Advanced Enzyme Technologies Ltd

NSE:ADVENZYMES

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Q4 FY '24 Earnings Conference Call of Advanced Enzyme Technologies Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ronak Saraf, Investor Relations Manager. Thank you, and over to you.

[Ronak Saraf, executive]

Good evening, everyone. Welcome to the Advanced Enzyme Technologies Q4 and FY '24 Earnings Conference Call. We hope you all have received our financial press release and the PPT, which has been posted in the IR section of our website. We have with us Mr. Mukund Kabra, Whole-Time 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 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 and predictions about the future. Because these statements are based on our current assumptions and factors that may 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.

[Mukund Kabra, executive]

Thank you, Ronak. Good evening, everyone. I really appreciate you all for taking out your valuable time, and I extend heartiest welcome to everyone joining us today on this conference call for the quarter and year ended 31st March 2024.

Our business demonstrated resilience performance in financial year '24 backed by our robust R&D pipeline. And in fact [indiscernible] competitive product mix, the business development activities remained healthy during the year across all our divisions and geographies. During the year, we have posted our highest ever consolidated revenue.

We have recorded a top line growth of 15% and bottom line growth of 32%. The margin has improved. EBITDA margin improved by 400 basis points, while PAT margins by 300 basis points.

During quarter 4, there is onetime impact of INR 151 million on profitability due to adverse judgment of the court in lawsuit in one of our U.S. subsidiaries, AST Enzymes.

Now I will take you through the quarterly performance. We have achieved top line of INR 1,578 million, growth of 14% on a year-on-year basis and 2% decline on a sequential basis in quarter 4.

Our EBITDA stood at INR 554 million, grew by 26% on a year-on-year basis and 3% on a sequential basis. We have seen a decline of 7% in the bottom line on a year-on-year basis and 30% on a sequential basis. There is further improvement witnessed in EBITDA margin at 35% as compared to 29% for quarter 4 of last year, while PAT margins declined to 19% during the quarter 4 as compared to 23% for quarter 4 of 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.

Now I will take you through the segment-wise performance. Our Human Nutrition division, the Human Nutrition segment, as usual, remained the highest contributor in the revenue pie at 65% in quarter 4. It grew by 17% on a year-on-year basis, while it declined by 7% on a sequential basis. During financial year '24, we have witnessed a growth of 18% on a year-on-year basis. Contribution of domestic and international markets remain equal. API and probiotic mainly supported the growth in Human Nutrition business.

Animal Nutrition. Our Animal Nutrition business contributed 12% to the revenue in quarter 4. This segment de-grew by 10% on a year-on-year basis, while grew 14% on a sequential basis. This business declined by 5% during financial year '24.

Bio-Processing. During the quarter, Bio-Processing segment contributed 16% to the revenue. It grew by 35% on a year-on-year basis and 9% on a sequential basis. For full year, this segment grew by 21%, food business grew by 30% and non-food business de-grew by 6%, respectively, on a year-on-year basis.

The Specialized Manufacturing segment contributed 7% in quarter 4 and de-grew by 2% on a year-on-year basis and grew 7% on a sequential basis in quarter 4. During financial year '24, this business reported a year-on-year growth of 19%.

A brief on key developments during this year. We have received approval of 2 food enzyme dossiers from ESRA. Over and above, we also received no question later for our 2 GRAS filings with U.S. FDA.

All of these enzymes will be used as a food processing aid for different food products. During the year, we have also acquired an additional stake of 5.89% in JC Biotech for the total cash consideration of INR 56.07 million.

Now the shareholding of the Advanced Enzyme in JCB has increased to 95.73%. We initiated a small step towards clean energy as our one of the ESG initiatives. We have installed and made operational 160-kilowatt solar power plant in financial year '24. Another 350-kilowatt solar plant installation is under progress and will be operational by November 2024.

As we entered the new financial year with a strong foundation, our focus will continue to remain on improving margins, prioritizing customer retention, strengthen R&D, foreign business opportunities in new geographies, expand solutions and product offering to serve more products across global regulatory bodies and to look for strategic inorganic opportunities. We will bring more resilience in our business to enhance customer value proposition and deliver long-term sustainable growth going ahead.

With this, I conclude my remarks and now hand over this call to Mr. Rauka, who will talk you through the financials and key subsidiary numbers.

[Beni Rauka, executive]

Thank you very much, Mukund. Good evening, everyone. I hope you all are in good health. Let me introduce you about the financials of the company during the quarter 4 and fiscal year 2024.

On year-on-year basis, the revenue grew by about INR 191 million, 14% growth from INR 1,387 million to INR 1,578 million. EBITDA is increased by INR 113 million from INR 441 million to INR 554 million. Profit before tax, but after exceptional items, as mentioned by Mukund, we had an exceptional item of about INR 151 million due to the adverse impact of one of the claim. So our profit before tax is decreased by INR 24 million from INR 421 million to INR 397 million. Profit after tax decreased by INR 22 million from INR 321 million to INR 299 million. On sequential basis, the revenue decreased by INR 31 million from INR 1,609 million to INR 1,578 million.

