter basis sequential, revenue increased by INR 31 million, from INR 1,578 million to INR 1,609 million, an increase of 2%. And EBITDA increase is 5%, from INR 513 million to INR 538 million. Profit before tax increased from INR 479 million to INR 589 million. This works out to be 37% of our revenue. Profit after tax has increased to INR 425 million, 26% of our revenue as compared to 22% in the last year's Q3.
Nine months' performance. The revenue is increased by 16%, as Vic sir has already mentioned, from INR 4,090 million to INR 4,650 million. And the profit before taxes increased by 51%. Profit after taxes increased by 49%, from INR 718 million to INR 1,071 million. This is 23% of our top line as compared to 18% in 9 months of previous year. So EBITDA increase is about -- from INR 1,123 million to INR 1,491 million, which works out to be 32% of our top line as compared to 28% last year.
Let me give you some number of our subsidiaries. JC Biotech continues to be positive. During the quarter, top line of INR 176 million, EBITDA of INR 33 million, a PAT of INR 14 million. So for 9 months, we have seen 22% of growth in top line of JCB, and EBITDA is increased from INR 16 million to INR 59 million. And last year, it had a loss of about INR 8 million. It is now in profit of INR 15 million.
Evoxx continues to be EBITDA negative for the 9 months. And overall, the top line also de-grew by 9%. The company is in loss of about INR 26 million for 9 months as compared to INR 10 million of profit during last year 9 months.
SciTech has performed well. Overall, this quarter, top line of INR 104 million, EBITDA of INR 17 million and PAT of INR 4 million. For 9 months, it has recorded a sale of INR 304 million as compared to INR 236 million. So top line growth of 29% and EBITDA of INR 38 million as compared to negative EBITDA of INR 30 million last year. PAT during 9 months is about INR 12 million as compared to INR 50 million loss last year 9 months.
Our R&D spend is about INR 202 million as compared to INR 290 million last year. That works out to be 7% of our top line on stand-alone basis. On consol basis, we continue to spend about 3% to 4% of our revenue on research and development activities. This year, this is slightly down because of the CapEx is lower. That will be capitalized over a period of time. The capital work-in-progress of our R&D player is still going on.
The largest selling product continues to be in the range of 22%, 23%. Top 10 customer sale is about 26%, 27%. B2C segment has contributed a growth of about 4.4%. So this year, it is INR 3.79 million as compared to INR 3.63 million last year.
So this is all from my side. Now we open the floor for question-and-answer session.
[Operator Instructions] The first question is from the line of Abhishek Navalgund from Nirmal Bang Equities.
Good set of numbers. So my first question is on the Nutrition segment in the international Human Nutrition pie. So after I think the multiple quarters of similar kind of run rate that we are maintaining on a quarterly basis, I think we have seen some good growth coming in. And you have mentioned in the opening remarks also that it's largely led by U.S. So could you please give some color on this segment? And how do you see coming quarters as far as this particular segment is concerned?
Thank you, Abhishek. You can see that our major segment is the Human Nutrition, and U.S. market plays a very vital role in this area. We see that market is doing well right now. And we forecast that it will continue to do so.
Okay. I mean, my only question is, until last quarter, we were mentioning that there have been some competitive challenges also in the market. And suddenly, I mean -- so do you see this is like there is some one-off order which has led to this kind of growth? Or do you see this kind of run rate maintaining or even improving from the current level?
Yes, challenges remain. Challenges don't go away because the market is now changing and it is becoming, as you know, more of a global nature, right? And a lot of regulatory challenges are there in this industry. However, we have already -- for the last couple of years, we are working on it to address those issues systematically. And we have introduced some new products. We have introduced -- brought some new customers and it is a continuous ongoing process. So we feel that there will be a little up and down here and there, but the growth will continue.
Sure, sir. And my second question is on the probiotic segment. So while the international probiotics, I think, could be in the flattish trajectory, but domestic, I think from last quarter onwards, I mean, from second quarter also, we have shown some improvement. And this time around also I think that is also a big driver as far as domestic Human Nutrition is concerned. So again, I mean, this is related to some channel restocking happening? Or how do you see this growth actually going forward?
