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Vimta Labs Ltd
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Ladies and gentlemen, good day, and welcome to the Vimta Labs Limited Earnings Conference Call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Vishal Manchanda from Nirmal Bang Equities. Thank you, and over to you, sir.
Thanks, Mike. Good morning, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome you to Vimta Labs' Q4 FY '22 earnings conference call. I thank the Vimta Labs management for giving us an opportunity to host the call.
Today, we have with us the senior management of the company represented by Ms. Harita Vasireddi, Managing Director; Mr. Satya Sreenivas Neerukonda, Executive Director; Mr. Narahai Naidu, Chief Financial Officer; and Mr. Sujani Vasireddi, Company Secretary.
I now hand over the call to the company management for opening comments. Over to you, ma'am.
Thank you, Vishal. Good morning to all. Thank you for joining us in our earnings call covering Q4 and full year FY '22 results. We are very pleased to have this opportunity to update you on our progress and answer your questions.
Overall, for us, the financial year '21, '22 operationally has been quite robust where we substantially increased our sales and profitability. Q4 and as well as the entire year will remain a major milestone of our food testing services and electronics analytical testing services.
As you may all know, we won the 25-year contract with FSSAI to set up and operate National Foods Laboratory and JNPT Mumbai. This is in PPP model. NFL obtained application for 70% of testing scope in the fourth quarter and will be going in for a second phase of expectation in June. Post expectation, the lab operations commence and is steadily delivering the revenue.
Likewise, during the quarter, we have also commenced the commercial operations of our new service area, that is, testing of electronics and electric products. We strongly believe that our core strategy of service diversity continues to make our business more resilient and enables long-term sustainable growth.
We continue to focus on our key business drivers, which are quality, knowledge, technology and service innovations. We had 2 good U.S. FDA remote record reviews with no observations. We continue to invest in expanding and upgrading our technologies to meet the service requirements.
I will share a few key highlights of the quarter. And later on, our CFO, Mr. Narahai, will get into a little more detail on the numbers.
As I said, sequentially, we have increased our revenue numbers quite well. We achieved consolidated revenue from operations of INR 740.9 million with a growth of about 10% from the previous quarter and 23.8% over the corresponding quarter previous year. We achieved an EBITDA of INR 234.8 million for the quarter with a growth of, again, 10% compared to previous quarter and a growth of about 39% compared to corresponding quarter previous year.
With respect to full year performance, we achieved a consolidated revenue from operations of INR 2,782.8 million, which is a growth of about 32% year-on-year. So in many ways, it turned out to be a very good year.
On the operations side, most of our service sectors continue to grow steadily, which lays a good path to meet our short-term as well as long-term growth objectives.
We entered the new financial year this year with higher order book. Visibility is good. And accordingly, we are moving towards adding additional lab space to our existing facility at Genome Valley, Hyderabad. We are estimating to incur about INR 60 crores of investment for this expansion in the next 2 years. This is basically to have a facility that will augment the growth of the organization.
So with this, I conclude my opening comments and request Narahai to please take over. Thank you.
Thank you, Ms. Harita. Good morning, everyone. Thank you, Vishal, for organizing the call. Thank you for joining us for our Q4 and full year results conference call.
We are pleased to take you through the consolidated financial performance of the company of Q4 followed by the full year ended March 2022. I'll begin with the commentary on the revenue from operations.
Revenue from operations for Q4 FY '22 is INR 740.8 million as compared to INR 673.4 million in Q3 FY '22. This translates to a growth of 10% sequentially and 23.8% on a Y-o-Y basis. EBITDA for the quarter grew by about 10.2% sequentially and 38.7% on a Y-o-Y basis. For the quarter, cost of materials decreased by 4.2%, which is significant compared to previous quarter driven by higher revenue from operations.
The employee benefit expense, commensurate with an increase in revenue from operations. However, a positive impact of economies of scale from higher revenues were, to an extent, offset by higher G&A expenses largely due to higher travel commission. And also additionally, there was an extra depreciation. This was coming from our capitalization of our new product line, which is electronics and electrical division. Profit before tax in the quarter is at INR 160.9 million, which is a growth of 54% compared to corresponding previous quarter.
Moving on to full year performance. Revenue from operations for FY '22 stands at INR 2,782.8 million as compared to INR 2,106.7 million in the previous financial year. This consists of growth 32.1%. EBITDA for the full year has grown by about 30% to 50% from the previous financial year.
For the full financial year as well, the cost of materials decreased by 4.3%, which is, again, substantial driven by higher revenue from operations. The employee benefit expense for the full year in percentage terms decreased by 1.6%, which also includes the employee compensation expense on grant of options to the tune of INR 29 million.
The finance cost for the full year has decreased mainly due to the change in mix of products largely due to a melding of multicurrency loans as well as significant reduction in working capital utilization during the year, which is better with cash generation in the company.
During the financial year, we repaid an account from -- about INR 106 billion. And at the end of the financial year after the repayment of the debt, there is a positive cash of INR 108 million at the end of financial year.
The profit before tax after providing for exceptional item of INR 12.2 million stands at INR 556.8 million, which is a growth of 95% compared to previous financial year. The net profit for the full year increased by about 93.1% and stands at INR 413.3 million. The better profit realization for the full year has increased in return on capital employed, which stands at 24.72% compared to 17.56% in previous financial year.