EBITDA has increased by INR 15 million from INR 538 million to INR 554 million. Profit before tax and after exceptional items decreased by INR 192 million from INR 589 million to INR 397 million. If I remove the impact of exceptional items, the profit before tax stood at INR 547 million as compared to INR 462 million. Profit after tax decreased by INR 126 million from INR 425 million to INR 299 million. Again, here, the impact of this exceptional item.

On a year-on-year basis, our revenue grew by 15% from INR 5,406 million to INR 6,239 million. EBITDA increased by INR 481 million from INR 1,564 million to INR 2,045 million. Now EBITDA for FY '24 stood at 33% as compared to 29% in FY '23.

Profit before tax, but after exceptional items, increased by INR 475 million from INR 1,404 million to INR 1,879 million. Profit after tax increased by INR 331 million from INR 1,039 million to INR 1,370 million. The PAT is 22% of our revenue as compared to 19% in FY '23.

I would like to give some of the numbers of our subsidiary companies. JC Biotech sales in Q4 stood at INR 143 million, with EBITDA of INR 18 million and PAT of INR 3 million as compared to Q4 of last year, INR 107 million of sales, negative EBITDA of INR 3 million and a loss of INR 10 million. So JC Biotech during FY '24, revenue is INR 626 million as compared to INR 502 million, a top line growth of 25%. EBITDA, INR 77 million as compared to INR 14 million in FY '23. And PAT at INR 18 million as compared to negative INR 18 million in FY '23.

Evoxx revenue stood at INR 54 million, with EBITDA of INR 4 million and profit of INR 5 million in Q4 as compared to INR 58 million, INR 20 million and INR 11 million, respectively, during Q4 of FY '23. So evoxx, during fiscal year '24, the top line is INR 213 million and FY '23 was INR 241 million. Negative EBITDA of INR 8 million during FY '24 as compared to INR 59 million positive in FY '23, and PAT is negative a loss of about INR 21 million as compared to profit of INR 21 million in FY '23.

SciTech sales stood at INR 114 million during Q4 of FY '24 with INR 28 million of EBITDA and PAT of INR 25 million as compared to INR 117 million of sales and INR 24 million of EBITDA and INR 12 million of PAT during Q4 of FY '23. On fiscal year basis, SciTech top line stood at INR 418 million as compared to INR 353 million, 18% of growth in top line. EBITDA at INR 58 million as compared to INR 6 million negative and PAT of INR 37 million as compared to INR 62 million of loss during FY '23.

The sale of the largest product during the quarter stood at INR 279 million and for the year, it is about INR 1,310 million as compared to INR 1,290 million in FY '23.

Top 10 customer sale is about 26% as compared to 24% in FY '23. B2C segment contributed about INR 1 million as compared to INR 1.21 million in FY '23.

Our R&D expenditure during the year is about INR 274 million as compared to INR 290 million in FY '23. Percentage of R&D expenditures on a consolidated basis, we spent about 4.58% as compared to 5.06%. This is without eliminating the intercompany transactions. And during the year, there was some lower CapEx. On a consolidated basis, R&D spend is about 3.2% as compared to 4.22%. It is after elimination.

That is all from my side. We shall open the floor for question-and-answer.

[Operator]

[Operator Instructions] We'll take our first question from the line of Nikhil Mathur from HDFC Mutual Fund.

[Nikhil Mathur, analyst]

Sir, my first question is on the growth that you have registered in the Human Nutrition business of 14% in FY '24. Is it possible to give some broad sense as to how this growth is split between volume, pricing and new products?

[Mukund Kabra, executive]

Nikhil, but it's difficult to give a breakup because we don't track with volume and this, it's a mix of products. It's a new product as well as our existing products. But I can't give you the bifurcation in terms of volume and other things. We don't track.

[Nikhil Mathur, analyst]

Okay. I mean qualitatively, what has been the pricing behavior in your products in FY '24? Has it still been deflationary or have you been able to pass on some bit of higher input costs that we have seen in the last couple of years? So any broad sense on that?

[Mukund Kabra, executive]

It is more stationary, Nikhil.

[Nikhil Mathur, analyst]

So from FY 2024, not much change has happened on the pricing front?

[Mukund Kabra, executive]

Yes.

[Nikhil Mathur, analyst]

Okay. And how is the input cost behaving now for you as a company? I mean do you see any positive or negative surprises on the input cost front or it is quite stable? And also the outlook for the coming year in terms of input costs, how do you see that?

[Mukund Kabra, executive]

Input cost more or less is stable in terms of raw material prices and other prices and we expect the same to continue.

[Nikhil Mathur, analyst]

Okay. Got it. Next is on the mix in the coming 2, 3 years. So Human Nutrition pre-COVID was an 85% total business mix, it is now at around 78%. Where do you see the Human Nutrition contribution in the coming 2, 3 years? And why I ask this because I believe this is the most highest gross margin business across all the businesses. So I think this mix has a broad implication of how your gross margin will progress in the coming 2, 3 years. So any sense on where the Human Nutrition business contribution will stay in, let's say, in '25, '26, '27?

[Mukund Kabra, executive]

So we expect it to grow, but in terms of percentage, probably it will be between 65% to 70% because there are some other businesses as well. It should be between the same range what we are continuing.