I think what happens is that certain brands are developing. We have so many studies related to probiotics applications. So people now are warming up very nicely with our probiotics segment. And even though the market is a little bit flattish for us, we see that it will continue to grow for us.
Sure, sir. And my last question is on the 2 dossiers, for which we have got the approval last quarter. Any update on that? I mean, would you be in a position to tell us what could be the total addressable market? And when should we start seeing revenue from those products, if at all you're trying to sell in developed markets?
Abhishek, which one you're asking for?
I think in the last quarter, we had mentioned that we have got 2 approvals from -- 2 food dossiers got approved, I think, from Europe, if I'm not mistaken.
Okay. Yes. See, the approvals are there. There are always some queries comes out from the EFSA and other kind of agencies, and you have to spend a lot of time to answer them, and we are doing so. So then the final approval comes in. So it is a process, ongoing continuous process. And because we patiently are working so hard on these things, I'm sure that within -- you see that whatever we have filed will get approved finally. And then we are always going after new approvals.
The next question is from the line of Nikhil from SIMPL.
One is you mentioned on the U.S. side, but specifically on the probiotic and nutrition, which we had seen a big drop post COVID, are you seeing that market returning for us in U.S.? And secondly, connected question was that in our previous calls, we had mentioned that if U.S. grows, then we should be able to come back to that 40% kind of EBITDA margin, which was our historical range. So at what level you believe the U.S. business has to come for us to improve on our margin profile?
Well, margin profiles -- it's a very competitive market, Nikhil, all right? So there are always challenges to improve the margins after a certain tick mark. So I don't want to tell you that it will never come, 40% and 50% margins, as we used to see it before. But we are constantly working on improving our margins. And as you can see, the effects are already showing in this quarter. All 3 quarters, it is improving gradually, and you will see the improvement continuously.
Okay. And the first question on the growth on the U.S. Because if we look at last 3, 4 quarters, our average run rate in U.S. was around INR 45 crores, INR 50 crores, which has jumped to INR 60 crores, INR 62 crores this quarter. So are we seeing a trend on the probiotic side, which was a big impact for us in the last 2 years on the U.S. market? Or what has helped this?
There are too many different factors. It is always a product mix as you know and I know, okay? That's the first thing. Second part is some new product developments happening. And that also gives us some advantages in the marketplace. And the third is, as we progress, as we develop further and further, we see that improvement, because as you go into higher revenue and more sales, your cost structure goes down relatively, percentage-wise.
Okay. Just two more questions. Sir, on serratiopeptidase, we've been increasing our share in JC Biotech every quarter. And if you look at the molecule size, it's moved -- so when we acquired, it was around INR 110 crores. Today, on a run rate basis, it's something in the range of INR 150 crores, INR 160 crores. How do you see the opportunity in this molecule? I know we've not filed in U.S. and Europe, but are you planning to file there? And if we file, do you see there is a big opportunity size in this molecule? Because on one hand, we are also increasing our share continuously in this company. So what's the overall idea and thought process behind this?
Unique molecule, you know, and we have a big advantage on it. So we will press our advantages wherever and everywhere we can do so. It requires a lot of research work on our part and we are doing. So our R&D is really helping us in so many different ways to utilize these molecules in a different way.
Okay. And last question. If we look at our position, see, in 2016, '17, when we had come post IPO, we had talked about going into industrial, and on the palm oil side and the biofuel side and all. But what I understand is that there were existing large players like Novozymes and Hansen on the dairy and on the industrial side, where they have been present like for 50, 60 years. If you look at today on the Human Nutrition segment, which we've also talked about as a core area, how is our positioning versus our competitors? Because when we read through their Capital Markets Day, they are also talking about that we have to become big and they are also working to build molecule base here. So would we say we are on an even position versus competition in this segment? How do you see our competitive positioning here?
Nikhil, it's a good question, all right? Obviously, when you see a very lucrative market or expanding markets, competition is going to come from the big and small. But industrial market is a very different market segment versus nutrition market. More and more people try to go with a healthy lifestyle. Nutrition market will keep on expanding. And there is room for everybody. But we have a good advantage vis-a-vis our presence in the market for a very long time. And we don't see that it will affect us tremendously.
