Advanced Enzyme Technologies Ltd Management Discussions.

Global Economy

The global economy experienced a slump in FY20 due to reduced global trade and investments. Both advanced (especially the European) nations and Emerging Markets and Developing Economies (EMDEs) experienced a slowdown. Crucial economic factors fell down to their lowest levels since the worldwide financial crisis. For a major part of 2019, the trading of goods in a global scale shrank, and the manufacturing activity reduced slowly and steadily. However, during the fag end of the financial year, manufacturing picked up pace at lower levels and few growth factors were identified in some economies.

Negotiations between the United States and China softened the bilateral ties, resulting in a planned partial rollback of the tariffs that had soured the relations. Such a development after an extended period of trade dispute has led rise to policy uncertainty and affected international trade, investment and overall confidence. The rest of the world has taken a protectionist stance since the tariffs between the two countries were increased.

Towards the end of FY20, the confidence in the financial market was restored amid better trade relations. Worldwide concern regarding growth factors compelled major banks to ease monetary policies. The global growth in the last financial year was 2.4%, which is the lowest since the global financial crisis. However, the economy is expected to revive in FY21 with gradual improvement in investments and global trade. If the trade tensions do not re-escalate, the global growth will improve from 1.4% in FY20 to 1.9% in FY20. In the coming years, the monetary policy is expected to be accommodative but the fiscal policy might fade.

The lack of growth surrounding Emerging Market and Developing Economies (EMDEs) complicates the policy challenges. Emphasis must be laid on the growth of EMDEs for ensuring progress, elevating the living standards and removing poverty. Focus must be given on drafting policies that motivates investment in human and physical capital, allocates resources for improving productivity, helps in adopting modern technology and promotes a growth-initiating and sustainable environment. Investing in green infrastructure will also help in achieving goals that will reduce the reliance on non-renewable sources and minimise pollution.

(Source: World Bank Report 2020)

Indian Economy

The Indian economys GDP grew at a rate of 5% in FY20 and for FY21, the rate is anticipated to rise to 6-6.5%. The current slowdown in growth rate is because of slow consumption rate, decline in fixed investment, weak trade activities and a tough manufacturing atmosphere. The fiscal deficit target might be relaxed for FY21, as revival of the economy continues to be the top priority. For boosting the consumer sentiment and sluggish demand, additional fiscal headroom will be created by adopting counter-cyclical fiscal policies.

The overall industrial segment recorded a 2.5% growth in FY20, which was 6.9% in FY19. The Index of Industrial Production Growth (IIP), which reflects the industrial performance of an economy, was recorded 0.6% for 2019-20. This steep fall is on the back of subdued domestic demand in crucial sectors, like pharmaceuticals and automotive. Additionally, sectors like leather, textiles, basic metals and jewellery also underperformed. Another important factor which had a major impact was the liquidity crunch because of lesser lending by NBFCs.

The nations vision of becoming a $5 trillion economy by 2025 requires strong determination and incorporation of pro-business policies. Providing essential support for new players in the market, improving the ease of doing business, eliminating unnecessary policies which prove detrimental and enhancing trade for job creation are crucial for future growth. Exports of network products has the potential to bring the economy on track, as it can provide impetus to the manufacturing sector and develop numerous jobs. This will be done by merging "Assemble in India for the world" with the "Make in India" initiative. The exports of network products is anticipated to touch $7 trillion by 2025, which will play a crucial role for the Indian economy.

Impact of COVID-19 on Economy

The economy was in the midst of turbulent tides in the final few quarters of FY20. Any hopes of revival in the final quarter of the fiscal year were put down by the outbreak of COVID-19. The outbreak has impacted nearly every sector of the economy, the worst affected being tourism, hospitality and aviation. The retail sector has taken a significant hit with supermarkets, malls and theatres being closed. This comes on the back of minimum to no activity in sectors like entertainment, construction, etc. The pandemic is expected to cost Indian trade $348 million. India is one of the top 15 nations which is directly affected due to the manufacturing slowdown in China.

Considering the challenges being faced by businesses and consumers, numerous agencies have revised their growth projections for Indian for the years 2020 and 2021. With travel restrictions, subdued consumption, supply chains disruptions and low investment levels, the country has an uphill task of adapting to the scenario and bringing the economy back on track.


Global Enzymes Market

The enzyme market is anticipated to reach $14.7 billion by the year 2025, on the back of a Compound Annual Growth Rate (CAGR) of 6.7%, in terms of value. A sharp improvement in the enzyme market is projected due to major breakthroughs in enzyme research and development, introduction of genetically-engineered enzymes, advancements in green chemistry and enzyme engineering. The demand for bio-fuels has also increased over time, with the depletion on non-renewable sources and increase in concerns regarding sustainability of the environment. The benefits of enzymes in multiple industries are being recognized, which will be crucial for the industry in years to follow.