[Nikhil Mathur, analyst]

So does that mean that the gross margins that you have currently at the consol level that kind of remains stable in the coming years, definitely be available for that to improve?

[Mukund Kabra, executive]

It should improve. It will always improve. As we grow, this should improve, and we expect it to improve further because we expect like somewhat growth has to come back from -- even from the U.S. now, and that will really improve.

[Nikhil Mathur, analyst]

Okay. Okay. Also, if I look at -- I mean, this question has been asked previously, but I'll just attempt it again in a different way. So your gross margins today are roughly 3 to 4 percentage points lower than what it used to be pre-COVID levels. But your EBITDA margin today is around 11%, 12% lower than what it was pre-COVID.

So that means there are significant OpEx buildup that has happened in the P&L, which is obviously not getting properly absorbed. Can you talk about what exactly has happened on the OpEx front in the last 4, 5 years due to which you are at a margin profile, which is much lower than what we should be at and how this will change in the coming years?

[Beni Rauka, executive]

So Nikhil, I think the EBITDA margin has gone down basically because of a couple of things. One is like the sales mix has changed. And another is by revenue from the U.S., so the impact of both is like that creates that kind of gap in the EBITDA margin. But of course, if you see last year, if we compare the EBITDA, 29% to 33% this year, so there is, of course, some improvement.

But yes, one particular impact, which is like as in the first question, whether the increase in the prices, in the sale prices has happened, so that cost, whatever input cost that has already elevated that elevated cost, it is very difficult to pass on to the customers.

So because of that, overall, there is a pressure on the margins. And in addition to that, if you have observed the power and fuel cost because of the overall pricing has gone up, so because of that, what has happened, the EBITDA margin is under pressure in that sense. But yes, it has stabilized, as we mentioned that input cost now appears to be at a stationary level. We are not seeing any substantial increase and significant increase in that.

So OpEx overall, I think, still is under control to that extent. And yes, the impact because you are not able to pass on the higher cost to the customer. And then, of course, there is a change in the product mix. So that has created this issue. And in addition to that, the U.S. business, it has to grow because you have a better margin over there.

[Nikhil Mathur, analyst]

So any visibility emerging, sir, on the U.S. business? Is it on the cusp of a turnaround or they can be still some time before you start seeing the order book building on the U.S. front?

[Beni Rauka, executive]

It has improved this year -- U.S. business has improved this year, and we see that kind of continued growth now.

[Nikhil Mathur, analyst]

Okay. And then just 1 final question, sir. Again, sticking on the OpEx front. I think FY '24 has been a year of optimization of the cost -- on the cost front as well because the SG&A is up only 6% Y-o-Y and your employee cost is up 12% Y-o-Y, whereas revenue is up 15%. So does that mean that there's a need to invest into manpower and admin and overheads in FY '25? And unless the growth is, let's say, in mid-teens, high-teens, wouldn't it be difficult to grow margins from where your current situation is?

[Mukund Kabra, executive]

We expect the margins to grow. We expect the growth should be like somewhere around like in double digit, as you mentioned, but that should not be a problem because coming year, we expect a little more growth from the U.S. side as well.

[Nikhil Mathur, analyst]

Any guidance, sir, on the margin front, EBITDA margin, what should we expect in '25-'26?

[Mukund Kabra, executive]

I can't talk on the EBITDA margin at this point of time, but the top line should be between, as you said, like between 13% to 16%, somewhere around that.

[Operator]

We'll take a next question from the line of Nitish from ChrysCapital.

[Unknown Analyst]

So sir, I wanted to ask -- sorry, you mentioned that -- just a bookkeeping question. You mentioned 13% to 15% top line growth outlook for FY '25?

[Mukund Kabra, executive]

Yes, that's right.

[Unknown Analyst]

Okay. Sir, 1 more question, specifically on the U.S.A. side. So U.S.A. has grown 32% year-on-year -- in fourth quarter and 9% in FY '24. So what is your outlook for the U.S.A. business in FY '25? And what will be our driver for growth in this business?

[Mukund Kabra, executive]

So we mentioned like last time also, like we introduced a couple of segments like on the wet management and other areas and the sugar management, and those are the products which are going to drive the growth for this year as well.

[Unknown Analyst]

Okay. And on EU also, EU has also performed well in FY '24. So what would be your growth outlook in EU? You mentioned that there are some enzymes which got regulatory approval for, right, in your opening comments. So what kind of revenue potential do those enzymes at?

[Mukund Kabra, executive]

So it's not exactly like converging. I can't give you like the revenue potential in terms of approvals, but those approvals were like pending from last 2013, '14 and still like EU has not like completed the list.

During that time, like we applied about somewhere around '13, '14, and we are still waiting for the approvals. But as of now, like it is not stop unless until they come out with the positive list. So I cannot just say that there will be a substantial growth right now. But that will allow us to continue ourselves after also like the guidelines will come up. So that's how it is, but it's really difficult to convert into the revenue ourselves. In terms of EU and other business, particularly on the food areas, it is growing, and we expect next year like to have a decent growth in those areas as well.