With this brief summary, I would like to hand over back to the operator, and we'll be happy to take any further questions. Thank you.
[Operator Instructions] We have the first question from the line of Ankit from Bamboo Capital.
Congratulations for a very good set of numbers. Ma'am, if you can broadly talk about how has been segmental performance over the last year? I know you don't disclose the numbers. But in terms of qualitative, if you can give a sense on how these are growths pharma, food, diagnostic and environment? If you can broadly -- asking about last year, what has been the major growth driver for us during FY '22?
As such, we do not segmentalize our revenues for our service verticals. We treat it all as testing and contract research revenue. I won't be able to get into the specifics of it. But I can just say that 60% of our business is from the pharma contract research and testing services. And the rest is distributed in food, clinical diagnostics and the environment business. And of course, the latest one is electronics and electrical.
And for us, all these sectors centers are doing well, fairly well. Electronics and electrical, which we call E&E, E&E is still a baby for us. So it started its maiden operations only in the last quarter. So we are yet to enter into the market and test the waters thoroughly.
Sure. And ma'am, you -- on our targeted revenue guidance of INR 500 crore, INR 600 crore over -- in the next 3 years. So given how our strategy is evolving on the diagnostic testing side? If you're not able to achieve the kind of growth that you are expecting from diagnostics, do you think the other segments' growth will be sufficient enough to cover for the lack of growth, which might be there from the diagnostics side? And how confident are we still to achieve the targeted growth of INR 500 crores to INR 600 crores revenue in the next 3 years?
We are very confident about that goal that we have set for ourselves of about INR 500-plus crores by 2025. Now the last year's performance gives us more confidence with respect to that goal for us.
Diagnostics, yes, will be a key driver in us reaching there. But then we have multiple service verticals. Even if 1 or 2 do not do as per expectations, we have confidence of pushing majority of the service vectors very strongly to reach those targets.
Sure. And then last question on order book and variable to use. In your opening comments, you spoke about having significantly higher order book and the revenue agility. Don't just give us a number. But in terms of -- compared to last year, how much would be increase in our order book in terms of percentage? If you can probably give us some view on that?
Yes. See, half of our services are kind of retail in nature. Now there, the order books are not going to be there. That's the nature of the business. But half our business is based on projects. Like for example, environment services are project-based. Our preclinical and clinical research services are project-based. So environment, we are seeing at least a 20% increase in our order book and likewise for the pharma projects.
So pharma also, we are seeing 20% increase in order book on preclinical and clinical services? Okay.
Preclinical and clinical research environment.
Sure. Okay. Okay. And then last question was on the recognition of the JNPT lab that you have set up. So how -- what has been -- like how this revenue has been recognized because we have incorporated another company subsidiary for that. But I was looking at the numbers. But these numbers, I'm not sure. If you can tell us how has been the revenue from those services? And have you broken even in the past 2 months since you have started operations here?
Okay. Our wholly-owned subsidiary's name is EMTAC Laboratories. It is in the field of offering safety and quality testing services, environmental testing services for electronics and electrical products. So with our EMI/EMC chamber capabilities that we have set up at Vimta Labs, both these companies together offer a very nice package for the electronics and electrical industry.
So till now through EMTAC, we only have safety and environmental testing. But once you add the EMI/EMC capabilities, it's a very good offering that we provide to the industry now. So the EMI/EMC capabilities should also augment the sales in EMTAC because they are complementary in nature. So we should see good growth even in EMTAC during the coming years.
Coming to National Food Laboratory, JNPT. Like I said, the operations started in Q4. We have expectation for about 70% of the scope. 30% scope is remaining, which is Phase 2 for us. So once we complete that Phase 2 expectation, that's when we have the full expectation for testing and will be able to realize the full potential of the samples for that laboratory.
Sure. Sir, it will be reflected in our consolidated revenue from going forward, like the numbers for the laboratory that is set up on JNPT?
Yes. So the revenues for quarter 4 also includes the revenue recognized through NFL lab setup. This will be part of our consolidated as well as stand-alone revenues.
Sure. Okay. And have you broken even there? Or are you incurring some operating losses since we've just started the laboratory?
Ankit, we are not seeing profitability that way. But of course, we'll be having profits through that lab setup.
We have the next question from the line of Abhishek Shah from Valcore Capital.
Just sort of adding a little, just confirming, you mentioned that 70% of the volumes that we looked at -- that we were looking at in the FSSAI lab, those are already recognized as of Q4. Is that understanding correct?
Yes. I said 70% scope. Scope is different from volume. Volume-wise, we are recognized for almost catering to about 80% of the sample inflow. Some samples in the scope, they deliver lower volumes. The imports are lower for the food category.
The other products for which we are accredited, they have higher volumes of imports into the country. So we have focused on higher volume products, but that is Phase 1, which is completed. And now remaining are the ones which are lower in volume, which we will be taking up in Phase 2.
All right. All right. Then just another data point, how many samples are we targeting for FY '23 against industry?
We don't target any sample. That all depends on the imports for the country. 60% of the imports, food imports of our country happened through the JNPT port. It is public information that is available. Sometimes, it is a little seasonal. So we can go and look at that information.