The next question is from the line of Rohan from Turtle Capital.
I have a couple of questions. We haven't seen any growth in American sales since FY '19. But in these couple of quarters, we have registered higher growth. So will this trend continue? And can we expect, going forward, America's share increasing our revenue? We can get back to around 40%-ish margin? And what has led to this growth? Is it the product mix has changed?
I told you that it is always a very difficult proposition to go over 40% margins. Competition is always there. Like Nikhil asked a few minutes ago, there are a lot of other small and major players coming into the marketplace. So we have to create our own niches in the marketplace, which we did or which we do, we are continuously doing. We see that it's a continuous growth for us. And margin, there's always going to be competition. But we will do that. Like as you see, this quarter, we have improved our margins considerably.
And another question is, what are the challenges you are facing in Animal Nutrition as well as Specialized Manufacturing? Because your quarterly run dates have not scaled up lately.
Yes. Animal Nutrition is a different animal altogether. It's very competitive. And you can see that it is logistics, deliveries, the war doesn't help, cost keeps on increasing. And you have to really compete cost-wise and price-wise in various different markets, okay?
Okay. And how are the margins between these segments, like margins of product profiles of Human Nutrition, Animal Nutrition, as well as Bio-Processing and Specialized Manufacturing? If you can just give a rough idea how the margins are?
Rohan, let me respond to you. As far as the gross margin segment-wise, we cannot track like that. Gross margins for Human Nutrition and Animal Nutrition, Industrial Bio-Processing. I mean, that's not the way. We just classify it for the sake of better understanding of our business for our customers and the product. So for every product, you will not have that kind of a margin as such.
We have the next question from the line of Aditya Padhi from Girik Capital.
I just have 2 questions. Just wanted to understand, the first question is on like, you've mentioned about improvement of margins when your U.S. business would pick up like in the previous quarter. So U.S. has seen decent growth after some time. So how do you see the visibility like in the near term to midterm like? How do you see the margin growth in this business?
We'll continue on that path.
Okay. So similarly like this quarter?
Well, every quarter is different. It is not quarter-to-quarter we look at really, because sometimes you know how the inventories go. Somebody's order by the end of the month may not require it right away until one quarter. So what can you do? You see what I'm saying?
Got it. Got it, sir. And my next question is on the margins. If I see like versus the long-term margins, there have been major increases in like employee spend in the last 4, 5 years. So where do you see like margin improvement coming from? Would it be gross margins or employee expenses going down or other expenses, like which have gone up post COVID?
Employee expense is going to continuously grow up because there is lot of pressure on the salaries, as you know very well. Logistic cost kind of came down after COVID, but now it is again under pressure. So carrying inventory will be with a higher cost. So there are a lot of challenges as I explained before also ahead of time. In spite of that, we are constantly trying to improve the margins, keeping our costs down as much as possible in various other areas. And also, other income is increasing for us because of the higher cost -- higher interest rates.
So we have a lot of investments, as Vic sir has mentioned. So from that we are getting good returns. So other income is increased substantially. If we compare our 9 months of this year number versus the 9 months of last year. So that has also contributed in the overall increase in our profitability. But yes, the margin has improved. You rightly said -- I mean, as Vic sir also mentioned. So U.S. business, as it grows, we have a better margin, better profitability. And that's what you can see from this last quarter numbers.
The next question is from the line of Umang Shah from Banyan Tree Advisors.
So sir, first question was, could you tell us the number for evoxx for 9 months, loss number for 9 months?
Yes. So evoxx 9 months number is top line INR 160 million as compared to INR 182 million of last year. And EBITDA is negative for this 9 months, INR 12 million, as compared to INR 39 million positive. During this 9 months, we have a loss of about INR 26 million as compared to INR 10 million of profit in 9 months of last year.
So sir, what we understand is that this company was acquired for better research and marketing function in Europe. So going forward, will it have its own profitability? Or will it continue supporting the consolidated entity and report losses?
