Advanced Enzyme Technologies Limited (ADVENZYMES) Earnings Call Transcript

Good afternoon, ladies and gentlemen. I'm Akash, moderator for the conference call. Welcome to Advanced Enzyme Technologies Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to hand over the floor to Mr. Ronak Saraf. Thank you and over to you, sir.

Thank you, Akash. Good evening, everyone. Welcome to Advanced Enzyme Technologies Q1 FY '27 Earnings Conference Call. We hope you all have gone through our financials, press release and the presentation, which has been posted in the Investor Relations section of our website. We have with us Mr. Mukund Kabra, Whole Time Director; and Mr. Beni 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. Now I would like to draw your attention to the fact that some of the information shared during the call, particularly regarding our planned strategies and future outlook, may contain forward-looking statements. These statements involve inherent risk and uncertainties and are based on current expectations, forecasts and assumptions. Actual results may differ materially from those expressed or implied in these statements influenced by a range of factors including, but not limited to, economic conditions, change in government policies, regulatory developments and other unforeseen circumstances. Recipients are cautioned not to place undue reliance on these forward-looking statements as they are not guarantees for future performance and should not be viewed as substitute for independent judgment. The company undertakes no obligation to update or revise any such statements whether as a result of new information, future events or otherwise. So now without any further ado, we shall commence this call. Over to you, Mukund, sir.

Thank you, Ronak. Good evening, everyone. Thank you for joining us today for our quarter 1 financial year '27 earning call. I extend a warm welcome to all our shareholders and partners. The global economy has been experiencing significant disturbance for quite some time primarily driven by geographical tensions, trade and uncertainties and continued disruption across global supply chain. These challenges have had a direct impact on the pricing of energy and certain raw materials, creating a volatile operating environment for businesses globally. Against this backdrop, our quarter 1 performance reflects a softer, more muted start to the fiscal year. However, the fundamental strength of our business remains firmly intact and we anticipate progressive momentum as the year advances. While it is important to view this performance in the context of the inherent nature of our business, that's the reason we always suggest all our shareholders to evaluate our business on an annual horizon rather than through the lens of a single quarter. Our top line for the quarter stood at INR 1,898 million registering a 2% year-on-year growth. On a sequential basis, revenue declined by 7% compared to the previous quarter. As part of the standard revenue recognition practices, which is based on transferring of control of goods to the customers, sales reversal occur every quarter. On account of revenue recognition, accounting principles this quarter was impacted by an additional sales reversal amounting to INR 100 million, over and above the reversal of revenue generally being accounted in every quarter. I'm pleased to share that this revenue reversal has already been recorded as on today maintaining the robustness of our revenue pipeline intact. Our fundamentals remain strong. execution continues to be solid and we are well positioned to capitalize on growth opportunities. We remain confident in delivering sustainable revenue growth consistent with our annual guidance. EBITDA for the quarter came in at INR 510 million, down 10% year-on-year and 19% quarter-on-quarter. Consequently, the EBITDA margin stood at 27% compared to 30% in quarter 1 financial '26 and 31% in quarter 4 financial year '26. Our consolidated margins moderated primarily due to 3 factors: lower top line realization, elevated power and fuel costs driven by global energy disruption and a temporary shift in the sales mix. But at the same time, our disciplined focus on optimizing our costs and improve our operational efficiencies position us to deliver sustainable growth and stronger performance as the year progresses. Moving to profitability. Profit after tax stood at INR 386 million, declining 5% year-on-year and 15% sequentially. The PAT margin for the quarter was 20% compared to 22% in both quarter 1 financial year '26 and quarter 4 financial year '26. Now I will take you through our segment-wise revenue performance for the first quarter of financial year '27 and compare it both year-on-year and sequentially with quarter 4 financial year '26 and quarter 1 financial year '26. Let's begin with Human Healthcare. Revenues from quarter 1 financial year '27 stood at INR 1,139 million reflecting a 7% year-on-year decline and 11% sequential decline. The decline was primarily attributable to lower sales in the pharma API business. Despite the moderation of revenue, the segment contributed 60% of total revenue during the quarter. We observe an improvement in our B2C revenue in U.S.A. Moving to Animal Healthcare. Revenue stood at INR 252 million registering a 3% year-on-year decline while growing 1% quarter-on-quarter. The segment contributed 13% to our overall revenue during the quarter. Turning to Bioprocessing. The segment reported revenues of INR 306 million, delivering a 30% year-on-year growth. Revenues were 5% lower sequentially. The strong year-on-year performance was driven by healthy growth in food business and the segment contributed 16% to our total revenues. Lastly, Specialized Manufacturing reported revenues of INR 200 million registering a robust 41% year-on-year growth and 11% increase over the previous quarter. The segment continued its strong momentum and accounted for 11% of our overall revenue during the quarter. We are pleased to announce that the Board has approved a buyback of INR 697 million at a ceiling price of INR 500 per share via open market route. The company has also announced the acquisition of the remaining stake of 4.28% for a consideration of INR 79.79 million in our existing subsidiary JC Biotech resulting in a total stake of 100% making it wholly owned subsidiary. With this, I will now hand over the call to Rauka ji, who will walk you through the financials and key subsidiary numbers.