Great. And ma'am, how many employees are reporting at the FSSAI lab?
There are about 50 people employed at the NFL lab as of now.
Got it. Got it. Then do you expect any further ESOP costs to come in, in FY '23?
Yes. So the entire vesting is spread across 5 years. So we expect some sort of costs to be booked in future years as well. But going forward, it may go down because the initial years we'll be taking in other fees.
Got it. Got it. And then one last thing was other expenses up from INR 9 crores to INR 10 crores. Can you just -- so is that -- does it have any one-off or this is expected to sustain?
Yes. So this includes commission from the revenue recognized for NFL lab setup. And also, there is a provision for the NFL lab setup during the quarter. So that is the major increase. And quarter 4 also, we had experienced a higher travel of our [indiscernible] which also slightly resulted in increased travel and communication expense.
Right. So of the INR 12 crores, what will be the one-off? I mean which may not be in public place for the coming quarter?
This could be a recurring scenario but may not be at the same business because bad debt is something we periodically evaluate and take a call based on its recoverability. So we will not be able to exactly say this is a one-off item.
Got it. Got it. Lastly, just a suggestion, I think we missed the con call last time. And the presentation really helps investors gain some comfort if there were -- at least there is a quarterly con call. I'm sure 1 hour a quarter is not an issue for you.
I would really appreciate if that consistency is maintained for investors just outsider support system for as well being invested in this company for the next 4, 5 years. That's just a suggestion from my side.
Thank you. We will be putting up our investor presentation on the website next week. And we will try and update it with every quarter results as we go forward.
All right. And also the request on the con call, if we can keep that consistency every quarter. I think last year, we skipped it during the AGM quarter as well. Just a request from our side.
Yes. Our plan is to do this once in 6 months because we also noticed that there's not much to share within just a 3-month period, which is a very short period. If there is some good news, exciting news, then we are always happy to actually come and share it with you. But the plan is now to do it at least once in 6 months. And as such, we have an AGM connect. So that makes it about 3x in a year, which we thought is sufficient.
All right. So it will be every 6 months as such plus the AGM and depending if there is any other views that you want to share. Fair enough. Thank you so much. That's all from my side.
Welcome.
We have the next question from the line of Kapil, who is an individual investor.
I have two2 questions the business. One is government is working on this health star rating on the packaged food. So does Vimta see any business opportunity in this and the size of business opportunity?
I'm sorry, I didn't get the name of the initiative that you mentioned. Please repeat.
Health star rating on the packaged food, right? So government is saying that health star rating is mandatory on all the packaged food. So does Vimta have any role to play in that -- in the testing?
We do offer package material testing. It is done mostly quite rigorously on the pharma side. Food industry is slowly beginning to do it. And you are right, if there is a regulation that is coming in, of course, the regulation push is a little slow in the food industry. But if there is a regulation, then we will automatically see an increase in testing requirements around it.
Okay. Good to know. And second question is regarding EMI/EMC business, which has recently opened. So are we already generating revenue from that? And if it is going to have a good revenue, is Vimta planning to expand this business to other cities like Bangalore, Chennai, Delhi, where most of the hardware is made?
Yes. Our revenues have started in Q4. And yes, we also have plans to expand these services into other cities going forward. Like you rightly mentioned, Pune and Bangalore would be one of the next best options to consider when we think of expanding into other locations.
Okay. And then just one last question, how much as a percentage of total revenue we are expecting from electronic testing business in the next 2, 3 years? Is it going to be 30%, 10%? Or what revenue does Vimta see from this electronic testing business improving?
I'm sorry, I won't be able to share that number. Like I always say, we do not segmentalize our revenue. So we will not be able to give that kind of bifurcation.
We have the next question from the line of Sunil Kothari from Unique PMS.
Congratulations on a really good set of number and now it's ending time. Ma'am, my request is to have some really detailed presentation on our company's capability and ability to make investors understand what exactly we are doing and how and what scope we have.
That will be really helpful. I think you are promising since long that we'll be updating and putting a presentation. So I just want to confirm those things. So I'm sure it will be very useful for us as an investor.
My question is you have some objective to reach some revenue by 2025. This INR 60 crore investment will be enough to reach there? Or will it require some more?
As of now, this is an investment that we see in terms of facility expansion, okay? This is mostly, again, to augment the growth of our pharma sector, where we have seen very nice encouragement from the industry during the last few years. So this is mostly for that.
So as such, as the business grows, we will have to keep on adding capacity. We will have to keep on adding the knowledge base in the company in terms of manpower. So those investments will continue. We will not be able to reach the INR 500-plus crore target with the existing resources, obviously.
Right. Current year and next year, we are planning to invest around INR 60 crores?
Yes. This is for our new building setup.
Right. Right. And are there any other CapEx?
CapEx, we anyway take up on a year-to-year basis, looking at our prospects for the upcoming years and the regulations that keep coming into the market.
So can you say the current year CapEx number for '22, '23?
We have planned approximately about INR 50 crores to INR 60 crores.
INR 50 crores to INR 60 crores, great. And then last question is, what is your major priority and focus area, which you would like to, as a management, focus on to make this growth and this -- the opportunities visible and feasible to make -- I mean, exploit those fully? And what is your focus area, which you would like to give trust and to overcome any hurdles?