Umang, this is an R&D company, okay? We have to look at that way because it's not like regular commercial operation. And European conditions, as you know, in Germany, in various -- European conditions are a lot of pressure on the salaries and other cost, cost increases versus slowdown in the businesses.
Right. Right, sir. And sir, the second question was we have launched 2 new products in JC Biotech, pharma products, which have come after a long time. So how does the market that you see -- would they be India-focused, or would they be outside India also? If you could give some clarity there. The products I'm referring to is invertase and alpha-galactosidase.
Yes. Very interestingly, new products are added to the production side of it, and we see very good opportunities in the industrial sector.
So any rough number on what the market size is like and how much are we targeting of that market?
It's a huge size. Industrial area, you know, it's a very big market. And these products take a little bit time to just introduce and get approvals, but we see a good prospect.
Okay, okay. Right, sir. And sir, for the last 2 quarters, you've been giving out numbers for Human Nutrition revenues from India. If you can just give that number for this quarter, it would be very useful.
Let's see if Mr. Rauka can...
Yes. Okay. So it's INR 519 million.
And what was this for third quarter for last year?
INR 393 million. You want for the India Human Nutrition, right?
Yes, yes. So it's INR 519 million, and INR 393 million for last year?
Correct.
Okay. And sir, last question was, for 9 months, could you speak out about Wellfa's performance? And how are we looking at our B2C foray?
No, I think the Wellfa number is still negligible as we mentioned to you. It's like we are still working on it. It will take a lot of time to...
B2C is a very different animal, as you all know.
Correct. Are we changing anything on the product front or on the management front?
Working good. Right now we are satisfied with the progress with what's happening with it. And there will be a constant addition of the product, and we are very mindful of how we want to take this forward.
The next question is from the line of Gaurav Nigam from Tunga Investments.
Sir, I joined a little late. I just wanted to understand, have you given the revenue for this quarter from our top product?
It's about 23% -- 22%.
22% of consolidated revenue?
Yes.
And sir, can you...
Gaurav, let me repeat the number. So I am giving you for 9 months, it is 22% of our top line. And last year, it was 24%. Quarter is, I think, 20%.
Understood, sir. And sir, can you provide bifurcation of the Human Nutrition revenue between India and international subsegment, sir?
So I think I have just given that. So India Human Nutrition is about INR 519 million. And international, it is INR 588 million. So total is about INR 1,107 million Q3 of this year.
Understood, sir. And would you be able to give the pharma, probiotics and biocatalysis numbers within our 3 subsegments we operate in?
Okay. So pharma is about INR 386 million, probiotics is about INR 100 million, and biocatalysis is about INR 33 million. This is India I'm talking about. International, Human Nutrition is INR 552 million, probiotics INR 20 million, and biocatalysis about INR 5 million.
Understood, sir. Sir, just wanted to get your outlook on the end customers in the U.S. nutra segment. Because I think the last quarter, we were not very sure about the end market performance. So how is it now and how are the customers looking at the growth going forward? Any sense of the U.S. nutra market would be helpful, sir.
Yes. It's a pretty -- right now, we can see stable markets and a lot of new customer additions.
Understood. And sir, the inventory issues which were there in the last few quarters, is that over?
We have taken care of most of it. It's a gradual process.
Understood, sir. Sir, just I think continuing on the previous participant on the Animal Nutrition segment. Sir, we have seen almost a stagnation in the last 3 quarters. Just wondering whether this is because of the India business or international business? And what is the reason behind it?
It's a very competitive business, Gaurav, and a lot of pressures on the logistics, inventories, and costs, okay?
Okay. Okay. But is this majority in the India business these competitive pressures are coming? Or is this in the international business...
International business. India is also not an exception to the rule in this matter.
The next question is from the line of Harini Dedhia from Tamohara Investment Managers.
My first question was on B2B sales. A couple of years back, we had appointed a distributor on the India side, Anshul, and then Azelis on South Asia. How has our experience been with the distributors? What is the traction been like? And are we also appointing more on-the-ground salespeople to do direct sales? If you can just help us understand how is our sales team shaping up for B2B sales?