The carbohydrase segment is the most promising enzyme type in the market as of now. These compounds are employed for industrial applications like leather and textiles, paper and pulp, food and beverages, biofuels and much more. Amylase, a type of carbohydrase which catalyses the hydrolysis of starch to sugar, is currently dominating the market.

In terms of specialty enzymes, the largest market size was of the pharmaceutical segment in FY20. With more applications of enzymes in the pharmaceutical industry, their demand has been on the rise. Manufacturers are now contemplating the use of biocatalysts in the manufacturing process, which will also lead to growth. Since enzymes contribute heavily in the development of medicines for ailments like cancer, heart-related and many more, the demand of such compounds is only about to increase.

1. Food Enzymes Market

The food enzymes market, at a CAGR of 6.9%, is projected to be valued at $3.23 billion by 2023. Factors like better food quality, rising demand of processed food and increased awareness about nutrition-rich foods have contributed towards the markets growth. With growing demand of environment-friendly manufacturing processes, the market is primed to shift towards a path of promising and sustainable future. However, challenges like changing legislations and lax safety regulations can hinder the growth prospects.

In the coming years, the lipase segment by type is anticipated to have the highest CAGR. Lipase is involved in the hydrolysis of fats or lipids and catalyses the breakdown of oils and solid fats into compounds. The enzyme is crucial in the fermentation of milk products like cheese and yogurt and is widely used in the bakery, oil & fat and dairy industries. With the growth of food and beverage industry, the demand for lipase is rising.

Food enzymes in liquid forms also have bright prospects in the coming years, both in terms of market expansion and usage. These enzymes are less stable than solids; however they possess better functionality and are more active. Supplied as a solution to be sprayed on pellets, the liquid enzymes are very easy to use and are in-demand globally.

As of FY20, North America is the largest market share for food enzymes because of consistent demand of good quality processed food and the overall progress of the food and beverage industry in the nation. However, the highest CAGR has been reported in the Asia Pacific region, owing to the rapid increase in demand of the enzyme and high population. It is estimated that Asia Pacific will be growing at a CAGR of 8% and if the trend continues, soon the region will develop as a major market for the enzyme industry.

High reaction specificity of enzymes has been the driving factor of the industry in various markets all over the globe. This also helps in eliminating any possible side reactions that affect the safety of the product for human use. Considerable time and costs are reduced by employing enzymes for the selective analysis of food elements, when compared to the conventional method of using chemicals.

Food enzymes are influenced by their environmental conditions. Any change in temperature leads to changes in reaction rates and thermal agitation can destroy the food enzyme structure. Variation of the pH outside the operational range can also have a similar deteriorating effect, leading to reduced enzyme activity and complete denaturation. Emphasis is being laid of developing enzymes that have a wide domain of operational temperature and pH range.

In 2015, the European market accounted for nearly 30% of the global market for the food enzymes industry. With large-scale manufacturing of food enzymes, the food and beverage industry of the continent attracted scrutiny for its use of the compounds. The onus is on The European Food Safety Authority (EFSA) to make a list of authorised food enzymes that will be approved for use in the European Union (EU).

The raise in demand for nutraceutical products poses an opportunity for the food enzyme industry. Manufacturers are investing heavily on research and development for finding solutions to chronic diseases. The medicine industry is working hard to incorporate nutritional values in fortified and functional food products, which is driving the need for food enzymes.

2. Feed Enzymes Market

In 2019, the global feed market was valued at $1.2 billion and is expected to rise to $2 billion by 2025 with a CAGR of 9.1%. The growing concern surrounding animal health and demand for more nutrients in their feed are the driving factors for this industry. The Asia Pacific region is the biggest market of food and enzymes because of the large population of livestock and demand for meat and meat products.

On the basis of type, the phytase segment dominates the market in terms of value. This enzymes type is preferred by livestock producers and animal feed manufacturers, due to its high activity at low pH, nutritional value and many other health-related reasons.

By source, the microorganism segment is the most popular in the market due to its use in extracting feed enzyme. The enzymes extracted are resourceful in manufacturing animal feed. As of now, molecular procedures like metagenomics and genomics are employed to discover microbial enzymes for improving feed quality.

On the basis of livestock, the poultry segment is primed for highest growth in terms of value. According to Organisation for Economic Co-operation and Development (OECD) and the Food and Agriculture Organization (FAO) Agricultural Outlook 2017-26, the worldwide meat production will rise sharply in the next decade. Additionally, the production of poultry for meat will account for more than half the production of all additional meat by 2025. Such a scenario presents a growth opportunity where there will be demand for better quality of feed, ultimately driving the feed enzyme industry.