[Unknown Analyst]

Okay. Okay. And our EBITDA margin has increased to 35% in Q4. Is this sustainable? And what would be the steady-state margin going into FY '25?

[Beni Rauka, executive]

So I think what we have mentioned is if you really look at quarter, it's difficult to comment on that. But yes, if you look at our annual numbers, from 29% to 33% this is what we can expect.

[Unknown Analyst]

Okay. Okay. And my final question is on capital allocation. So we have around INR 500 crores of cash on the balance sheet, and we generate around INR 100 crores of cash every year. So any thoughts on the capital allocation strategy?

[Beni Rauka, executive]

I think as far as allocation is concerned, if you have observed that last year, we have declared interim dividend. This year, we are continuing with the interim dividend and apart from that, we are keeping the cash with us to make sure that whenever we have some opportunity, we use that money to expand our business. And apart from that the normal capital expenditures and...

[Mukund Kabra, executive]

Even like our R&D setup, which we are building up. So we are continually investing also in that.

[Unknown Analyst]

Okay. Understood. So -- okay. So you mentioned EBITDA margin would be in the 33% range, right? annual level going ahead also?

[Beni Rauka, executive]

So right now, that's what we are saying because this is what it is as of now. But of course, going forward, we see improvements. If you might have observed from our financial numbers, so if our top line grow by, say, 1 percentage point, then EBITDA margin is increasing by 2%. So that will give you some indication as you progress.

[Operator]

We'll take our next question from the line of Gaurav Nigam from Tunga Investments.

[Gaurav Nigam, analyst]

Sir, one question on the Human Nutrition. I think you used to give this breakup between India and International and between the subsegments of pharma, probiotic and biocatalysts. It would great if you can provide that for this quarter also.

[Beni Rauka, executive]

Okay. Yes. So I mean, the pharma business and I can say Human Nutrition business during quarter 4 is about INR 530 million in India and International sales is about INR 511 million. So total is about INR 1,024 million. Do you want more granual numbers or this is...

[Gaurav Nigam, analyst]

Yes, I mean, within India, the pharma business, the probiotics and the biocatalysis?

[Beni Rauka, executive]

So yes, Pharma is INR 402 million; Probiotics, about INR 63 million; and Biocatalysis is about INR 48 million within India.

[Gaurav Nigam, analyst]

And for the International market, sir?

[Beni Rauka, executive]

Yes. Mainly, it comes from the Human Nutrition, so about INR 488 million has come from the Human Nutrition and Probiotic is roughly about INR 18 million, balance Biocatalysis is about INR 5 million.

[Gaurav Nigam, analyst]

Okay. Understood, sir. And sir, in the U.S. market, I think in the last con-call, you had indicated that there was a sequential improvement in demand last quarter. I just wanted to understand is the [Technical Difficulty] from the market on the overall demand scenario in the U.S.?

[Beni Rauka, executive]

The overall demand situation is as such, I think Q4, there was some pressure on that. But apart from that, the visibility is better.

[Gaurav Nigam, analyst]

Yes. Understood, sir. And sir, one more thing on this ratio, our largest product side, there has been 2 quarters of continuous decline. Is there something to read into that? What is happening there and what are the reasons for that?

[Beni Rauka, executive]

Are you talking about the numbers, the top line -- I mean, is the revenues on the particular product?

[Gaurav Nigam, analyst]

Yes. I was talking about the ratio revenue, which has declined 8% this -- 16% this quarter and 8% last quarter.

[Beni Rauka, executive]

Yes. So this is all like depends on the store position of our customers, and we do have some distributors. So it varies from quarter-to-quarter. But overall basis, if you look at the annual number, you see some kind of a growth, which is, of course, 2% only. But yes, there is a growth in that.

[Gaurav Nigam, analyst]

Understood. There is nothing like we are not losing market share on this particular product, right, sir, just to confirm?

[Beni Rauka, executive]

I think Mukund will be able to comment...

[Mukund Kabra, executive]

Not really, but always -- there is always a competition in which always will be there. And we are talking about the competition from the last 2, 3 years, and it will always be there in this segment.

[Gaurav Nigam, analyst]

Understood. Understood. And sir, just a last question on Rest of the World, which is the geography that we declare every quarter, there has been sequential like 2 quarters of decline there as well. What is the business we are doing there and there something that you can highlight on what is the reason for the decline?

[Beni Rauka, executive]

Are you talking about Human Nutrition?

[Gaurav Nigam, analyst]

No, Rest of the World segment, which you declare within the geos, India, Americas, Europe, Asia, India and Rest of the World, right, that you declare. So in that the Rest of the World, there has been continuous 2 quarters of decline almost 40% and 30%, so I wanted to understand what is happening there, if you can help understand?

[Beni Rauka, executive]

So I think if we really look at on year basis, fiscal year basis [Technical Difficulty] of about 3% from INR 106 million to INR 189 million, which is about 78%. So generally, Mr. Nigam, we always mention that it is very difficult when you compare the quarterly performance so far...

[Gaurav Nigam, analyst]

Understood. Okay. Okay, okay. But have to look at it from an annual basis. Okay.

[Beni Rauka, executive]

Yes.

[Operator]

We'll take our next question from the line of Harini Dedhia from Tamohara Investment Managers.