B2B sales shaping up fairly decent. Satisfied with it. However, acquisition of the new market is always a challenge and takes some time. But requirement is you have to be present and keep on knocking on the doors, explaining our better side of the products and services.
Okay. And do we have a preference on whether we go via a distributor in a particular market or a particular product or the direct route? Or do we try to do both? How do we approach it?
We try to do both.
Okay. Got it, sir. And on the B2C front, for Wellfa, like you also mentioned that it's a whole other beast, and I mean, there is no limit to how much money you can spend on it. Do we have a call on capital allocation -- both capital and time allocation? How much money are we okay burning on this? How much time are we okay spending on this to get it to breakeven?
We are not burning a lot of money, let's put it this way. And that is not our full focus on it. However, there are people who are given the full attention and they are continuously working. I think looking at various different challenges in B2C, we are doing fairly decent.
The next question is from the line of Rohit Ohri from Progressive Shares.
Just a couple of questions. The first is related to the probiotics, knowing there's immense potential over there untapped, which is to the tune of USD 48 billion to USD 50 billion. Sir, what will the AETL be interested in? Whether you'd be interested in the animal feed segment, dietary supplements, or the functional resin?
Obviously, we are interested in all these 3 markets. That's why we are there.
Okay. And in the initial phase, what sort of market do you intend to capture in maybe next 2 years or maybe 3 years' time?
So continuous growth in this area. Now there are always some areas will perform better than others as the condition changes. But we see good opportunities in all these areas where we are.
Okay. In terms of biocatalysis, if there are any new products in pipeline, which you think are nearing their launch dates, if we would like to share that.
We will see next year it will start paying off.
Okay. Sir, how many, if you would like to just put a number to that?
I don't know, but I think 2 to 3 products to begin with.
Okay. Okay. Sir, there's a lot of emphasis being put on bio energy, clean, green energy by the Honorable Prime Minister and his entire team. Sir, what sort of efforts have we taken forward for the biomass processing, saccharification, and bio-ethanol production.
Honorable Prime Minister in country is looking into bio green area. It's a very challenging area. We have honorable Gadkari always speaking about various different newer projects produced and all that. The issue is always what are the processes you've developed and what government is willing to do. We are capable of working on it, but government requires a lot of support. And here, we don't hear much of it, to be honest.
Okay. Sir, so we didn't think that you'll be able to add the fifth division to the basket of the entire portfolio of AETL, maybe green and tech processing. By when do you think you can add the fifth element or the fifth segment to the system?
As you said, there is a lot of push. And if that push comes through with the proper government support, we are capable of doing that.
Okay. And are there any molecules without carbon, molecules that you're already working on, maybe would like to share some details on that?
No, I cannot share because that is not our focus at this point in time.
Okay. Sir, my last question is related to the overall pie. If we see the pie of the revenue, it's gradually moving more towards the Animal Healthcare and the Bio-Processing. Do you think that from the current 10% to 14% or may be 13% to 15% of Animal HC and Bio-Processing pie for these 2 segments will improve or increase going forward?
It will improve. Definitely, it will improve.
And any ambitious target that you have to kind of have on...
You pointed the right finger at it. As our pie increases, that means we have to increase our -- keeping that percentage improves sale numbers also, no.
And sir, any thoughts on entering pyrethroid or insecticide business or any anti-parasitic or insect repellants?
No, we are not looking at that right now. But there is an applications -- enzyme applications there is, but we are not working on a research on that.
And the R&D team intends to work on those going forward maybe 2 years down the line?
Maybe.
Okay. And sir, if anything on the improvement or the mitigation of the issues that we have with ROCE, which was raised in the last quarter as well, which was related to the goal that is lying in the balance sheet. If any concrete steps have been taken on that?
The litigations, right?
No, no. Are you talking about return on capital, right?
Yes, sir.
Correct. So I mean, return on capital, I think we have already mentioned that we are taking care to the extent it is good for all the stakeholders. I mean, that's what you might have observed that last time we have declared a very handsome dividend as well. So you improve that way your return on capital employed, because you distribute some money to the shareholders. But other than that, whatever money is with us, we have been using that money for our investments where we are getting a good return.