3. Industrial Enzymes Market

The industrial enzymes market is valued at $5.9 billion in 2020 and with a CAGR 6.5%; it will touch an estimated $8.7 billion by 2026. The rising environmental concerns, increasing demand of bioethanol and breakthroughs in R&D will continue to propel the industry for years to come. The industrial usage has been boosted by developments in enzyme engineering and green chemistry, coupled by the increasing use of genetically engineered enzymes. The multifunctional benefits of these enzymes for numerous applications and introduction of new technology to reduce the consumption of chemicals are growth factors for industrial enzymes.

On the basis of type, the carbohydrases segment occupies the largest share in the industrial enzymes market. Classified into amylases, cellulases and much more, such enzymes are used in numerous industries (food and beverages, textiles, leather, detergents and bioethanol). They are cost-effective, consume less space and time, and are easily modified for various processes.

In terms of application, the food and beverages segment has the strongest hold in the industrial enzymes market. Industrial enzymes have multiple applications in the food and beverage industry and the consequent demand is contributing towards their growth. Most of them are food processing aids, however, there are a few additives in the market such as lysozymes and invertases.

North America is the largest market for industrial enzymes, due to the use of modern technology for the application of the enzymes for various causes. The research and development of novel and enhanced products and industrialization also contribute towards driving the demand. Industrial enzymes are increasing in demand for food and beverage industry in the region, leading to a prominent market presence.

4. Specialty Enzymes Market

The specialty enzymes market is valuated at $4.4 billion in 2019 and at a CAGR of 6.9%, it should reach $6.6 billion by 2025. Biological catalysts in pharmaceutical and diagnostics are in demand, which is the main growth factor of specialty enzymes. Technological enhancements for the optimization of pharmaceutical production and improvement of quality have also contributed in increasing the use of these enzymes. The market will grow further on the back of multi-functional advantage of the enzymes and introduction of modern technology to reduce the dependability on chemical catalysts.

By type, the largest market share is occupied by the polymerases & nucleases segment. These enzymes are used in applications such as biocatalysis, pharmaceuticals, diagnosis, research and biotechnology. Polymerases and nucleases are grouped together because both of them are used for catalysing the synthesis of nucleic acid polymers like deoxyribonucleic acid (DNA) and ribonucleic acid (RNA) and other similar applications.

On the basis of application, the pharmaceutical segment occupies the largest market share on the back of increasing demand for drug manufacture and disease diagnostics. Enzymes are now being incorporated into therapies for numerous diseases like cardiovascular, cancer, lysosomal storage disorders and many more, ultimately fuelling demand in the market.

Due to a progressive pharmaceutical scenario backed by heavy research and development, North America continues to be the largest market share for specialty enzymes market. Global industrialization and development of novel products for better performance are also contributing factors.


5. Probiotics Market

The probiotics market was valued at $49.4 billion in 2018 and is estimated to rise to $69.3 billion by 2023 at a CAGR of 7%. The growth will be catalysed by the nutritional benefits of foods fortified with probiotics and relevant innovation in technology in the industry. The increasing use of nutrition rich food, as a result of awareness amongst the consumers regarding a healthy diet, is a growth opportunity. In the Asian countries, the rise in aging population will improve the demand for the manufacturing of such foods and hence, the enzymes. A factor which is proving to be a hindrance is the international quality standards, high R&D costs for developing strains and regulations for probiotic products.

On the basis of ingredients, yeast is the fastest growing segment in the global market. This is due to the rise in demand of products which require saccharomyces boulardii and positive effects on human intestinal flora. Probiotic yogurts are now attracting consumers in developing countries like India, China and Brazil. Japan is also a lucrative market, with numerous types of probiotic food and drinks available in supermarkets.

Based on application, the food and beverages segment has the largest market share. The products that fall under this bracket offer nutrition and are cost- effective. Therefore, they have a marked presence in populated countries. The segment is also the highest revenue-earning market in various regions.


Indian Enzymes Market

The Indian enzyme market is yet to find its feet, as it is quite small when compared to the other sectors in the country. However, the growing awareness about the capabilities of enzymes and the subsequent benefits (both nutrition and cost-wise) will be important growth factors in the coming years. In FY19, the Indian enzyme industry was valued at Rs 23.60 billion with a growth rate of 7%. The developments in pharmaceuticals and chemical sectors will provide much needed boost to the enzyme market and it is expected that the demand of specialty enzymes will be more than the industrial ones.

The number of major players in this market in India is nearly 25, but most of them are into formulations or marketing. The country has sparse local and multinational companies which manufacture a wide variety of enzymes to be employed in various industries like food processing, leather, paper and pulp, pharmaceuticals and many more. Considering the growing need for biological products and nutritional food, these companies are now rapidly increasing their product range.

The Indian manufacturers are expanding their market base by exporting their products to a number of countries. In FY20, on an average per quarter enzymes worth Rs 78.57 crores were exported to USA, Japan, Germany and Denmark. With the revival of the economy, an increase in foreign direct investment will support the industry and promote the use of enzymes. The government will motivate R&D in biotechnology to exhibit the nations capabilities in terms of pharmaceuticals and the relevant technology. This move will make India an attractive market and companies will look for inroads for gaining grounds. Apart from biotechnology and pharmaceuticals, enzymes are resourceful in other industries like household care, food and beverage, leather manufacturing, animal feed, etc. Better R&D infrastructure and increased awareness about enzymes and its products will help in improving the overall market size in India.