[Harini Dedhia, analyst]

My question was on the product that you mentioned regarding sugar and waste management. One, is this going to be an Americas geography-only product? Or is this something that's going to be across the board, like across all geographies?

[Mukund Kabra, executive]

At this point of time, we are focusing on American geography and with a few clients.

[Harini Dedhia, analyst]

Okay. So we're going to be doing -- so we'll be manufacturing for other brands, right? And this would be an OTC product?

[Mukund Kabra, executive]

Yes, it will be OTC. We will not be manufacturing for others, but we will be supplying the, what we can call it as a, raw material supply, not the capsule suppliers.

[Harini Dedhia, analyst]

Okay. And what would sort of base the opportunity size of this versus the prescription medicine form of GLP-1 that we've seen, which has obviously blown up, but what would be the size of such an opportunity?

[Mukund Kabra, executive]

Difficult to comment. But at this point of time, we see good traction. We are like very careful. At this point of time, I can't comment too much on milk products, but we see a decent growth as we move on into these areas.

[Harini Dedhia, analyst]

Okay. Sir, just last question. And what is the nature of our customers on -- for these products? Would there be large nutraceutical companies in the U.S. or who would the buyers be?

[Beni Rauka, executive]

Yes, I can see rightly got it.

[Mukund Kabra, executive]

Right, the nutraceutical companies and mainly like M&M kind of market at this point of time.

[Operator]

We'll take our next question from the line of [ Sajal Kapoor ], an individual investor.

[Unknown Attendee]

I have 3 questions and with your permission I would like to ask them one by one, please. On industrial bioprocessing, over the last 5, 6 years, this area has outpaced both our Human and Animal Nutrition and given the global sustainability trend, do you believe that 20% growth rate of this segment is likely to sustain?

[Mukund Kabra, executive]

I can't comment on that. But if you remember, like from the last 3, 4 years, like we are always saying that this is one of our focus areas. We are really focusing on it. A lot of like research is also going into these areas, and we are coming up with the new product pipeline. So there will be some dip and there will be some bumps going ahead. But yes, more or less, we see like because our base is also not very big, we should have a decent growth into this area.

[Unknown Attendee]

Yes, that's helpful. And second, on the B2B Probiotics and Biocatalysis area. So both these sort of subsegments have a large untapped potential today, but the product approval process perhaps is taking longer than what you might have anticipated? Is that a fair assumption? Because I understand that it's a sticky business and it's difficult to get product approval on the customer end, but is it taking longer than what you might have expected originally?

[Mukund Kabra, executive]

Yes, there are a few more reasons. One is it is taking a little longer as well. There are a lot of like price variation and fluctuation also happens internationally and globally in that effect. At the same time, it's like all the research driven.

So a lot of products are under the research, but you cannot be like sure what will be the time line when they will come out. You see a lot of positivity, but it took a little longer. And in the last time also, I said like it took a little longer than what we expected. And I still feel we should have a good potential to go ahead.

[Unknown Attendee]

And then third question is on evoxx. So this business has reported losses this fiscal and both at the EBITDA and the net level. So can you shed some light on the underlying reason? And more importantly, the longer-term prospects here, how do you see the contract research and development opportunity in evoxx?

[Mukund Kabra, executive]

So evoxx is always our R&D arm, a lot of biocatalyst development is also happening at evoxx. We were doing like some contract business as well at evoxx, contract research kind of things. And those like -- we did add a contract, but some of that didn't materialize last year. And we don't expect too much of a growth in the evoxx on a revenue front, but we expect generally like it should be revenue-neutral. Last year, we couldn't do that because of like our research contract -- research was a little on the lower side, some of the contracts didn't materialize.

And that is where like we have taken an impairment as well this year into our balance sheets, impairment of about INR 18 crores, INR 19 crores on the Advanced Enzyme's balance sheet, if you look at it, we have taken impairment loss as well. Going forward, we see that it should be revenue-neutral. I won't see like too much of revenue expansion on that front, but it is a good R&D arm for us.

[Unknown Attendee]

Right. So we see evoxx more as a captive in-house R&D rather than extending the capabilities out for other customers on a B2B model?

[Mukund Kabra, executive]

Yes. So generally, the half of the revenue comes from the inside and half of it comes from the outside. And the outside revenues, we are a little bit on the lower side last quarter -- last year.

[Operator]

We'll take our next question from the line of Jainam Ghelani from Svan Investments.

[Jainam Ghelani, analyst]

Sir, since there is so much untapped opportunity in probiotics, are we planning to acquire any company so that we can gain customers?

[Mukund Kabra, executive]

Well, we are always in search, but if you come across any good company, please let us know. We are always looking for it.

[Jainam Ghelani, analyst]

Okay. And sir, usually, what is your contract length and is it possible to give us any form of order book?

[Mukund Kabra, executive]

No, sir. In our business, there is no contract as such or the order book kind of things. So generally order to order, but you know the customers and you know the trends, and that is where it's always difficult to predict exact numbers of revenue what it will be and exactly how it will be. And quarter-on-quarter, how they will move.

[Operator]

Our next question is from the line of Lakshminarayanan K.G. from Tunga Investments.