Thank you very much, Mukul. Good evening, everyone. I hope you all are in good health and doing well. On the company's consolidated financials for the first quarter of fiscal year 2027 on year-on-year basis, Q1 of FY '27 versus Q1 of FY '26. Our revenue is increased by INR 39 million, a 2% increase from INR 1,859 million to INR 1,898 million. EBITDA decreased by INR 55 million, 10% decline from INR 564 million to INR 510 million so from 40% of our revenue to 27% in this quarter. Profit before tax decreased by INR 14 million from INR 549 million to INR 535 million. So this was 5% as compared to 28% during this quarter. Profit after tax decreased by INR 19 million, a 5% decline from INR 404 million to INR 386 million. So our PAT is about 20% of our revenue as compared to 22% in Q1 of FY '26. On quarter-on-quarter basis, sequential basis, Q1 versus Q4. Revenue decreased by INR 136 million, 7% decline from INR 2,034 million to INR 1,898 million. EBITDA is decreased by INR 123 million, a 19% decline from INR 632 million to INR 510 million. Profit before tax decreased by INR 63 million from INR 598 million to INR 535 million, a 10% decline in profit before tax. Our PAT is decreased by about 15% from INR 453 million to INR 386 million. This is about again, as mentioned, 20% in this quarter as compared to 22% in the previous quarter of Q4 2026. Let me give you the subsidiary numbers. JC Biotech revenue stood at INR 195 million and EBITDA of INR 46 million, PAT of INR 10 million as compared to revenue of INR 211 million, EBITDA of INR 33 million and PAT of INR 14 million in the Q1 of FY '26. The sales from evoxx stood at INR 24 million and EBITDA is negative INR 13 million with negative PAT of about INR 18 million in Q1 '27 as compared to INR 70 million of revenue and INR 14 million of EBITDA and PAT of INR 7 million, respectively. SciTech, this is again our subsidiary, we had top line of INR 201 million and EBITDA of INR 31 million and PAT of INR 13 million in Q1 of FY '27 as compared to INR 145 million of revenue and EBITDA of INR 4 million and negative PAT of INR 8 million in Q1 of FY '26. Now I would like to give you some numbers about our Top 10 customer. It is about 23% during this quarter as compared to 27% last year Q1 and as compared to 26% in Q4 of FY '26. Our Top 10 product has contributed about 45% as compared to 45% last year and 49% in last quarter of FY '26. B2C segment contributed about $1.14 million as compared to $1.1 million during the same period previous year. So this is from our subsidiary company, which is Advanced Enzyme U.S. and they have another subsidiary here. Let me also give you some more numbers about our Healthcare segment. For Q1 FY '27, our India sales is about INR 580 million as compared to INR 699 million in Q4 and INR 659 million in Q1 of last year. International sales INR 559 million as compared to INR 582 million in Q4 and INR 552 million in Q1 of FY '26. So total from this segment is about INR 1,139 million as compared to INR 1,281 million in the previous quarter of Q4 and Q1 was INR 1,221 million. R&D expenditure, we have spent about INR 90 million in quarter first of FY '27 as compared to INR 86 million in Q1 of FY '26 and this is about 4.75% during this quarter as compared to 4.62% in the corresponding first quarter of 2026. On consolidated basis, R&D spend is about 5% during Q1. So this is rounded off basically when we talk about consolidated basis. So 5% was last year in Q1. And if we remove our spending to evoxx, then R&D spend is about 3% in Q1 and we have spent a similar amount in the first quarter of last year, 3%. So this was from my side. Now we shall open the floor for question-and-answer session.

