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Edited Transcript of ADVENZYMES.NSE earnings conference call or presentation 13-Aug-19 10:30am GMT

Q1 2020 Advanced Enzyme Technologies Ltd Earnings Call

THANE Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Advanced Enzyme Technologies Ltd earnings conference call or presentation Tuesday, August 13, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Beni Prasad Rauka

Advanced Enzyme Technologies Limited - CFO

* Vasant Laxminarayan Rathi

Advanced Enzyme Technologies Limited - Chairman

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Conference Call Participants

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* Aashish Mirchandani

White Whale Partners - Analyst

* Anirudh Iyer

021 Capital - Investment Professional

* Chirag Dagli

HDFC Asset Management Company Limited - Senior Equity Analyst

* Rohit Sinha

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Shikha Mehta

Equitree Capital - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Advanced Enzyme Technologies Limited's Q1 FY '20 Earnings Conference Call. We have with us today Mr. V. L. Rathi, Chairman; Mr. Mukund Kabra, Whole-time Director; and Mr. Beni Prasad Rauka, Group CFO. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. V. L. Rathi. Thank you, and over to you, sir.

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [2]

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Good afternoon, everybody. It is a pleasure to address to all of you again and report our first quarter results of year 2020. We view this number as an excellent progress towards meeting our goal this year. As many of you will ask why our numbers are flat this quarter against fourth quarter, the answer is that our quarterly numbers tend to fluctuate and our first quarter is always a bit lower. We do not believe in measuring our results from quarter-to-quarter. We are here to deliver long-term value to our shareholders, as you're all aware.

That said, I'm very happy to report that our -- we have a substantial increase in our profitability this quarter. This is primarily due to product mix. Our Indian stand-alone business has also delivered excellent growth up to 12%, and our strong focus on our R&D center in Germany has also yielded some positive results. Evoxx is now EBITDA positive.

We'll continue to work hard for our shareholders. And I really thank you all and as always for your continued support. We look forward to further explaining if you have any further questions. But Mr. Rauka sir will explain you all these numbers. Mr. Rauka?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [3]

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Thank you very much, Vic, sir. Allow me to take you through the financial highlights for this quarter. Our sales on year-on-year basis is up by 6% from INR 1,043 million to INR 1,103 million. EBITDA is increased by 11% in this quarter as compared to Q1 of FY '19. It stands at INR 535 million as compared to INR 484 million in Q1 of FY '19. So our EBITDA margin is about 49% in this -- in the first quarter Of Q '20 as compared to 46%. Our consolidated net profit has increased by 9% to INR 340 million as compared to INR 312 million in Q1 of FY '19. Our PAT margin is slightly affected because of effective tax rate has gone up from 26% to 28%.

Now we would like to open the floor for questions. So if you have any questions, please let us know.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have our first question from the line of Shikha Mehta from Equitree Capital.

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Shikha Mehta, Equitree Capital - Analyst [2]

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Sir, can you give us the breakup of Evoxx, the revenue and the EBITDA, PAT?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [3]

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Yes. So Evoxx, we have revenue of INR 57 million as compared to INR 55 million of Q1 of FY '19, and EBITDA is INR 8 million as compared to INR 12 million of Q4 of FY '19. And because of the amortization of intangible assets and the tangible assets, we have a negative profit of INR 12 million as compared to INR 15 million of Q4 of FY '19.

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Shikha Mehta, Equitree Capital - Analyst [4]

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Sir, do we have any guidance as to when we'll be turning PAT positive?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [5]

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So -- that's what I think we have explained earlier also. We are likely to be EBITDA positive this year and PAT probably going forward. That's what we are looking for.

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Shikha Mehta, Equitree Capital - Analyst [6]

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Okay. And sir, in all our new product that we -- that we're planning on starting, is there any progress in palm oil, et cetera?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [7]

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I think our Chairman would like to address this question.