See, we have 5 major business verticals. First one is pharma, under which we have analytical, preclinical and clinical research. So that covers the entire drug discovery development spectrum for us. And as I have already mentioned, it's a major component of our overall revenue. So that will remain to be our focus area and trust area.
Second one is our food business. We have done very good investments during the period of 2014 to '16. So we will be driving that business aggressively as we have done so far. So that will also remain our focus area.
Clinical diagnostics, until very recently, we're primarily content with what we were doing in just these 2 states of Telangana, Andhra Pradesh and a little bit of business in Uttar Pradesh. But we decided we want to go expand our geographic reach here and also convert our business, which is majorly a B2B, into a B2C kind of business.
So there, we have started our expansion plans. We are testing out our various models in the market. So that will also remain our focus here for upcoming -- focused service for the upcoming year.
E&E, we just started. So obviously, we will put a lot of focus and effort behind this.
The fourth one remains environment. It is not a very large component of our business. The growth prospects are not as high as in all the other sectors. So there, that one segment alone, I would say that we do not see any big numbers happening there. But even in that business, we have expanded our reach and set up satellite offices in Delhi and Kolkata. So that is also yielding us good returns in environmental testing.
This B2C experience of laboratory, [indiscernible] about the success?
Your voice was getting broken. Can you please repeat?
Yes. Regarding this B2C diagnostic laboratory business, how is your experience about the competition? What's your gut feel about success, major success?
Yes. So B2C, our first steps, baby steps that we have taken is in Hyderabad location. So here, our brand is known. So there is a good acceptance in most of our B2C centers that we have opened up.
But in newer areas, we have not put too many. We have put money in Varanasi that we are not seeing -- our experience is not great there. So we realize that we have to do a lot more marketing before we really open up more B2C centers.
We have the next question from the line of V.P. Rajesh from Banyan Capital.
Congratulations on a great set of numbers, ma'am. And I just wanted to hear your comments on the diagnostic business. If you can just give a sense of how it performed in fiscal year '22 qualitatively and just see what you are thinking about it in the next financial year?
Diagnostics, we were actually expecting it to perform better. So it really didn't perform to the level of our expectation. But having said that, we have gone into new territories, that is, in Delhi and in Kolkata.
So there, it is going to take a little more time. We have very strong players in that market. So our efforts are sincere. Our efforts are aimed at getting more penetration into the market. We feel this will take a little more time.
Okay. And in terms of capacity utilization, what is it looking like for you in that results?
Our Delhi and Kolkata labs' capacity utilization is only probably around in the 30%, 40%. But again, capacity is quite elastic for us. Now we have only deployed low-volume instrumentation there. The moment our volumes scale up, we will be able to quickly replace them with high-volume instrumentation.
Okay. And what is it in Hyderabad?
No, no. At Hyderabad, it's a central lab, capacity utilization is steady. It remains around 75% to 80%. But I was mostly talking about the new regional labs that we have set up in Kolkata and Delhi.
We have the next question from the line of [ Nagesh Rajanna ] from [ NR's Family Office ].
Congratulations on an outstanding performance. In fact, every KPI, right, from revenue to bottom line, everything seems to be looking extremely good.
My questions are two. First, on outstanding performance, is it sustainable for the coming years? It is one question. The second is what drove such outstanding performance in FY '22?
First of all, thank you. Thank you for that nice encouragement. Yes, we are also very pleased with our performance in this year. And we believe in sustainability. Therefore, we focus on all the parameters that, first of all, make us stronger inward. And we believe this inward strength radiates into outward strength in the market.
So we continue our focus on our quality systems. We continue investing in new technology. We continue to have very close nodes to the ground in the market just to get a feel of where the trends are moving. And so far, we have remained a first-mover in terms of new services that we are able to very quickly get to the market and get the first-mover advantage.
So I have no doubt that the growth that we are experiencing now will continue in the coming years, unless, of course, the market situation suddenly change and challenges come up. And it's not unknown. I mean it's not as if these things won't happen for us. But our multibasket of services makes us very resilient. Our experience during the COVID years itself validates the multibasket business model that we have. So we are very confident on our growth strategy that we have set for ourselves.
So happy to hear that. In fact, I at some point of time was one of the customers for you as part of PepsiCo. I used to be one of the leaders in PepsiCo, who actually interacts with your setup.
I'm very happy to hear that. But what about the margin? I think your margin has substantially grown. Would say that margin level is sustaining in the coming years?
Margins should sustain because as the volumes go up, margins should get better. But again, margins quarter-on-quarter might vary with the mix in the services that we have pushed in that quarter.
Food for us is a seasonal business. The margins in food will not be as high as what you would normally see in pharma. So there is a slight fluctuation. But we will -- I strongly believe that we are at the margin range that is -- that we can aim even for the upcoming years and achieve.
Awesome. Happy to hear that. One last question. I don't see enough cash in your balance sheet. But however, you do have a certain CapEx plan. So where and how would you fund the CapEx?
We will be able to manage the CapEx from our operating inflow. We don't see a challenge there. And we do have working capital with our bankers, which we are currently not using at all. So we have enough bandwidth to manage our CapEx plans for the year.
We have the next question from the line of Aman Vij from Astute Investment Management.