And in addition to that, there is again -- you see the benefit of the money being invested in USD. So you get at least 4% to 4.5% every year because of the rupee depreciation. And in addition to that, there will be, of course, some return from the investment which has been made in the government bonds and other investments. So capital employed per se in percentage may be lower due to a lot of money that we have with us. But yes, overall, if you see, the company is growing. So we keep that money because, Vic sir is also with us, and we have discussed in past also, we have been accounting for some opportunities as well. So we are keeping that cash. So as and when there are good opportunities where there is a lot of synergy in the business, probably that money will be used for that purpose. And otherwise, the management will take care of that how to deploy that funds.
The next question is from the line of Ravi Purohit from Securities Investment Management Private Limited.
Sir, just wanted to touch base upon the work that evoxx has been doing working essentially as an industrial enzyme research company. So if you could share some of the areas that they have been working, They were also -- kind of, they had done a strategic partnership with Symrise cosmetic company about 1.5 years, 2 years back. So anything on that? Or anything generally on industrial side, because we see a lot of opportunities on the industrial side from our perspective. So if you could just share some insights or some path or the work that we've been kind of looking at on the industrial enzyme side.
Ravi, as you rightly pointed out, this is an R&D company. And it is working with various different companies, some names you probably gave. And they are all confidential documents with them. So we cannot release all the names as they're working on their R&D projects. But I can only tell you that various different products are not only R&D, they work on the resource projects and also various different molecules in industrial as well as in other segments, Human and Animal Nutrition. So you don't see those in the balance sheet directly, but they are very big contributors. Market is a changing market. It is very information and research-driven market now. Evoxx has a lot of role to play in that.
Yes. And so in '22, I think we had announced a strategic with Symrise, right. Symrise is a very large company, highly profitable company, very, very strong in cosmetics, right? So just wondering if something happened? It's been about 1.5 years. Does it throw open opportunities for us on business side? Or it's more like a core development of products or core research? So if you could just share some insights into that?
Unfortunately, I cannot, because I have confidential agreements with them.
Okay. And sir, if you could just share if there are any -- on the industrial side again, because we've read a lot of articles and a lot of material which says that for hydrogen production and all, enzymes are like a pre-catalyst agent, right? So there is a lot of activity going on, on that side. So is this something that we have the capabilities to participate? Is this something that throws open opportunities for us on the industrial side, if you could share anything on that side?
Hydrogen peroxide...
So, he is talking about biocatalysis.
Okay. Honestly, I don't know what to tell you about it. But we are working on those enzymes very diligently at this point in time. And progress is considerable, progress is nice, but it takes a little time to get through all these regulatory developments and regulatory and becomes a competitive marketplace. We cannot never compete with hydrogen peroxide. Enzymes are not that cheap.
The next question is from the line of Rohan from Turtle Capital.
One question. I just wanted to get an idea what is driving the domestic sales as well as rest of the world sales? What segment is playing a role in this growth?
Human Nutrition and Food.
What was it, sir?
Human Nutrition and Food.
Okay. And in Food side, is baking playing any key role?
I missed it.
Yes. So baking is part of our Food segment.
The next question is from the line of Lakshminarayanan from Investments.
Couple of questions. First is when you set out this year -- the start of the year, you were [indiscernible] that you would do a few things. And just wanted to understand as we draw the year to the close, which are the areas which has actually exceeded your expectations? It could be people, products, sales, or margins, or whatever. And which are the areas which disappointed you?
Yes. Very nice and general question, Lakshminarayanan ji. By the way, that is my father's name, too. Yes. We are very excited with our people. The research group is doing phenomenally well for us, okay? It's also that a lot of papers and a lot of publications are happening, which are giving us a lot of advantage in the marketplace, and we are finding market is responding also very nicely because of our long association, long presence in the market, our reputation, et cetera. So that is all positive.
Negative is somewhat disappointed with this macroeconomics of what's going on, and that is putting the pressure, unnecessary pressure on us, and also more of -- we can see a challenge, I will not say pressure, a lot of challenges of further expansion and growth.