Indian Nutraceutical Market

India has a vast expanse of herbal medicines and supplements, which form the core of nutraceuticals. The nutraceutical market in the country was valued at $4 billion in 2017 and is anticipated to grow to $18 billion by 2025, backed by the increasing demand of such products from both upper and middle-class population.

The Indian nutraceutical market is divided into three categories - functional food, beverages and dietary supplements. Products which fall under the first and second are breakfast cereals, sports drinks, fortified flour and glucose. Dietary supplements, on the other hand, have a market share of more than 65% and include items like herbal and non-herbal extracts and macronutrients. The growth of this segment is 17%, which is due to the growing demand and variety of products available.

Another crucial factor which drives the nutraceutical market is the fact that 15% of the countrys population is undernourished. The Government has undertaken several initiatives to address this, including Integrated Child Development Services (ICDS), mid-day meals and National Health Mission (NHM). Alternatively, India has overseen an increase in wealth, as middle and high income families will contribute nearly $4 trillion of the nations incremental consumption by 2030.

Following are the supply drivers that provide strength and support to the Indian nutraceutical market:

• A strong GDP growth among trillion-dollar economies

• A large area covered, spanning 7500 kms, 200 minor ports which makes the country a manufacturing hub

• Home to the highest number of US FDA approved plants outside the US

• Lowest labour costs among South Asian nations

• Rise in the visibility and availability of nutraceuticals due to significant internet penetration

The food processing industry and retail sector of the country is primed to rise to an estimated $958 million by 2025 and $1.7 trillion by 2026 respectively. This will be powered by the nutraceutical segment helping pharmaceutical products become consumer-oriented and the allowance of 100% FDI in the sector.

(Source: MRSS India, ASSOCHAM,,

Indian Probiotic Market

Demand for probiotics ingredient in India was $29.1 million in 2015 and is expected to reach $51.9 million in 2025, growing at an estimated CAGR of 8.4% from 2019 to 2025. Probiotics market by yeast amounted $3 million in 2018 and is expected to increase and reach $5.2 Million in 2025, growing at an estimated CAGR of 7.8% from 2019 to 2025. Probiotics demand for genus lactobacilli was $15.5 million in 2018 and is expected to reach $28.2 million in 2025, growing at an estimated CAGR of 8.7% from 2019 to 2025. In terms of revenue, probiotics used in animal feed was worth $2.8 million in 2018 and is expected to reach $5.0 million in 2025, growing at an estimated CAGR of 8.6% from 2018 to 2025. Probiotics ingredient demand for human probiotics was $24.6 million in 2018 and is expected to reach $46.9 million in 2025, growing at an estimated CAGR of 8.4% from 2019 to 2025.

(Source: grandview research)

Impact of COVID-19 on Enzymes Industry

The outbreak of coronavirus across the whole world has led to the shutdown of businesses and industries for uncertain periods of time. The healthcare sector is at the epicenter of this unprecedented global pandemic challenge, and dramatically rising demand for medicinal drugs, extensive research, and innovative enzyme formulation for human welfare are anticipated to foster the demand for enzymes, which will eventually drive the domestic as well as global market. Enzyme development and manufacturing is a continuous process, however during the month of April 2020, we witnessed a slowdown in the activities due to lack of clarity on operational directives and we have seen the impact of the broken supply chain on the industries in terms of very less operation of transportation across the globe. As of now, the production facilities of your Company remain operational following enhanced internal safety guidelines. The lockdown of industries that are dependent on the consumption of enzymes is currently hampering the growth of the market. Considering your Company Groups products classified as essential commodities, it is believed that that the impact of COVID-19 may not be significant and we will continue to monitor any material changes to future economic conditions.

Company Overview

Advanced Enzyme Technologies Limited ("AETL") started operations about three decades ago with a strong vision supported by a group of professionals. Today, AETL is largest Indian enzyme company that has transformed business globally in the manufacturing of enzymes by improving the fundamentals based on research and technology. Your Company is engaged in the research and development, manufacturing and marketing of 400+ proprietary products developed from over 68 indigenous enzymes and probiotics.

Your Company is the pioneer in the production of enzymes in India and equipped with state-of-the-art manufacturing facilities and research and development centres across India, US and Germany, we offer hundreds of enzyme products. Your Company is committed to providing eco-safe solutions to a wide variety of industries like human healthcare and nutrition, animal nutrition, baking, fruit & vegetable processing, brewing & malting, grain processing, protein modification, dairy processing, specialty applications, textile processing, leather processing, paper & pulp processing, biofuels, biomass processing and biocatalysis etc. Your Company pride itself in being one of the few manufacturers in the world who possess excellence and expertise in fermented enzymes manufacturing. Your Company continues to set trends with the introduction of new applications for the use of enzymes across various industries. Your Company comprises of four wholly owned direct subsidiaries, two subsidiaries (60% & 70%) and five step-down wholly owned subsidiaries as on 31, March 2020.