My first set of questions are on the pharma business. So on the preclinical side first, if you can talk about briefly, like you had explained nicely last time, what is the current market size in India? And what is the growth looking like for the industry? Are there any significant changes in the dynamics of requirements of a study? If you can talk about the same as well as what is -- who are the top 3 players in India in this?
To estimate the Indian market size, I don't think we have exact numbers because most of the players, they are not listed companies. It's very difficult to capture the amount of business that we are doing in India.
But preclinical business for us is not only India oriented. We work in the overseas markets also, especially U.S. and Europe. And the global market is actually very nice. I don't -- I'm unable to recall the exact growth rates. But I'm sure the CAGR that is projected for the next 5 years is 10% plus. And it's a very large market.
And ma'am, are we among the top 3 players out of India, either export or domestic in preclinical? And if yes, then if you can talk about who are the other 1 or 2 players?
I think we are definitely among the top players in the market. The biggest player I know in India is the Eurofins Labs in Bangalore.
You are talking specifically about preclinical, right?
Yes.
And a rough estimate, they will be like 2x our size, 3x our size or maybe 30%, 40% kind of bigger than us?
I've not really looked at their numbers of late. But I'm sure you will be able to find them. Eurofins is also a listed company, I think, in India.
No, no. In India, it is not. So India numbers, they disclose it like that because just according to your estimates, aren't they much ahead of us?
It won't be right for me to comment on the numbers without knowing the exact numbers.
Sure. Sure, ma'am. Let me get it from this point of view. In terms of capabilities, are there any capabilities which we don't have, let's say, a global giant like Eurofins has? Or we are equally, if not better, in our capabilities in preclinical part?
Capabilities-wise, we have been predominantly focused on the pharma services with respect to preclinical. During the last 2 years, we have built scientific assets to even support the agrochemical and specialty chemical industries.
So whereas I think Eurofins, which was erstwhile agri lab, I think they -- for them, it's the other way around. They were mostly focused on the agrochemical and then later got into pharma services. So I'm thinking there would be a very nice overlap of our services with theirs.
I don't think we would fall short in terms of capabilities, maybe experience because that's a much older organization in this field than Vimta. Experience-wise, they might have more studies in that track record.
Sure, ma'am. So when -- because I'm getting you on this part, preclinical part. So when a customer is looking for a CRO player, so there will be Eurofins, who is a global giant. So how do we compete with the global giant who has a history also of 10 years, 20 years working versus the -- they are trying to offer this agri game and specialty game?
Is it like we are plus one if they don't want to risk call their business to one player so we get the business? Or do we have some capabilities which -- where we win because of our scientists, because of our cost advantage? If you can explain a little bit on this part?
Costing-wise, I think we are comparable to any top CRO in the country. I think where the service differentiator comes is a service that you provide to the customer and input you are able to give on the study design.
So there, I think we are very strong. Our service is quite speedy, very effective. We are very true to the time lines that we commit to our customers. And our client retention is very, very high on the preclinical side.
So it's mostly word of mouth that helps us. It's a small industry, all said and done in the pharma world. So we have very good reputation in preclinical services especially.
If I may [indiscernible]?
Yes, please, [indiscernible].
So the history of Vimta is not new in preclinical. We have over 2 decades of experience in these studies. And we were only the second lab, apart from Eurofins, which was [indiscernible] earlier. Rallis was the name, original name that had a GLP certification.
So you have GLP certification way back in the '90s, late '90s. And the asset history, the service portfolio, the models that Vimta offers is much wider than what Eurofins or other labs maybe offer.
So that's when we become a very good history partner for both the domestic companies and also small and midsize biotech companies outside of India. So it's a very unique set of -- that Vimta has in the preclinical area. Thank you.
Sure. Sir, final thing on preclinical before I move on. This export business which we do, is it predominantly preclinical or there are other portions also in this part?
Export business is linked to all of the service sectors except for clinical diagnostics. All of the service sectors of Vimta have export revenues.
Okay. So it's not only pharma. It has other food and other portion also?
Yes.
Sure, Sir. Ma'am, you had explained that we have a good traction in the clinical part, the BA/BE studies part also. The order book is like 20% higher. We had discussed last time about the bed capacity, where we are maybe close to the full utilization.
So any plans of expanding now given you have your visibility on this part? And also, are you seeing any increased competition in this part? If you can talk about this thing?
This business is quite a mature service segment in the country. So we don't see actually the number of CROs growing. The net remains the same because even if new ones come up, there are some old ones getting shut down. The price is more or less driven down almost to the ground and is remaining stable there.
So as of now, coming to your question, we do not have any plans of expanding the capacities here. We still think that the capacities that we have will take us through for at least this year and the next year. But if suddenly we see a very strong rise in our pipeline, then of course, we will be able to react quickly and add to the capacity.
And then you had explained that we are in touch with a couple of customers on the clinical trial, the BA/BE part, the [indiscernible] or something like that you had explained.
But I think because of COVID or other reasons, that has been not rectified. So any visibility on that term you have, maybe by H1 or by Q1, Q2, we will finally have such orders?
Our clients have actually not moved on those projects yet. So we are continuously in touch with them. As and when they are able to prioritize those projects, that's when these things will move. So as of now, it is status quo for us.