Got it, got it. Can you just delve a bit deeper on the second thing. When you say macro, what is it leading to as a company for us?
The macroeconomics like, the wars doesn't help anybody in the economies, as you know. So delivery challenges are pretty disappointing. Cost always keeps on going on that. And challenges are also acquiring good talent when you are expanding the company and appraising wages and other things on it.
And any segment or geography or a product that have actually did very well beyond your expectations in the last -- this financial year?
I cannot give you any specific numbers or specific product names. But overall, we are doing very well in the entire segment.
And if you just roll back and look at the last 3 years, I mean, the reason I'm asking is that you always mention that, don't look at my company on a quarterly basis, look at on a slightly longer. So if you look at it for the last 3 years, which are the areas which have actually surprised you positively and which are the ones that have disappointed you? And what are you doing to address those areas which have disappointed you?
Our R&D, there is only one solution in our marketplace. Expanding the R&D and making sure that our products are really addressing the issues. So it's a lot of change happened in the last 3, 4 years.
And how do you quantify that if R&D has actually improved? Is it by the number of scientists who work with you or the kind of output on a near term or long term? How do you parameterize it?
Output is always very important. And the talent is always part of the entire game. So we have excellent talent and we are very proud of our people. Wonderful, wonderful group of people. Yes, even with challenges.
[Operator Instructions] The next question is from the line of Manoj N. Muthiyan, an individual investor.
I just want to know how many new molecules are being developed in the R&D? And what is the time line of the commercialization? I'm asking this because business growth is expected to come only from the existing molecules and then from the new molecule. There is always limitation to the existing molecule, and the new molecule will only play a major role in the business development and business growth.
Very true, Manoj, and it's a very good question. Thank you. We have developed several new molecules. But these molecules, when you develop, goes through very thorough testing. Like it has to go through with the toxicology with various different approvals, and it takes a really long time, okay? And there are a lot of challenges on those. So as I said, our R&D is doing very phenomenal job, along with our documents department and other supporting areas. We have filed some patents also. So there is excellent movement of things in it. We will only say that these molecule developments are useful when we complete all these requirements. Does that make sense?
So yes, I definitely know about that. I just wanted to know how many number of products being developed and what is the calendar for their commercialization?
As I said, commercialization takes some time. Quite a few developed, quite a few. I cannot give you exact numbers, but quite a few.
Okay. Then second question is, since our R&D development cost in European countries is too high, then do you have any plan to ship development to Indian sites?
That is also a very good question. We just invested, I think what, INR 50 crores in our new R&D facility, which is happening on 15 acres of land. And there is a huge park development is going on. We will be one of the topmost R&D company in this area. So we have huge, very big plans for the research and development.
And my third question is, there are 7 molecules filed with the U.S. FDA according to the annual report. And for 5, there is no questions from the FDA. And for remaining 2, there were some questions. Whether those questions have been addressed and molecules have been commercialized in U.S. market?
Yes, Manoj. FDA doesn't question them. They asked lot of questions, okay? And we filed many of those already. And some of them approved, some of them are in the plans.
The next question is from the line of Nikhil from SIMPL.
Just two questions. Sir, this point which the earlier participant raised, just wanted to understand, see, in traditional pharma, what we see is that companies have a tie-up with a customer and then they file the DMF or whatever. And once the approval is received, their commercialization starts. But if I go through our calls, even in Europe and U.S., where we said that there are products where there are no questions. And in a way, there are approvals which are being achieved. How does the sales process happen? So is it like first we file, then we scout for partners? How does the overall process happen? I know it will take some time, but if you can just educate us how this process works versus traditional pharma.
Traditional pharma is very different with the filing. First of all, traditional pharma takes a lot of money and long time, but they also get patents and they can make a lot of claims. We cannot make claims, any specific claims of anything cure or anything which can -- what you call it, cure and what other word is there? Treat, cure any diseases or anything. So it has to be related to health and nutrition, and that's all we can claim. So it has a lot of difficulty. Doctors may recommend or may not recommend. Because in U.S., most of the doctors will go for the Medicare, Medicaid. They need to have FDA approval for drugs. So different ways to deal with it. And we are only strictly into Human Nutrition of well-being and not in a disease or cure business.
