Advanced Enzymes Q4FY17 Concall Summary

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Financial Highlights

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  • The company has doubled the dividend payout to 20% for coming financial year
  • The company has PAT of Rs 92.4 crores & sales of Rs 331 crores which is in line with expectation with barely 5-7% lower
  • The company says that there is nothing wrong in Q4 results. It is just the variability in the quarter as such.
  • The company says that it has got its client back which was in question. The clients business is resumed. It has grown single digit percentage in this year compared to last year there is stable outlook. 
  • The operating expenses have gone & one of the primary contributors would be the consolidation of the JC Biotech accounts. The company has started seeing some synergy especially on marketing side, but the cost synergies are yet to be realized. So in this financial year,  it expects that it will realize more synergies from that acquisition and the operating cost overall will come down
  • The company currently has debt of Rs 54 crores mainly for working capital
  • The company’s effective tax rate comes to 25-28% 
  • The company is continuing Rs 10 crores for the R&D as well as for the maintenance capex around 10-12 crores
  • The growth rate for top 10 customers are about 2-3% 

Revenue split

  • The company’s business can be broadly split into two geography, one is India & one is outside India.
  • International business is growing very rapidly
  • India business is stable & it is expected to register a healthy double-digit growth coming from both the areas especially from the internatinoal part of the business
  • The company is planning to get into three-digits within the next two, three years and within the three to five year horizon it is looking at good healthy three digit numbers from international busine
  • The exports of the company are around Rs 10 to 11 crores & it targets to close to Rs 100 crores by FY2020
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Single Client contribution

  • The company has one particular client which has contributed almost 650 million in first half of FY2017 & lowered at 146% kind of year on year.
  • The company has shifted its focus from single client.
  • It has more than 700 clients in its portfolio & growing day by day. Its focus is to increase revenue from some large clients.
  • Currently, it has this one client who may have multi-billion dollars clients going to speak to and it is in the process adding many more such clients. This client revenuebon a year-on-year basis has grown from Rs.73 Crores to Rs.79 Crores
  • Contribution for the first half of the year was 65 crores. Contribution of the client went up rapidly in the few years back and is stabilizing now
  • The company expects that top ten clients would be contributing about 35%. 
  • The existing client continues to grow at the same time it is adding new clients in existing segment & focusing on some new applications where it has strength. It is looking at alignment with production, it is looking at high value addition to clients & also looking at low areas where there is low competition
  • The company gives guidance of 15-20% with the current client mining. Also maintaining EBITDA margins of 45-50%
  • The company does not have any exposure to US Pharma industry, its primary business is nutraceuticals business. In india it does service the pharma industry.

Future Growth Areas

  • The company says that it has four, five applocation areas for growth
  • It is focusing mainly on nutraceuticals and several different areas some in nutritional area, animal nutrition, human nutrition and also some key selected bioprocessing opportunities that it is focusing on
  • On the industrial side it is looking at palm oil processing, oil & fat processing as it gets boards approval for setting up subsidiary in Malaysia. In the current financial year it is looking at some clients starting to materialize and will see full scheme revenues coming in FY2019.
  • There are also other application areas like animal feed, like detergents and biodiesel
  • The company board has approved to invest into a biodiesel company, so these are the several areas that it . 
  • Revenues from Biodiesel segment will come in FY2019
  • The company does not have visibility on detergent segment but expects contributed growth in animal feed segment due to geographical expansion.
  • The company sees larger opportunities in the nutraceutical market in US
  • The company expects some  increased revenues coming in from the various different areas in food processing and other market segments from South American markets or Amerfance
  • The company is investing a little in palm oil sector. It is setting up a marketing subsidiary or marketing office in Malaysia. It is a marketing & technical support

JC Biotech

  • The company is not using JC biotech as front end subsidiary. It is a production subsidiary. JC Biotech primarily contributing towards production and basically the revenue still coming from AET, so it is not a marketing subsidiary per se
  • JC biotech was only four months of consolidation in the last financial year. So in FY2018, it will see the full effect of the JC acquisition, both on the market side, revenue side as well as on the cost optimization and production side as well. 

Dependency on Distributors

  • The company is appointing distributors in various geographies
  • For various aspects like stocking or servicing as well as the technical service, it has distributors or authorized distributors and the focus is to meet each and every end client. The team travels on foot and lot of team members travel across the globe to meet the end customers, the end users and along with the distribution partner.

Goodwill policy

  •  The company has goodwill policy where it does impairment testing at each & every balance sheet date & if required there are conditions. This has to be done annually
  • The promoter of the company wants to increase shareholding from current 70% to 75%

Guidance  

  • The company says that it is on track with 25-30% CAGR for FY 2018
  • The company sees its revenue cross Rs 400 crores easily this year
  • The company expects to see its Asset Turnover Ratio to 1 positively in next 2-3 years
  • The company estimates long term vision on a topline basis of 15-20% over fairly long period of time

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