Ma'am, we can't target any other clients being well because if their project is stuck, we can still try to build capabilities by targeting your plan?
It's always very difficult to win the first project in any new service line. And for us, clinical, these are [indiscernible] had, so once we are able to deliver this and demonstrate that we are doing a good job in it. It's not very easy to go into the market and get more products.
So our efforts are anyway there. As you rightly put up, we continue to try but -- getting those first opportunities. We got an opportunity especially because it was COVID. Maybe the other players, who couldn't -- who would normally take up such projects couldn't deliver those, so they came to us. And for us, it was the same situation. So the projects are -- continue to be in a back burner for these customers. And we'll keep pushing.
Sure, ma'am. Coming to the food side, if you can explain the non-NFL part of the business, which we have been doing for last couple of years? Not including the JNPT lab, I'm talking about.
Is there a sudden change in the industry dynamics? Because I think this year, we did quite well in this. I may be wrong. If you can correct me on that part? And if you can explain, do we see very strong growth there, excluding [indiscernible] part also?
Yes. Food business has been growing for us steadily. The growth rate is quite good year-on-year despite the challenging, I think, early Q2 and also the previous year, where food business was quite affected for us because of the pandemic situation. Our food business steadily grew.
Now coming to its future growth prospects. I believe that the growth rates that we are experiencing will continue. But here, we are talking about growth -- those growth rates on a bigger size number. So if you look at the absolute growth numbers, I think we are going to experience bigger absolute numbers in the coming years.
Sure, ma'am. On the JNPT part, if you can explain. So we had, let's say, rough targets of -- I think the number that was mentioned was INR 1 lakh for 3-year samples. So that is approximately, say, 30,000-odd sample month -- or sorry, a year or say, 3,000, 4,000 sample kind of run rate.
So are we -- is this the peak utilization only we can get? Or -- because I think our capacities are maybe 3x of this number. So any ways we can maybe use this specialty to do other food testing? Or do you think the traction from import itself is strong enough to scale this number much ahead in the historically track record?
Now coming to NFL volume. We have to understand the FSSAI. FSSAI distributes the samples through its own mechanism to all the labs in the region that supports the import sample testing. Now FSSAI has come up with its own food laboratory in Mumbai, which is the PPP that we have entered into with them.
So the objective is to do majority of the sample testing at NFL. But there will still be some samples that will go into the market because those laboratories survive based mostly on these samples only.
So I think the government is taking -- trying to take a very balanced view, especially in these early years, so as to not cause any great disruption for the existing businesses there. They're trying to walk that fine line.
Now how they will fine-tune that balance going forward is actually information that we don't know. They are not going to obviously share those things with us. So it's basically dependent on how FSSAI will move those samples into their own lab, NFL lab in the coming years.
So we have to experience it. Even I have to experience those things. And I think we will take a year to really understand the mind of the regulator.
Yes. That part, I actually understand very well. But meanwhile, can't we -- aren't we allowed by the contract to use this facility because the people are there? The business opportunity, I think, in India is there. Can't we utilize the same lab in the time the government figures out all those things to do other food testing for, I don't know, maybe exports also, maybe some other kind of food material, if you can talk about this thing?
We are allowed to do other samples there. But the lab is mostly designed to handle high volume of samples. So one-off samples like what we normally have in our other 7 laboratories, there, we will not be able to get efficiencies to deliver those small, small-size sample sets. That's one thing. So if we are able to get some large volume samples in that region, we will definitely take those up at the NFL lab.
Sure, ma'am. On the accounting part, Sir was explaining the portion of government, the government take. Is it included in other expense? Or when we will record the revenue, we'll net it off and then recorded it? How will it work?
This is included as part of other expense.
Okay. So the government portion -- the increase in other expense can be linked to increasing scaling of our the JNPT results?
Yes. One reason for the expense increase for the quarter is commission, what we have provided.
Sure, And ESOP -- sorry, ESOP, I think, is an employee expense. And ma'am, finally, on the electronics business. If you can briefly talk about are we targeting only a particular sector like defense? And if there is an opportunity to target others also, what is the feedback as of now? Yes, it's very early days. But the typical order size will be in lakhs or will it be crores also? My point is, do we require, say, 100 customers to eventually fully utilize our capacity? Or even 10, 15, 20 customers should be enough over a period of time?
That's a very nice question. First, I'll address the part about what industries we'll target. So Hyderabad is a hub for defense component manufacturers because there are defense government institutes here. So there is a very nice ecosystem of suppliers in Hyderabad. So that will be our target number one.
Coming to the size of the projects, they can be mostly in lakhs. But it will be great to have customers in the size of crores. It is quite possible to have such a customer provided we become a strategic partner for one of the MNCs for their R&D projects in India.
So both are possible. But typically, I would say the probability is more on having project sizes which are in lakhs.
Just one clarification, so when we talk about defense, is it mostly import related? Is it R&D? Or even say, if India is talking a lot about trying to manufacture in defense sector, will we get benefit of all these 3 opportunities? Which opportunity are we looking at?
I think it's mostly for our domestic consumption.
So with manufacturing increasing, we should get more traction in this business provided we get more customers?
Yes.
Sure, ma'am. And ma'am, on the quarterly con call part, yes, we understand sometimes there isn't big update. But ma'am, we can always have a half an hour call. And the reason I'm asking is because we have set up two new businesses in the last quarter and there was hardly any update we could get.