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [8]

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Shikha, we are continuing to work on those areas, but palm oil and areas in oil extraction is always very uncertain on long-term projects, not necessarily results into quarter-to-quarter results. We still are -- as we speak, we have still trials, doing some trials with various industries. So we are not really including our forecast with the palm oil at this point in time.

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Shikha Mehta, Equitree Capital - Analyst [9]

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All right. And also I think last quarter on the con call, we had given a guidance, it's around 10% growth for FY '20. So is that still what we maintain, or higher or low?

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [10]

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We still maintain that, Shikha.

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Operator [11]

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(Operator Instructions) We have our next question from the line of Chirag Dagli from HDFC Mutual Fund.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [12]

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Sir, can you indicate the top product sales for the quarter?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [13]

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Yes. Chirag, top 10, I mean you want the top products as such?

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [14]

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Yes, sir. What was INR 16.5 crores in 1Q FY '19 and INR 74 crores for full year of FY '19, what was that for the first quarter of FY '20?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [15]

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Yes, I'll get you the numbers. Any other questions, Chirag?

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [16]

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And sir, in terms of our tax rate, why is it so high? I mean we are INR sub-400 crores in terms of being an entity. So this...

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [17]

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Chirag, that becomes 29.12% because 25% is the enacted rate. On that, 15% is a surcharge. And apart from that, 4% is another case. So that worked out 29.12%. Now we don't have any other tax benefits as such because SEZ benefits are also over. 10 years has already gone. So there is no tax benefit as such. So it's kind of situation where we are going to be at full rate going forward.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [18]

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What about R&D benefit?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [19]

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So that is 160% only, Chirag.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [20]

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Okay. So the way I understand, sir, 2/3 of our profit is in the U.S. of where the tax rate should be 21%.

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [21]

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No. So U.S. also -- it totally works out about 28% because 21% is the federal and then there is a state tax as well.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [22]

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Okay, okay. So the total is 28% and then -- okay. So for the full year also, we should be in this ballpark of 28%?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [23]

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Right, right, 28%, yes. Right.

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Operator [24]

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(Operator Instructions) We have our next question from the line of Rohit Sinha from Emkay Global.

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Rohit Sinha, Emkay Global Financial Services Ltd., Research Division - Research Analyst [25]

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Sorry, actually I joined a little late. So maybe you must have answered this question, sir. First of all, on the Evoxx side, so could you just give the detail of what was the EBITDA number for Evoxx in this quarter and where that is last year?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [26]

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So the top line is INR 57 million for this quarter. And last year, it was INR 32 million. And EBITDA for this quarter is INR 8 million. And last year Q1 was negative INR 26 million. Yes?

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Rohit Sinha, Emkay Global Financial Services Ltd., Research Division - Research Analyst [27]

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Okay, okay. And on the top client front, so on the top 10 client, how much it has contributed in this quarter?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [28]

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I think around 35%.

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Operator [29]

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(Operator Instructions) We have our next question from the line of Aashish Mirchandani from White Whale Partners.

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Aashish Mirchandani, White Whale Partners - Analyst [30]

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Could you please share the R&D expenditure for this quarter?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [31]

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So R&D expenditure for this quarter is -- just a moment, give me a minute, please -- is INR 48 million, Aashish.

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Aashish Mirchandani, White Whale Partners - Analyst [32]

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Okay. Yes. And as a percentage, that would be around 5%, right?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [33]

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Right. 4-point-something, yes.

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Aashish Mirchandani, White Whale Partners - Analyst [34]

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Okay. And for the full year also your plant and maintenance is the same rate?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [35]

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Right.

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [36]

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Aashish, we may -- the R&D expenditure may increase somewhat, okay?

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Aashish Mirchandani, White Whale Partners - Analyst [37]

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Okay. Sub-10% or between 5% to 7%?

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [38]

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5% to 7%.

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Operator [39]

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We have the next question from the line of Chirag Dagli from HDFC Mutual Fund.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [40]

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Sir, ex of Evoxx, the EBITDA growth seems to be even lower than the sales growth. I'm just wondering, is there anything specific you want to call out?