[Operator Instructions] The first question comes from the line of Mr. Lakshminarayanan from Tunga Investments.

If we look at our business over the last 9 to 10 years just looking at the comparison of Q1 of FY '19 or FY '18 with the Q1 which we reported now, the growth has been around -- I would say, on an overall basis around 3% to 4% on Indian rupee terms. Now comparably, if you look at the U.S. enzyme market per se has actually grown at even 7% or 6% on a U.S. dollar basis. So I just want to understand what is holding us from growing in one of the most lucrative markets, which is the U.S. And of course there have been issues like COVID in the middle and there has been large client loss, et cetera. But even on a longer basis, which [Technical Difficulty]

Laksmirinarayan ji, sorry to interrupt. There is no clarity. There is some kind of echo happening so can you please repeat this question?

Am I clear now or is it still problem, sir.

No, still there is a problem.

The next question comes from the line of Mr. Abhishek Navalgund from Nirmal Bang Securities.

The first question is on CapEx. So just correct me if I'm wrong, but I think in the AGM, the CapEx number which was highlighted was somewhere close to INR 120 crores, INR 130-odd crores. We were slightly building in -- in fact we were building in a significantly lower number. So could you please help us understand this INR 120 crores, INR 130 crores will be spent over how long, over 3 years or it is like FY '27 outlay? That is my first question.

So INR 123 crores, you rightly said that we have explained in the AGM, correct. So this is what we are going to spend.

Yes, yes. So I'm saying this INR 123 crores will be entirely in FY '27 and if that is the case, for which all projects if you could highlight?

No. I think out of this, about INR 20 crores will stretch to the second quarter of FY '27 also. Mainly in one of our subsidiary because we talk about the consolidated number.

Sure. Basically what I'm trying to understand is out of this INR 123 crore, what could be the growth CapEx? I mean if you keep aside the maintenance CapEx, what could be the growth CapEx that we will be incurring in this year?

So out of this, I think INR 20 crore is normal capital expenditure, okay, and INR 50 crores will go for R&D, which is again already under work in progress and maybe it will become functional in the next quarter or so and balance is all about the growth only. So R&D, no kind of immediate growth, but of course it is always for a sustained growth only.

Okay. So the remaining part, this will be in the Human Nutrition side or which other segment, the growth CapEx?

So CapEx is not meant for any particular segment as such because we manufacture enzymes for different industry.

So I'm saying this is like a step-up as compared to last few years and we always maintain that in terms of the fermentation utilization is around 55%, 60%. So are we close to maybe 70% and that's why you are doing this? Just wanted to understand the reason for the step-up in CapEx.

Yes. So we are close to 70%, 75% and we will take the call in the next quarter and we may start some of the CapEx expenditure for increasing our capacity.

Sure. This is helpful. Next question is basically what is stopping us from growing strongly in the U.S. market because I think you just highlighted international Human Nutrition numbers. I think in this quarter also we have witnessed a decline of 14-odd percent. So could you please explain what is the reason behind this?

I think overall if you see the situation in the U.S. is not so conducive as of now. And what we are also doing is that we have been trying -- I mean we have been following a path where now we are trying to brand most of our products. So this shifting is taking some time and because of that, if you see the numbers, it is kind of steady numbers. Not getting any kind of a significant increase in those numbers because the business is undergoing some kind of changes. And again you would agree that the kind of situation happening in U.S.A. is also not so conducive from business point of view. So couple of issues are there, that is again being addressed by the company. Because geopolitical situation is something, that also creates lot of issues in managing the business.