Your Company helps consumers to access side effect free, enzyme based healthcare products


1. Advanced Enzymes USA ("AEU"):

Advanced Enzymes USA was incorporated on November 01, 2010 with its registered address as 13591, Yorba Avenue, Chino, California-91710. AEU is a body corporate engaged in the research, development and marketing of cutting edge, efficacious and all-natural enzyme solutions of the highest quality catering primarily to the North American and Latin American markets. AEU has stake in following corporations. In terms of the consolidated financial performance, AEUs revenue for FY 2019-20 was Rs 1,937 million, and PAT for FY 2019-20 was Rs 700 million.

a) Advanced Supplementary Technologies Corporation ("AST"):

Advanced Supplementary Technologies Corporation was incorporated on December 30, 2010 with its registered address as 13591, Yorba Avenue, Chino, California-91710. Your Company acquired AST on October 31, 2012. AST is a leading manufacturer of enzyme-based strength supplements to support cardiovascular, anti-inflammatory, joint, digestive and colon health. AST uses only non-genetically modified, natural ingredients, tested by its team of leading scientists and industry experts. AST helps customers achieve a healthy life-style with enzyme supplements that are formulated and manufactured in-house, assuring customers of the highest quality, activity, purity and safety. AST is a subsidiary of Advanced Enzymes USA.

b) Cal-India Foods International (doing business as Specialty Enzymes and Biotechnologies, SEB):

Cal-India was incorporated on March 25, 1985 and acquired by your Company on April 04, 2011 with its registered address as 13591, Yorba Avenue, Chino, California-91710. SEB is a leading producer of enzymes in the Western Hemisphere.

Specialty Enzymes and Biotechnologies offers complete enzyme solutions for healthcare and nutrition primarily to North America and Latin America. A subsidiary of Advanced Enzymes USA, the company specializes in creating customized enzyme blends, from conception to finished products, and also offers highly effective established enzyme products.

c) Enzyme Innovation, Inc. ("EI") :

Enzyme Innovation, Inc. was incorporated on October 8, 2013 as Enzytech, Inc with its registered address as 13591, Yorba Avenue, Chino, California-91710. Its name was changed to Enzyme Innovation, Inc. on April 3, 2014. Enzyme Innovation is a subsidiary of SEB, USA focused on marketing and business development of industrial enzymes in America. Enzyme Innovations caters to industries like Baking & Milling, Brewing & Malting, Brewing & Distilling, Fruit & Vegetable processing, Animal Feed, Protein Modification, Grain Alcohol, Paper & Pulp, Waste Management, Wine and Detergents & Cleaning aids. EI specializes in customized solutions.

d) Dynamic Enzymes, Inc. ("DEI"):

Dynamic Enzymes, Inc. was incorporated on February 24, 2015 under the laws of the State of California with its registered address at 4880, Murietia St., Ste. D, Chino, California 91710 since incorporation. DEI, inter alia, offers high quality systemic and digestive enzyme supplements through retail channels.

2. Advanced Bio-Agro Tech Limited ("ABAT"):

ABAT is a public limited company initially incorporated as a private company on November 9, 2004 with registered office at A-Wing, 5th floor, Sun Magnetica, Louiswadi, Thane(W) 400064, Maharashtra, India. A subsidiary of your Company, ABAT is, inter alia, engaged in the business of promotion, development, marketing and selling products of your Company in the Animal Health and Nutrition segment and also developing market in crop saving drugs, composting etc. ABAT has established itself as a leader of poultry enzyme solutions within the Indian sub-continent, and offers solutions to the large South East Asian markets of Vietnam, Thailand and Malaysia. In terms of the financial performance, during FY 2019-20 ABATs revenue was Rs 389 million and PAT was Rs 56 million.

3. Advanced EnzyTech Solutions Limited ("AESL"):

It was incorporated on September 1,2008 as a public limited company with registered office at A-Wing, 5th floor, Sun Magnetica, Louiswadi, Thane(W) 400064, Maharashtra, India. Advanced EnzyTech Solutions is a wholly owned subsidiary of AETL. AESL is engaged in the business of promotion, development, marketing and selling products of your Company in the bioprocessing non-food segment such as textile, pulp and paper and other process industries and providing enzymatic and other solution to them including providing of solution to pollution related problems faced by the process industries by using the said products. AESL aims to replace the traditional harsh chemical processes in these industries with newer, eco-friendly, yet cost-effective solutions using enzymes, micro-organisms and bio-degradable chemicals. In terms of the financial performance for FY 2019-20, AESLs revenue was Rs 91 million and PAT was Rs 11 million.