[K.G. Lakshminarayanan, analyst]

Couple of questions. Sir, last year you have grown U.S. at close to 9%, 10%. So what kind of growth you expect for next couple of years?

[Mukund Kabra, executive]

Lakshminarayananji, it should at least maintain a 10%.

[K.G. Lakshminarayanan, analyst]

Got it. Okay. Okay. And on the Europe food business, I just want to understand how the growth has come in the last 1 year? If I just take break Europe into Europe food and non-food, what has been the growth in the food business of Europe and non-food business?

[Mukund Kabra, executive]

So food is like mostly like we are focusing on the -- on the baking side, and we are like focusing more in the India as well like on these areas, particularly baking and other businesses as well. So I don't have an exact number to break it up, how much is the food and how much is the others in terms of particular Europe or other areas.

[K.G. Lakshminarayanan, analyst]

Got it. The reason I asked you this is a couple of years back, maybe 2 years back or so, we were getting some dossiers confirmed and which helped us to make inroads into the Europe food industry and we are seeing a lot of potential. Just want to understand how that is panning out?

[Mukund Kabra, executive]

The potential is still there, like it's always in Europe and difficult to crack since you are like Indian companies, which you get some success and it's continued. I won't say that we've got the success to -- I mean the way we expected, but still, it is going very well.

[K.G. Lakshminarayanan, analyst]

Got it. So if you look at maybe the next year, the next couple of years, which are the levers that will actually -- will pull the company in terms of revenue growth. For example, within India, whether it will be the Animal Food or the SciTech or Probiotics, how are you thinking? Because in Europe, in U.S., you mentioned Europe also, you clarified. So from the India, which segments will actually pull the growth for the company?

[Mukund Kabra, executive]

It will be food. It will be biocatalysis, and it should come up somewhat through -- even through the animal feed areas.

[K.G. Lakshminarayanan, analyst]

Got it. In SciTech, what kind of growth you expect?

[Mukund Kabra, executive]

SciTech, we are like launching the different new products. We just got one of the -- even like -- so 1 of our like products, we got just first one, like an effervescent pharma approval, we see a good growth this year going forward next year as well. I can't talk about 2, 3 years down the line as of now because the business mix always changes, but we see a decent growth going forward, at least for the next 2 years, I can say that.

[K.G. Lakshminarayanan, analyst]

Got it. Last question is related to RM as well as logistics cost and difficulty in logistics. A year back, we were having issues on both the fronts. So have things normalized both in terms of the raw material as well as logistics or how are you thinking -- what do you see on the ground?

[Mukund Kabra, executive]

So some areas, the logistic cost is still on the higher side because of all this Red Sea conflict, which is going on. But still, it is okay and manageable. It's not really impacting to a very great level the way it's used to be during the COVID time and other time.

[Operator]

We have a next question from the line of Afzal Shaikh from M3 investment.

[Unknown Analyst]

Basically, I have only 1 question, sir. So what is the percentage of revenue from top 1 customer?

[Mukund Kabra, executive]

Revenue from?

[Unknown Analyst]

Top 1 customer.

[Mukund Kabra, executive]

Top 1 customer.

[Beni Rauka, executive]

About 4% to 5%.

[Unknown Analyst]

4% to 5%. And 1 more question, sir. How much like in a year, what is our percentage of share -- market share in India as well?

[Beni Rauka, executive]

So percentage of market share, we operate in different verticals. So I mean getting that kind of information is very difficult. It's not readily available in the market.

[Unknown Analyst]

Okay. And do we have any pricing pressure from our main products like [indiscernible] .

[Mukund Kabra, executive]

A little bit is always there on this side. When there is a competition, there is always a pricing pressures are always there. Some area you enjoy monopoly, some areas where is going to be the pricing pressure and you need to evolve with the new ideas and new thoughts and with the R&D, you need to improve your productivity. So these are the only solutions, right?

[Operator]

We have our next question from the line of Shrinjana Mittal from RatnaTraya Capital.

[Unknown Analyst]

I have 3 questions. So 1 is that on the other expenses in this quarter, the other expenses have come down on a run rate basis. So can you give some color on like which major expense heads have facilitated this moderation?

So I was saying that I have 3 questions. So first question is on the other expenses side. So in this quarter, your other expenses have come down. So if you can give some color on which major expense heads have facilitated this moderation? And has your power and fuel cost -- has it started coming down or is it still on the higher side?

[Mukund Kabra, executive]

Which cost?

[Beni Rauka, executive]

Other expenses. So you are talking about other expenses, the increase is because of the stores and spares and some last time...

[Unknown Analyst]

No, sir, actually, my question was that this quarter on a run rate basis, it has come down, right? So which expense heads have helped in this reduction of the other expenses?

[Beni Rauka, executive]

Yes, I think my colleague will give you the response. Parag is here. Parag, go ahead.

[Parag Katariya, executive]

On a quarter-on-quarter basis, there is some reduction in the total other operating expenses -- other expenses, mainly because of lower legal and professional expenses and some sales and other administration expenses, which is basically we had attended some conferences and exhibitions during the last quarter. So that is where basically there was a higher expenditure in the last quarter, which is not there in the current quarter. So this is like some lower expense in the current quarter.