Okay. So my last question is what is the number for serratiopeptidase this quarter?

I think we requested earlier also that we will stop sharing those numbers.

Okay. No, because there was some ban kind of a thing which we saw in the news this quarter. So just wanted to understand will there be any impact because of that or we don't see any meaningful impact because of the HDC combination?

There will not be any meaningful impact, maybe 1% here and there.

The next question comes from the line of Mr. Lakshminarayanan from Tunga Investment.

Am I audible now?

Yes, sir.

Sir, I was just looking at our U.S. business growth over a slightly longer period of 8, 9 years or even more. While the U.S. market per se has actually grown on the enzyme thing, I think broad numbers are around 6% or 7% of the industry level, our growth has been divergence from that. I mean of course there have been COVID in the middle, there have been logistics issues and there has also been client loss issues, which I understand. I'm just trying to understand broadly whether this divergence is more an internal issue or an external issue? And how do we address this? Because we have good products, we have good patents, but still we are unable to at least from the looks of it, scale up meaningfully in the U.S. I just want to hear your thoughts on that.

Lakshminarayanan ji, challenges are several. So I think in past also we have explained post COVID, things were going to stabilize. But then last I think 1.5 year or rather 1 year, you can say we have been facing this geopolitical situation. And in addition to that, I think we have also explained a couple of times that we are changing our business model in U.S. per se, basically looking into kind of branding most of the things, most of the products which we are selling, most of the ingredients we are selling. So this process is taking some time to really consolidate the entire operations and their customers and this is one issue and besides the geopolitical situation. So everything is like going in such a way that we don't see any kind of big numbers although in FY '25, we have seen kind of a 10% growth or so. '26 again it was kind of down. Now again first quarter because this is the first quarter so we have to again wait and watch and we see I think better visibility as we progress. So all these issues are now being faced. And as you mentioned that the market is big, but then you have to also carve out a niche segment for yourself otherwise kind of you want to become a commodity or not. So that's like not our exact business strategy. So we are trying to again revamp and change our business model in such a way that at least we should have a sustained growth as well as our margins are kind of intact. All these issues are being looked at.

Sir, our typical model is to manufacture in India and then ship it to the U.S. Given that every third year or second year we have some issues in terms of logistics, is the management thinking of any alternative sourcing thing whereas instead of looking at manufacturing in India and then selling it in the U.S.?

I think we missed you again your question. Can you please repeat?

My question is that see, we manufacture in India, if I'm right, and then we sell in the U.S. Now given that every second year or third year there has been some geopolitical issue or logistics issues, is it something the management can think of where you can identify another sourcing location where you can do something with your -- instead of making in India and then selling in the U.S. Is it possible at all or is it something which you wanted to explore at some point in time?

I think if you really look at from the fermentation side, we will always continue to do it in India. And alternate sourcing because it's again 100% subsidiary company, we always see that we have to work on if there are any kind of alternate source, how we can also equally become competitive in the process by improving our productivity, by spending more on research. So at least we don't have to look at any other source in that sense and we can grow in India as well as in U.S. And U.S., if you want to invest, there will be lot of money that will be required to invest in those kind of capacities. So I think management is very clear in terms of that.

Got it. And if you look at the U.S. business, what kind of growth you can actually envisage on a steady-state basis, sir? I mean of course all these issues are, let's say that all these things go by.

Lakshminarayanan ji, all of a sudden the tariff issue was there, then we have faced those problems and then this Iran war that has created some kind of issues. So these are a lot of many challenges. And in addition to that, what has happened in the market in the last 2 years even hiring people has become a big challenge in the process. So many such issues are being addressed and kind of the growth we can expect is like as we always say U.S., we don't expect at least at this juncture about 8% to 10% -- beyond 8% to 10% of growth.