4. JC Biotech Private Limited ("JC Biotech"):

JC Biotech was established in the year 1991 and registered office is at 8-2-269/S/3/A, Plot No.3, Sagar Society, Road No.2, Banjara Hills, Hyderabad, Telangana -500034, with the objective of manufacturing nutraceuticals, bio-pharmaceuticals and bio-chemicals. Effective December 01, 2016, JC Biotech has become a subsidiary as 70% stake of JC Biotech was acquired by your Company as on that date. Apart from continued development and manufacturing of bio-pharmaceutical molecules. In terms of the financial performance for FY 2019-20, JC Biotechs revenue was Rs 424 million and PAT was Rs 61 million.

5. Advanced Enzymes (Malaysia) Sdn. Bhd.:

Advanced Enzymes (Malaysia) Sdn. Bhd. ("AEM") (erstwhile Palm Techno Ventures Enzyme Sdn Bhd) is a 100% subsidiary of your Company. As its a newly acquired company during 2017 (incorporated in 2016), AEM conducted trials on products & yet to generate sales. During the year, expenditures were incurred on payment of salaries of technical person, administration and on trial on products and AEM recovered such expenses from the parent company and write-off of inter-company liabilities resulted in a profit of around Rs 4 million. During the year, the Board approved the discontinuation of operations and closure of AEM and to initiate the process of closure thereto as AEM was not giving desired results.

6. Advanced Enzymes Europe B.V., Amsterdam (Netherlands) ("AEE BV"):

AEE BV was incorporated as a wholly-owned Subsidiary on July 11, 2017. It is registered with the Chamber of Commerce having issued share capital of €2 million. AEE BV is an SPV for European market and holds 100% Equity of evoxx technologies GmbH. In terms of the consolidated financial performance (including evoxx technologies, GmbH) for FY20, AEE BVs revenue was Rs 264 million and loss of Rs 31 million (which includes about Rs 80 million of operational gain and Rs 63 million of amortization expense and finance cost of Rs 48 million).

evoxx technologies GmbH ("evoxx"):

Your Company bought 100% stake in evoxx during August 2017 through AEE BV. Revenues for evoxx was Rs 264 million and had positive impact on the bottom line by Rs 21 million (which includes about Rs 45 million of operational profit and charge Rs 15 million of amortization expense and finance cost of Rs 9 million).

The comparative numbers of the aforesaid subsidiaries can be referred in the Boards Report, which forms an integral part of this Annual Report

Product Category Discussion

Your Company caters to diversified industries and verticals like human nutrition, animal nutrition and bio-processing. Enhancing nutrition for animals, and also helping the industry to replace traditional thermal-mechanical- chemical processes into the enzyme-based process is one of our goals. In FY20, human nutrition vertical comprising of active ingredient for nutraceuticals and pharmaceuticals contributed 75% of the revenues followed by animal nutrition and bio-processing contributing 12% and 13% respectively.

1. Human Nutrition:


Your Company provides proprietary enzyme products and customized enzyme solutions to various pharmaceutical and nutraceutical companies in India, North America, Asia (ex-India), Europe and other countries globally. Customers use these enzymes as active ingredients in their pharmaceutical and nutraceutical formulations.


Probiotics are live microorganisms, when administered in sufficient amount, confer health benefits to human and animals. Probiotics have now become an integral part of several therapies for the digestive disorders and newer applications for treatment of several other diseases are being developed. Probiotics act by fighting with the disease causing microorganisms and by secreting beneficial metabolites in the human/animal system. Your Company has developed and upscaled technologies for the production and application of several important probiotics.

2. Animal Nutrition:


Enzymes increase the digestibility of modern animal feeds, which improves feed: gain ratios for ruminants and monogastric animals alike. Enzymes like cellulase and hemicellulase improve the nutritive value of silage and corn/soy-based feeds. Other enzymes like alpha-galactosidase increase the nutritional value of Non-Starch Polysaccharides (NSP). Enzymes may benefit dogs and cats by improving the digestibility of pet foods and strengthening the immune system. Our enzymes consistently deliver quality and effectiveness while having an economic value.


The ability of probiotic to produce enzymes, beneficial metabolites and competitive exclusion of harmful microorganism has led to their widespread applications in animal healthcare as well, where they are used for growth promotion and also as an antibiotic replacement tool. Your Company has developed and assessed efficacy of probiotic formulations useful in Animal healthcare.

3. Bio-Processing:

Food Processing:

Enzymes play an essential role in developing more nutritious and appealing food and beverage products to the modern world, more-over enzymes offer significant benefits beyond the scope of traditional alternatives. Your Company provides proprietary enzyme products and customized enzyme solutions for food processing industries like baking, dairy and cheese processing, fruit and vegetable processing, cereal extraction, brewing, grain processing, protein processing and oils and fats processing. Our specialized enzyme products help customers to improve the quality of their products, reduce wastages, optimize resources, produce higher yields, reduce costs and also to decrease the environmental pollution.