So maybe for 1 year until the business stabilizes, if you can, if possible, do it quarterly? You can change the time period, right? There is no fixed time. Many companies do a half-hour quarterly call and maybe half-yearly, we can do one hour call because there are a lot of moving parts in our business.
We are also testing water. So the only way we can get update is through first con call. And in worst case, if you can't do con call, at least have a quarterly presentation upload so that we can get an idea about updates that have happened in the quarter.
We will definitely put up a presentation that is updated every quarter. On the call, your input is well taken. We will definitely consider it.
We have the next question from the line of [ Dilip Sahu ], who is an individual investor.
Congratulations for a very good set of numbers. My question was in, I think, last to last con call, you had said that there were logistical issues regarding our exports business in terms of engaging the client as well as client sending samples, et cetera.
My question is, are we on track now the COVID years are over? And can you give me some color on the export business, how it is shaping and what kind of proportion of our revenue comes from exports?
I think that reference was mostly made in connection to the import of animals. We import animals for our preclinical studies. So those things have now come back to normal state, no issue there. There was a little challenge in getting timely standards as well, which we mostly import. So that is also no longer a concern.
Coming to export business. China should have actually been better for us by now. But during these last 2 years, that's a market that we could not access and, therefore, could not grow.
Okay. So is export a substantial portion of our revenue? Going forward, is it going to be?
Historically, it's been around 27% to 30% for us. It is our constant endeavor to make these numbers higher. But as our pie is growing, we see that the exports and domestic business both are growing parallelly.
My second question was regarding EMTAC. It has been 2 9years since we have acquired this business. Still not a substantial traction there. Can you please elaborate on some of the initiatives we are taking both in terms of capability building, filling the competency gaps as well as geographical reach-out to customers in this business?
The pandemic year, especially the year '19, '20 was very difficult for this organization. We couldn't reach out to the customers. So we couldn't actually push any new business coming in.
But what we have done during this period is you look at our scope of services, did a little more analysis of treatment to the market need. We went ahead and expanded scope, added a few more tests and a few products to the scope. So that way, we have strengthened our capabilities.
But going out into the market, it's been difficult. I mean we were able to -- we had [indiscernible] customers. But most of the customers were not really operating. So that issue was there.
But this year, we hope we will be able to put these services nicely especially because of the complemented EMI/EMC capabilities that we have at Vimta.
We have the next question from the line of [ Desai ] from [Total Capital ].
So ma'am, two questions. A lot of questions have been answered. So the first question is that our aspiration of reaching INR 500 crore-plus number. I mean at whatever numbers or calculations that you have internally, is diagnostic a very significant part? And I'm asking this question because we are still testing waters, trying out a lot of things on the business model side. So if it doesn't work out the way we expect, do we see significant change in our numbers or aspirations for FY '25?
As of now, diagnostics is a significant portion there. But if that doesn't work out for us -- and I'm not really thinking in those lines yet. If that doesn't work out for us, then we will come up with Plan B.
Okay. Okay. So there is a Plan B if you have other considerations, which can still take it to INR 500 crores?
Like I said, I so far have confidence on the service mix that we have decided for ourselves, targeting for ourselves to reach that number. So far, we do not have any hesitancy that something could be off.
But we have enough buffer built in to manage any dips to many of our service sectors. If something doesn't go well, then obviously, we have to switch gears and push something else. With that, I cannot comment at this point of time.
Okay. We understand. Okay. We understand. Second question is, it's more of a clarification. So we are putting up this INR 60 crores for a new facility. This is in addition to the INR 25 crores, INR 30 crores typical CapEx that we do every year. So in next 2 years, the total outflow for CapEx would be INR 100 crores plus. Is that a right understanding?
Yes. Possibly, our estimate would also be the same.
Okay. Okay. Okay. And ma'am, can you give some more color without getting into specific numbers? But without JNPT, is the food service business growing at upwards of 20%? Or we are yet to see that kind of a traction in the retail business?
20% is on the higher side, but we are very close.
Okay. Okay. Got it. And ma'am, my last question is that I think from all our introduction, one thing that is quite clear is that we have -- whenever we have a multiyear award for the past 2, 3 years, we get an opportunity to get good pricing, which will help certain margin.
But as other players enter and as we scale up volume, the pricing -- we need to revise pricing downwards in many of our areas. So in that context, what gives you confidence that we will be able to maintain this 29%, 30% kind of margin?
We were expecting some price compression on the pharma analytical side. But we have been able to counter the price reduction with very good increase in volumes, thereby maintain our margins.
Okay. So is it the right understanding that essentially what we are betting on is some operating leverage, playing out with higher volumes and kind of sustaining the margins in spite of price decrease?
Yes.
We have the next question from the line of Dixit Doshi from Whitestone Financial Advisors.
So just firstly, a clarification. You mentioned that whatever volumes of import comes like JNPT, FSSAI distribute the volume to the many labs. So In the RFP, the volume was mentioned, the 3,000 samples per month. That is for this lab, right?
We have given an indication of volumes. But there is no commitment to the lab.
Okay. Yes. But let's say, pre-COVID, this lab was handling 3,000 samples a month?