Got it. But in case we are unable to grow, we will be losing some clients because the clients would be looking for raw materials and which we don't provide. Would it not be a challenge for you because if you're looking at growth and for some reason you're unable to ship, your end clients would then look for alternate source, correct?

So I think that business has a lot of many challenges. But as we are in the business, we'll be able to address all these challenges and that's what we have been doing. And yes, more of when you have several challenges, you have to really work very hard to see that how you can sustain and you can have a sustainable growth in the process and at the same time you make good money.

The next question comes from the line of Mr. Zaki Nasser from Nasser Investments.

Sir, I think it's a decent set of numbers in difficult times. We had projected I think a yearly growth of 13% to 15% over the next 3 to 5 years, sir. So do you think we can close this year at at least 12% plus, sir, in the balance 3 quarters?

As of now, we feel yes. Even this quarter, we lost around INR 10 crores because of the sales reversal, which will come in the next quarter. As of now, we think we should be able to grow in double digit.

As I was just telling, as Mukund has mentioned, this particular quarter we have incremental sales reversal. That means if we add INR 10 crores to INR 190 crores so at least we had INR 200 crores in this quarter, which is roughly 8% kind of a growth. So as we progress, we are confident that we shall be able to achieve the kind of growth numbers which we have shared with you in past.

And what about the cost trajectory, sir? Because I think most of our imports, including energy, it was at inflated levels this quarter. So do you think these costs have come under control from the Q2 onwards, sir?

Yes, that will definitely improve because of operational efficiency.

And if I may just ask a last question, sir. We are going in for a buyback of approximately 1.4 crore shares. And I see that we have a ESOP fully pending conversion of around 2.5 crore shares. Is it the right figure, sir, have I got it right?

No, sir, I don't know crores, where did you get the numbers?

14 million shares, 70 crores kind of buyback, I mean approximately, that will be the.

1.4 million, 14 lakh shares.

Okay. And the ESOP is 25 lakh shares, correct, pending conversion?

Yes. So ESOP scheme was for 25 lakhs. But so far we have granted I think in 2 different tranches I think about 11 lakh shares only and those shares will vest over a period of 5 years. So still there's a lot of time left.

Okay, sir. And this will be open market buyback, which will start on 14th August.

Yes.

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

Sir, the first question that I had was when you mentioned about your change in U.S. strategy and focusing on brands, some quarters back you had mentioned that your customers have your name on their product, which helps them sell their product better. Now when you say that you want to move more from a B2B to a B2C business, is that understanding correct or would you want to be in a B2B business, but focus on the brand? And if yes, then how will that work?

So I think business will not change. The only thing even in B2B when you sell ingredients, there you sometimes say very specific that this is what is my ingredient. So when you put a label, use my -- this particular name as an ingredient.

Okay. Okay. And how is this expected to help us in our business?

Then it becomes sticky business in that sense. Once the label is there with your name, then it becomes a kind of a sticky business.

And sir, if you could break the Human Nutrition business between India and international, that would be great.

I think I've given the numbers, but I will repeat for you. India business this quarter was INR 580 million as compared to INR 699 million in quarter 4 of FY '26 and INR 659 million in quarter 1 of FY '26. And international sales was INR 559 million as compared to INR 582 million and INR 562 million.

Okay. Thank you so much for repeating. And sir, just last one question in terms of the competitive intensity that we have in terms of our largest product, has it gone away for good? Or is it still continuing? And in terms of pricing, if last year, the pricing was [ 100 ] at this time in Q1, what would be the pricing right now?

So pricing is better in this particular quarter because we have increased some prices. So it's better in that sense. Realization is better than Q4 and Q1 of last year.

Can you quantify it roughly in range?

I think that's what we were saying that when we discussed in the past also a few things we would not like to discuss on the con call, please.

Not a problem. Not a problem. Not a problem. Not a problem. And sir, any view on Biocatalysis segment?

Biocatalysis number, INR 45 million during this quarter as compared to INR 44 million in the last quarter of Q4.

Right, right. We were planning to get into intermediates business, I think, 1 year back to grow this biocatalysis piece, but then we decided not to go for that. Now how do we plan to grow this segment? It's considered to be one of the high-growth segments, right?