Non-Food Processing:

Enzymes are considered as potent biocatalysts for a large number of reactions replacing chemical catalysts. Your Company offers eco-safe solutions to a variety of industries such as textiles, leather, detergent and pulp and paper, which are used in the manufacturing of wide range of products. The biological solutions of your Company improve the efficiency of industrial processes by saving energy, water and other raw materials, while reducing waste and effluent load, thereby helping to comply with the pollution norms while reducing the overall process cost.

Research & Development (R&D)

The DSIR approved R & D centres of your Company focus on development, evaluation, validation and upscaling of technologies for the commercial production and novel enzyme formulation for industrial processing & in human welfare. The research centre has developed expertise in cloning and expression of industrial enzymes in suitable and safe microbial hosts. The centres have developed strains expressing thermostable enzymes besides other enzymes of mesophilic origin. Technology for production of EPA and DHA using immobilized lipase (in house) has been developed, scaled up and successfully commercialized. Technology for synthesis of EPA DHA rich triglycerides, using lipases, has been developed.

Probiotic research has led to the development of strains and technology for production for some important probiotics belonging to Bacillus and Lactobacillus genus. Few technologies have been successfully scaled up. Our R&D Centre at Sinnar carry out research and development on improvement of enzyme production through conventional mutation technique; optimization and improvement in the fermentation technologies, and studies required for the scale-up of enzyme production. The centre has optimized fermentation technologies for the production of thermostable mannanase and xylanase. Studies related to scale up of the bacterium Lactobacillus resulted in successful upscaling. The centre has also been able to develop a proprietary technology for high density cultivation of spore forming bacterium Bacillus coagulans.

evoxx enhances our product portfolio and offerings for the Pharma Bio-Catalysis and Food Bio-Processing Industries and also brings in certain specialized nutritional carbohydrates. evoxx is helping us in strengthen our R&D capabilities.

Financial Analysis on consolidated basis:

1. Revenue from Operations:

Your Companys revenue from operations on consolidated basis increased to Rs 4,440 million in the financial year 2019-20 ("FY20") from Rs 4,196 million in the financial year 2018-19 ("FY19"), a growth rate of 6%. The total revenue comprises of International sales amounting to Rs 2,537 million (FY19 - Rs 2,494 million), growth of 2% and Domestic sales amounting to Rs 1,903 million (including Export Incentives of Rs 24 million) (FY19 - Rs 1,702 million (including Export Incentives of Rs 19 million)) increase of 12%.

Your Companys domestic sales constitute about 43% of revenue from operations during FY20 as compared to 41% of revenue from operations during FY19. International sales were 57% of revenue from operations as compared to 59% of revenue from operations during FY19.

Financial Costs:

Financial costs decreased to Rs 30 million in FY20 from Rs 39 million in FY19, a decrease of around 23%.

2. Profit:

Consolidated EBITDA (Earnings before interest, tax and depreciation & amortisation excluding other income) margin during FY20 was Rs 2,023 million (46%) as compared to Rs 1,819 million (43%) during FY19, increase of 11%. Profit before tax stood at Rs 1,791 million (40%) during FY20 as against Rs 1,619 million (39%) in the previous year, a growth of 11%. Profit after tax stood at Rs 1,330 million during FY20 as compared to Rs 1,159 million during the FY19, a growth of 15%.

3. Other Income:

Other income for FY20 was Rs 56 million as compared to Rs 50 million in FY19.

4. Depreciation & Amortization:

Depreciation & Amortization charge for the FY20 higher by 22% at Rs 258 million as compared to Rs 211 million in the previous year. Increase in depreciation and amortization supported by Tangible assets (Plant and machinery) for amounted to Rs 47 million decrease in amortisation supported by Intangible assets Rs 0.10 million

5. Net Worth and Returns:

The Net Worth of the shareholders stood at Rs 8,397 million as at March 31, 2020 as compared to Rs 6,788 million in the previous year. Return on Equity (ROE) for the year FY20 is 18% as compared to 19% for the previous year. (Return ratio is calculated based on average shareholders fund)

6. Cash and Cash Equivalents:

Cash and Cash Equivalents in FY20 stood at Rs 830 million against Rs 234 million in FY19.

Details of significant changes (i.e. Change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefore:

Ratios 2019-20 2018-19 Variance Reasons for variance
Interest coverage ratio 57.99 times 41.46 times about 39.87% improvement Repayment of loans and lower average utilization of working capital credit facilities and higher profits during the year under review.
Current ratio 5.93 times 4.16 times about 42.57% improvement Cash generated from operations during the year used for repayment of borrowings (including current maturities) coupled with lower utilization of working capital credit facilities and deployment of surplus funds in current investments resulted in improvement of current ratio.