Sorry, I didn't understand. Can you please repeat?
So I'm not asking for the future commitments by the FSSAI. But prior to the COVID, this lab was doing around 3,000 samples a month. That is a fair understanding?
No, no, no. FSSAI did not have any lab of its own. It was sending samples to private labs.
Okay. So this 3,000 samples a month mentioned in the RFP, what was that?
That's the volume that is experienced from the imports. That's the existing volume. That's the market for import sample testing.
Okay. My second question is in the diagnostic center, how much is the currently -- how many samples we have currently, diagnostic business?
We have 9 locations. The largest is in Hyderabad. And then we have a substantial menu at the Kolkata and Delhi. Rest of the places, we have a much smaller menu. So totally, 9 locations.
Okay. And I know you don't share the percentage what we have committed to FSSAI. But is it fair to assume that it will be more or less near to the Ghaziabad? Or it will be substantially higher than that?
Ghaziabad and the JNPT lab are not comparable business models.
We have the next question from the line of [ Nitesh Jain ], who is an individual investor.
Congratulations on the amazing set of numbers. So just a few questions. While you don't give the revenue data for your different verticals, could you at least tell in the March quarter, what is the number of samples that got tested in JNPT?
Sorry, your voice was not at all clear.
Sorry. Okay. Sorry. While you do not give the revenue breakup, can you give the number of samples that got tested in JNPT for the March quarter?
No, we will not be able to share that information.
Okay. Okay. And at least on the food -- on the pharma side, you said we're doing very good. So was there a good revenue jump from the December quarter to the March quarter? Do we see the traction quarter-on-quarter?
Your voice is not clear.
Mr. Nitesh, I would request you to go off the speakerphone and come on the mic because your voice is not very clear.
On the pharma side of the business, right? You said you're seeing a very good traction in order flows. So are we seeing a great increase in the business from the December quarter to the March quarter? What I want to ask you, is there a quarter-on-quarter increase in the growth that you're seeing?
Yes, there was an increase.
Okay. It's not possible to tell the number, how much of the [indiscernible]?
No, that is very competitive, sensitive information.
Okay. And on the FDA side, you said that you got 2 approvals, right, and 2 inspections in the countdown? So does that substantially help us in our exports this year?
They are not called approvals. The approvals are given to our customers for the application they filed with U.S. FDA. So for us, we just go through such reviews or audits. And the expectation is we perform well because from there comes the customer confidence in us to work more with us.
We have the next question from the line of Yogansh Jeswani from Mittal Analytics.
Congratulations on a good set of numbers. Most of my questions have been answered, but a few follow-ups I have.
In the beginning of the call, you mentioned about having a significant order book compared to what we have had so far. So -- and if we look at the margin profile that we have shown for the last 3, 4 quarters, that has improved considerably from 2022, what was 28%, then above 30%. So this order book that we have, do we have margins in this buildup which are in line with this 28%, 30% range? Or do we see some dip there?
So we don't anticipate any dip as of now, no.
Okay. Great. And ma'am, in terms of the capacity addition that you mentioned for INR 60 crores, and you said for next 2 years, the growth will be taken care of from this. So beyond that, beyond this capacity addition, do we have more scope to increase in the same facility? Or will we be maxed out post this?
I just want to clarify, we will be beginning the construction of the new facility this year. It will take 2 years to complete the facility and make it ready for occupying it. So we are actually getting future ready by starting to build it now. And yes -- did I answer your question completely?
Yes, ma'am. That was answered. Next thing would be on the EMTAC investment that we have done. So how much more investment do we need in this subsidiary? Any numbers that you could share?
They might have a CapEx investment of about INR 70 lakhs to INR 1 crore during the year. So it, again, depends on the customers that we are able to build for the organization. So depending on the interest for the services, we will add respective CapEx.
Okay. So this will be a very small and a gradual scale of business then in the overall scheme of things?
Yes. Yes.
Understood. Ma'am, in the FSSAI business that you have mentioned on the call, and so you also mentioned that there -- currently, there are many labs which are already doing this.
So in terms of margin profile, is this business margin dilutive? Because there's already a lot of competition. And so -- or is this business also on a similar margin scale?
Margins should be better here because the volumes are higher. Now if you pick a particular product, you will get at least 10, 15 of the same samples every day. Then obviously, your margins of testing such samples is better.
And what is the typical order size in terms of value, ma'am?
We have no orders here. These are the individual samples that are just allotted by FSSAI.
Okay. And what would be the value of these transactions? Typically, what would be the average value of these transactions?
The variety of imports that we have coming in is quite large. And each product has its own standard specs against which we have to test. So the range of prices will be quite big.
Okay. Understood. And then in terms of customer concentration, I just wanted to understand, is there any significant concentration? Typically, what would be the contribution of our top 3 or top 5 clients in the total sales, if you could shed some light on that?
Our top 10 customers contribute to about 25%, 30% of our business.
Top 10, you said? Sorry, there was a disturbance in your line.
Yes, top 10.
25% to 35%, okay.
That was the last question. I now hand it over to the management for closing comments.
Thank you. I thank everybody for their wonderful questions. We look forward to again connecting with you maybe in the AGM. Until then, goodbye and have a nice day.
Thank you. On behalf of Nirmal Bank Equities, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.