[Unknown Analyst]

Understood. And on the power and fuel cost side, has it started -- like has it started tapering off or is it still on the higher side?

[Mukund Kabra, executive]

It's like more or less new normal now. It is stable.

[Unknown Analyst]

Understood. Okay. And my second question is that you mentioned that on a longer-term basis, if we see some -- 1 reason why the EBITDA margins have come down is also because of the U.S. business. So can you give some directional sense of what would be broadly your delta between your EBITDA margins in the U.S. and the non-U.S. business?

[Beni Rauka, executive]

Can you please repeat this question?

[Mukund Kabra, executive]

The EBITDA margin between U.S. and Indian business.

[Beni Rauka, executive]

India and U.S. business. Okay.

[Unknown Analyst]

Yes. Yes, that's correct.

[Beni Rauka, executive]

Yes, we'll give you. So we have EBITDA margin of 37% in U.S.A. and India, it is about 29%.

[Unknown Analyst]

Understood. That's very helpful. Sir, just 1 last question from my side. So pardon my ignorance, but can you just throw some light on the process of a new molecule development. So does it happen on a pre-order basis or do we develop it and then we have a sales team who then finds the customer, relevant customer for it, how does that happen? If you can help me understand that?

[Mukund Kabra, executive]

So new product development is always a longer process. It takes more than a year, in some cases, 2 years. So you design a product, you design the thought process and you design the molecules. Sometimes you need to do the application trials, then you had to go back to the proteining site, you need to modify the protein, and that is how it takes a very long time.

And then it has to have productivity, which should match the industrial scale and all of that. And because of all of these cycles, you choose the molecule very carefully depending on the market size, depending on the demand and sometimes like with the future expectations somewhat how it will come up. But as far as the new product development is concerned, it takes longer time. And that is where like we'll always work with multiple products at a given time.

[Unknown Analyst]

Understood. So it is not like a co-development with the customer based on their requirements. It is...

[Mukund Kabra, executive]

We do have that model as well, which were like we do work with the -- in the evoxx as I mentioned, like a contractual that means like they develop the product for the other customers and doing all the proteining and the other areas as well, but that is a very small portion of our business.

[Unknown Analyst]

Understood. Understood. Okay. Sir, if I can just squeeze in 1 last question. You mentioned -- when you mentioned the focus segments in India, you highlighted animal feed area, if I'm not wrong, food and biocatalysts. So in the Human Nutrition side, Pharma and Probiotics, don't we see that those segments to be growing much from here?

[Mukund Kabra, executive]

They will be growing, but they will be growing normal like as what the pharma industry grows, but these are the areas which should give us the additional growth.

[Operator]

We'll take a next question from the line of Rohit Ohri from Progressive Shares.

[Rohit Ohri, analyst]

A couple of questions. First one being, are we looking at setting up some R&D facilities? If yes, then how many of these over the next 2 years?

[Mukund Kabra, executive]

Rohitji, as we like discussed last time also, we have already taken a 15-acre land in -- during the COVID time in Nashik, [indiscernible] we are coming up with a new R&D center. Right now, we are building up about 120,000 square feet building that should be like more than like in the first phase of operation, it should be more than -- I think like it should be around 3x of our current R&Ds what we are doing. So yes, in the next 2 years, we will be spinning a chunk of money, maybe about somewhere around INR 30 crores, INR 40 crores developing these R&D centers.

[Rohit Ohri, analyst]

Sir, INR 30 crores, INR 40 crores per year or just for the 2 years?

[Mukund Kabra, executive]

Next 2 years.

[Rohit Ohri, analyst]

Okay. Sir, next question is related to the market share. I was trying to understand the reason as to why there's a slight bit of decline in the Animal Nutrition business. Is it because we are losing market share or is it because the competitors are doing well or is it that there is something entirely different that is happening in the industry and everybody is losing market share?

[Mukund Kabra, executive]

This is a challenging industry. There are a lot of competitors that are always there. There are always small players, big players. At the same time, there are like some business, which sometimes pop up and sometimes you lose some of the expected revenues or sales what you expect. For example, last year, I think there was a -- there was mad cow or some kind of disease in Malaysia area and we lost like some of the expected business. Because of that, there was new farming and these things continues into these areas. But at the same time, we are coming out with the new products and new areas, and we expect it to grow.

[Rohit Ohri, analyst]

Okay. And sir, on the U.S. side, is it possible to give the market share as per your estimates that what you think is your market share in U.S.?

[Mukund Kabra, executive]

It's difficult, but I guess, like somewhere around 15% when we talk about neutroceutical areas and other areas, it may be very, very small.

[Rohit Ohri, analyst]

Okay. Okay. Sir, of these subsidiaries and the step-down subsidiaries, do you think that there are certain more nonperforming assets which can either be merged or which can be dissolved? Because we saw 2 of such cases, 1 in Malaysia and 1 in U.S. So do you think that these kind of events or NPAs can help reduce the admin cost or admin time also?

[Mukund Kabra, executive]

I think like Malaysia was pending from the last many years like we were trying to merge it. We've finally quoted. And also like in U.S., we did like a lot of restructuring as well, right.