Yes, it's still the high-growth segment for us. And this year, we expect in the second half, good growth should come from this area.

The next question comes from the line of Mr. Ravi Purohit from Securities Investment Management Private Limited.

Can you just explain me what we mentioned about this INR 10 crores sales reversal. This is basically sales return or sales. So is it like sales which have got canceled or sales which have not been booked? Or how does it -- like how does this entire cycle work?

Ravi, it's the sale in the transit, which is not reached to the customer. The material is already booked, but a lot of like export shipments, it really didn't reach to the customer.

But the revenue only...

Okay. And so now it is...

Okay. Please go ahead, Ravi.

I'm sorry. Yes, please finish, Rauka ji.

So I was saying that revenue recognition happens when the risk and reward is transferred to the customers. So it was on like ship. It is not delivered to the customer, so we cannot recognize the revenue.

So every quarter, we have a reversal, but this time it was...

Incremental by INR 10 crores.

Incremental by INR 10 crores. The impact is more but...

Okay. And so that should get normalized or [Foreign Language] the material would have already reached the customer now?

Yes, yes.

Okay. Okay. And sir, if you could kind of share some thoughts on how are we kind of looking at scaling up products which we have like outside of serratio, right? So serratio has been like one very large product for us. And it has -- and our dependence on it doing well is disproportionately higher, right, in any given year. So [Foreign Language] if that product does well, the company's overall growth looks better. And if that kind of drops off significantly, the growth kind of tapers off. So can you just share what's -- like what are the opportunities? Where are we kind of seeing newer products coming out of? Or if you could just kind of throw some light on this?

So Ravi, we are working on very different, different industries. We are growing very well in the food areas. We are working on the protein solubilization, all of those other areas. So I don't want to name the product, but those are going to be also the potential products. We are working in all the other areas, and we'll see how it grows.

The next question comes from the line of Mr. [ Shreyans Gathani from SG Securities ].

I had a question on the U.S. business. So although you mentioned that it's been flat, the currency depreciation has been enough like rupee terms, it is flat. So we're definitely seeing, I would assume some volume declines there. So I'm trying to understand what -- like are we not having the right product or what is going on, like some clarity on what the strategy is going forward? Like Rauka ji did mention about the branding, but I would think that the existing business is declining and just trying to understand what is declining over there, what is not working out? Just some color on that.

So currency decline, if you really talk about the USD is about 4% decline. I mean rupee has depreciated by 4% on Q-on-Q basis. On year-on-year basis, it has declined by, I think, 10%. So 10% depreciation.

Right. Yes, that's what my question was like trying to understand where we are losing out, like is that product not in demand anymore? Or are we not having like enough products to sell? Or what is the strategy to fix? Also, Dipak Roda, I would believe was looking at some of the U.S. marketing, like is that something that we need to fill up in terms of position? If you could give some color around that. You're not very clear since a while.

Sometimes like the sale doesn't come in this quarter, sometimes it goes to the other quarters as well, right? So we need to wait and see how the things progresses and maybe then we can talk more on this. As of now, it's very premature.

Okay. Sir, I'm talking like over a period of time, we have lost business, right? So not just this quarter is what I'm mentioning. So can you...

I think we have explained you that we are expecting 8% to 10% of growth in our U.S. business, that is what I think I already mentioned to you. And the reason that why there's a steady numbers in U.S., I think that also I explained you because of geopolitical issues. And then again, as explained to you, we are working on several branding. So all this is taking its time. As we progress, we will get more clarity. And I think we expect that we shall be having a better growth in the coming quarters. And I think by the end of the year, it should be about 8% or so.

Okay. Okay. That's good to know, sir. Any new products that we have launched, if you could highlight any changes there or it's more of the same product that we are branding it and doing a different sales strategy there?

I think I'm not getting your question.

No. My question is any new products that we have launched in the U.S. that you think will bring the 8% growth? Or is it the sales strategy change where you're looking at that branding, which will cause -- which will lead to the 8% growth?