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [41]

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There is a -- this quarter, the -- our customer has a little bit reduced. Our other customers have grown. So overall, yes, U.S. sale is lower and market...

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [42]

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U.S. low, right (multiple speakers).

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [43]

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Yes, okay? And still our Indian growth is better.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [44]

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Okay, sir. So once you share the top client number, probably things will get clearer.

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [45]

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You want top client or you want top product?

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [46]

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So that one top product that we have. In the past, we've been sharing that number.

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [47]

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So one top product is about 23%, okay?

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [48]

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Rupees crores first quarter FY '20, sir, what will be the number?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [49]

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Yes. Number is about -- so, Chirag, how many -- INR 257 million, Chirag. INR 257 million.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [50]

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So sir, this was INR 16.5 crores in the first quarter of FY '19 and about INR 74 crores in full year of FY '19. This...

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [51]

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That is the second product, which is now INR 144 million.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [52]

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That is INR 144 million, okay. So 14%.

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [53]

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That is about 13%.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [54]

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Oh, okay, okay. So this is the second largest product, sir.

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [55]

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This is the second largest. INR 165 million is the second largest.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [56]

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Okay, okay, okay. Fair point. And so on the palm oil product, when is it that we will get clarity or some sort of certainty as to what is happening with that product? As you look at the next few quarters, where do you think -- when do you think some certainty or clarity will emerge?

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [57]

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The thing, Chirag, is that industry very much goes into cyclical area. Sometimes, they are very positive and sometimes season is not progressing properly. They will stop all the R&Ds. So we are really a bit puzzled with this one right now, and that's where we don't play a lot of emphasis on it. So I'm very -- does it answer your questions, but I cannot give you definitive answer that this is the quarter we should be able to do it.

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Operator [58]

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(Operator Instructions) We have the next question from the line of Anirudh Iyer from 021 Capital.

There is no response from the line of Mr. Iyer. (Operator Instructions) We have Mr. Anirudh Iyer back in the queue.

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Anirudh Iyer, 021 Capital - Investment Professional [59]

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I'm audible? Can you hear me?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [60]

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Yes, yes. Yes, Anirudh.

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Anirudh Iyer, 021 Capital - Investment Professional [61]

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Yes, sir. So I just want to understand what was your view with respect to outlook perspective on the nonfood processing side of the business, maybe considering textile, pulp, paper, salt, detergent on that piece. So I just want to understand your visibility for the next 4 or 8 quarters with the long-term visibility. How do you see that coming in?

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [62]

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So can you please repeat the question, please?

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Anirudh Iyer, 021 Capital - Investment Professional [63]

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Actually, I want to understand your outlook on the nonfood processing side of the business. You're more aligned with the textile servicing and the pulp, paper, detergent segment -- on those segments. So I just want to understand your outlook on that. Like what do you say about the visibility in terms of revenues?

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [64]

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Anirudh, the textile, detergent and pulp paper business is a stable business for us. It's not enormously focused growth business. And it will remain to be continuous business as such, so we see stable and slightly growing market.

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Anirudh Iyer, 021 Capital - Investment Professional [65]

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And (inaudible) so right now in terms of revenue composition, the mix?

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [66]

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Revenue composition.

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [67]

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Revenue is, I mean, we have about, I think, 6% of our top line from this particular segment.

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Anirudh Iyer, 021 Capital - Investment Professional [68]

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Okay. And that expected to be between (inaudible). You won't really be seeing a normal growth in that, right, in that segment? It will be (inaudible).

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Beni Prasad Rauka, Advanced Enzyme Technologies Limited - CFO [69]

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Right.

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Operator [70]

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(Operator Instructions) As there are no further questions, I now hand the conference over to Mr. V. L. Rathi for closing comments.

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Vasant Laxminarayan Rathi, Advanced Enzyme Technologies Limited - Chairman [71]

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Thank you, gentlemen. Thank you for participating and your support with our company. I appreciate it. On behalf of all our staff and our dedicated people, I thank you, and have a wonderful evening. Good night.

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Operator [72]

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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.