[Beni Rauka, executive]

[indiscernible].

[Rohit Ohri, analyst]

Any more such events in future if we can expect or something like that?

[Mukund Kabra, executive]

As of now, I don't see anything, which is pending or which is on our radar.

[Rohit Ohri, analyst]

And anything on the one-off or the contingency that we see in the consolidated numbers. Do you think there are any more such cases which can put a dent in the consol profits?

[Mukund Kabra, executive]

This is always full of risk. I can't comment on that. But as of now, like I don't see any other thing which is there in like -- but it's always a risk and what will pop up tomorrow, you never know, right?

[Rohit Ohri, analyst]

But any such cases that we're already fighting with something that can pop up...

[Mukund Kabra, executive]

No, we are not fighting any more any other cases like -- as of...

[Rohit Ohri, analyst]

Sir, my last question, do you think that you'll be a INR 1,000 crore top line company by '28-'29 with approximately gross margins of some 77%, 78% kind of a range?

[Beni Rauka, executive]

Are you talking about gross contribution?

[Rohit Ohri, analyst]

The range is also fine. Over the next 5 years-or-so, is it that you'll have scheduled some ambitious target of reaching INR 1,000 crores of top line?

[Mukund Kabra, executive]

Yes, that target is always there. We need to grow about 14% to 16% to reach to that target. We are like trying our own -- that's our map, let's see, how the thing progresses.

[Rohit Ohri, analyst]

Okay, sir. And all the best for these ambitious target of 1,000 crores.

[Mukund Kabra, executive]

Thank you.

[Operator]

We'll take our next question from the line of Alisha Mahawla from Envision Capital.

[Alisha Mahawla, analyst]

Sir, I know this was already asked earlier, but the growth in the Human Nutrition that we've seen, I agree, is on a low base. But can we understand if there's a particular geography that has probably come back for us or is this just new products, but the lead time of which is probably now at the end of the runway?

[Mukund Kabra, executive]

No. So Human Nutrition is not on a lower base. I was talking about on the food business during that time, but yes, like Human Nutrition, we are talking like some growth has to come up from the U.S. going forward and some has to come up from the biocatalysis area in the coming few years.

[Alisha Mahawla, analyst]

No, I'm saying for the existing year, we grew at 18%. Just trying to understand if the growth has come back in the U.S. market?

[Beni Rauka, executive]

U.S. is about 9%, and balance is from the domestic market.

[Alisha Mahawla, analyst]

Okay. And going forward, like you were mentioning that U.S. will come back and probably some new product also. This should aid in margin improvement, right? Because earlier in the call, we did mention that we're expecting margins to stay at the existing levels, but there can be increase in margins going forward because contribution from U.S. increases and some of the supply chain issues you're facing because of that also cool off probably in the next year. So can we work with a similar kind of margin expansion in '25 as we witnessed in '24?

[Mukund Kabra, executive]

Well, we always expect like a margin expansion as we move on. At the same time, how much percentage is very difficult to say. On an average, when we talk about, like we should grow sometimes like some other businesses will grow and some businesses will take a backseat. Like the way like this year, it was animal feed but that is how it will always happen. And it's very difficult to say, and that is where we have a range of the products and range of the focus areas as well.

[Operator]

[Operator Instructions] We will take the next question from the line of Rusmik Oza from 9 Rays EquiResearch.

[Unknown Analyst]

Sir, my question was on probiotics only. Referring to the Slide 25 in the presentation, the market size is around $48 billion as per the presentation and our revenue is around INR 30 crores, which is 5% of our revenue. What kind of opportunity in terms of -- getting in terms of revenue, we are targeting for probiotics business in the next 3 to 5 years? And is the probiotics business margins at the company level of 33% or are there any difference in that?

[Mukund Kabra, executive]

So we don't see the probiotic business very separately. It's very difficult for us to track because most of our formulation in U.S. is a mix of enzymes and probiotics, and that is where we don't separate it out, and the probiotics what we report is just pure probiotic sales. So it's always difficult, but this is the area which is growing. It helps us to grow into many of our solutions as well.

[Unknown Analyst]

Okay. Okay. And the second question, sir, what would be your current capacity utilization and to achieve this 15% CAGR kind of a target that we are looking for? What kind of capital expenditure we'll have to do instead to maintain maybe this run rate of 14%, 15% growth?

[Mukund Kabra, executive]

The capacity should be about 65% utilization difficult to say because it's always a cat and mouse game. At the same time, when there will be the 80% utilization, probably, we'll go for it for the expansion. We will build up slowly, slowly, small areas so that we can build it up very fast. So it's a continuous process and we will work on that. The moment we reach to 80%, we will place the orders.

[Unknown Analyst]

Okay. Okay. So is it fair to assume maybe that this utilization would peak out in FY '26 or something?

[Mukund Kabra, executive]

Depends on the product mix, so it's very difficult for me to predict as of now, like how the capacity utilizations will happen.

[Operator]

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Ronak Saraf for closing comments. Over to you.

[Ronak Saraf, executive]

Thank you, everyone, for taking the 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, till then stay healthy, stay safe.

[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.