So once we get an approval for a molecule, then the partner will -- you were saying something, sir?
Sorry, your second part was whether we look for the partners before or after. Once we get the approval, then we have to find appropriate partners who have different needs, and the molecule will fit for their application.
Okay. And last question, sir. This is from our Slide 28 where we talk about the addressable market for AETL over the next 5 years and AETL's current share of revenue. If we have to understand, just taking an example of, say, baking, where we said USD 30 million is the addressable market. If we have to understand, 5 years back, based on our capabilities and molecules, how would these sizes have changed, the addressable markets would have changed?
And this is in relation to the R&D question. I know you can't say how many molecules we'll launch and all. But if you can just spend some time, 5 years back what was this addressable market for some of these segments, which today we are talking of, say, USD 200 million (sic) [ USD 20 ] or USD 30 million? And as an investor externally, how should we measure how we are increasing our addressable market opportunity?
But the market has changed. Now, let's say, for baking, the need in the food industry changing to not just food, but healthy foods, less sugary food or whatever. Those are the kind of market needs have changed. Before, we used to have all the Coca-Colas in the market. Now the drinks are more healthier drinks. So you can see that human nutrition is a very dynamic subject and they are constantly changing.
As the research comes out of it, people want to have a different -- address different things at a time. So as you know, like January 1, everybody wants to have a resolution to lose the weight. And after 3 months, they lose that interest and go back to again same old, same old. So human nutrition is something of that nature. It is changing. And obviously, the market is increasing as expenditure income changes, people start thinking about the healthy food, spending some money on the right food. So it has changed in 5 years, it has expanded, in my opinion.
The next question is from the line of [ Jayesh Ladani ], an individual investor.
So I have been an investor since quite a long time in Advanced Enzyme Technologies because I believe in the philosophy of the company about making everyone healthy.
Sorry to interrupt. But you do sound a little muffled. I request you to please use the handset mode.
So I'm an individual investor in the Advanced Enzyme Technologies since quite some long time because I believe in the basic philosophy of the company, making everyone healthier. So a couple of questions which I'm noticing since some time that earlier we used to have operating margins in 40-ish range, 40-ish percentage, now we being in 30-ish percentage, slightly increasing since a couple of quarters. Is it going to be in the same range for a longer period of time? Or are you going back to the 40-ish range?
Ladani ji, I just want to thank you for investing in the company for a long time. We really greatly appreciate that. I also answered that question some time ago is that it's a very competitive market business, marketplace. And keeping very high margins are not always -- that kind of high margins are not always feasible, because you had to compete. But we are trying to improve our margins all the time. It is always a combination of product mix, which really reflects how margins will shape up at the bottom. But it should be happening. That's all I can tell you.
Yes. So this 30-ish range is, again, is that the new normal?
It's still not very clear from your line, sir.
So this 30-ish range is the new normal, right?
30 to 33, yes.
Yes. Okay. And the top line growth, which we are seeing around 20-ish now, is it going to be a sustainable growth? Like are we going to see that number quarter-on-quarter or year-over-year?
Yes. We don't say every quarter, but as you can see these last 3 quarters this year, we are constantly increasing. Not necessarily that, that will continue the trend necessarily. However, we see 15% to 20% growth as we've guided before also for some time.
And the geographical bifurcation, like 80% of business comes from India and America. So is this going to be the same? Or like are we seeing any new growth opportunities elsewhere?
A lot of other opportunities are there. So it will change.
Okay. And any new patents which we have filed? I think around 13 patents we have. So any new patents filed in this year out of those 13?
Yes, we did.
Ladies and gentlemen, we have no further questions. I would now like to hand the conference over to Mr. Ronak Saraf for closing comments. Over to you, sir.
Thank you, everyone, for taking your valuable time for attending our earnings call. We will keep you all 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. Thank you very much.
Thank you, everybody.
On behalf of Advanced Enzyme Technologies Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.