0.02 times 0.05 times 60% improvement Repayment of loans and lower average utilization of working capital credit facilities.

Note 1: There has been no significant change in the Debtors turnover ratio, Inventory turnover ratio, Operating profit margin and Net Profit margin, as compared to the financial year 2018-19

Note 2: Optimisation of operating costs resulted in improvement of EBITDA margin from 43% to 45% resulted in improvement of margins and consequently improved return of net worth.


Your Company has reviewed its business model and will continue to focus on human and animal nutrition; also efforts will be made to expand its product portfolio and market of Probiotics.

Your Company intends to expand its presence in the huge global market for Animal Feed. We will continue to drive revenues by expanding our distribution network and registrations in key target geographies like North America, Europe and Latin America. Your Company also continues to explore new avenues, both organically and inorganically, to establish a significant presence in key target segments.

To drive the growth of enzymes and probiotics business, your Company is fairly comfortable with its existing capacities and capital investments. Currently, we are operating at 55% (approximately) of the installed capacity of its fermentation assets, which is sufficient to fulfil our present customer needs. Your Company intends to set trends in the R&D areas mainly for the formulation for new applications and shall continue to significantly invest to build its portfolio in focus applications and industries.

Risks & Concerns

1. Customer concentration:

Your Companys top 10 customers concentrate around 35% of total revenue of the Company on consolidated basis, which creates concentration risk. Any reduction or discontinuation in demand from the customers may have an adverse effect on our business prospects, financial condition and results of operation. Your Company has de-risked the business model having diversified client base with more than 700 customers and tapping new geographies, thereby the risk is being mitigated.

2. Forex risk:

A significant portion of our revenues are derived by exporting our enzyme products and solutions to North America, Asia (ex-India), Europe and various other countries. For the fiscal year ended March 31, 2020, 57% of our revenue from operations was from international markets, while 43% was contributed by the Indian market. While depreciation of the Rupee against the U.S. Dollar and other foreign currencies increases the Rupee value of such revenues, an appreciation of the Rupee, particularly with respect to the U.S. Dollar, decreases the Rupee value of our revenues. The Company uses derivative instruments, i.e., foreign exchange forward contracts to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecasted transactions and recognized assets and liabilities.

3. Competitive risk:

Our one of the main product "Serratiopeptidase" which is manufactured by the subsidiary JC Biotech. Competition from few new entrants in the market with homogeneous product and consequent pricing pressures may adversely affect sales of our product. We are confident on our product & by substantially maintaining good customer relationship in the market and constantly monitoring this issue thereby mitigating the risk.

4. Regulatory & Compliance risk:

The Company is exposed to risks pertaining to various applicable statutes, laws and regulations. Non-compliance, if any, may result in financial loss / penalties. The framework is followed by the Company wherein the requisite compliances are reviewed periodically through internal auditors & external compliance audits.

For Financial risk management, please refer to Note No. 51(C) of the Consolidated Financial Statements which forms an integral part of this Annual Report.


The increase in the population is driving the demand of enzymes and probiotics across the world and as we all know a simple rule of economics, higher the population bigger the opportunity.

The Company may benefit from increase in healthcare spending in the U.S. and India. U.S. has the highest health spend in the world and drastically it moving towards the usage of human healthcare enzymes and Probiotics. The usage of high protein and genetically modified proteins is picking up the market in the country to match the high efficiency and fast moving lifestyle. Nevertheless the medical situations like COVID-19, Ebola, etc. which are arising in the world is forcing people towards consuming immunity booster enzymes and probiotics. In 2018 U.S spent on healthcare recorded at 14.3% of GDP and it is projected to grow at an average annual rate of 5.4% for 2019-28 and to reach $6.2 trillion by 2028 which is 1.1% faster than GDP per year. Price growth for medical goods and services is projected to accelerate, averaging 2.4% per year for 2019-28.

Coming to the Indian market, the population in India is increasing at very high rate and it is expected to reach 1.4 billion by 2022. At the same time when you look at the numbers of FY20, the annual health spending is just 1.29% of GDP which shows the lack of health awareness and a lot of untapped market. Since past few years an upside gradual shift in health spending is seen in the Indian lifestyle, which shows a positive sense.

Your Company may benefit from the increase in pet industry spending in the US. According to the American Pet Products Association (APPA), the overall pet industry spending increased. Your Company offers a number of products to the animal healthcare industry. Your Company also has subsidiaries in the US. Increase in pet industry spending may increase demand for the Companys products.

The rising demand of dairy, meat and poultry farms across the globe will drive the demand of animal healthcare enzymes in the market. The said market was sized at $1.3bn in 2018 which is expected to reach at $2.3bn by 2026. The OECD-FAO in their Agricultural Outlook to 2026 produced a series of projections for livestock products.

(Source:, OECD-FAO Agricultural Outlook 2019-2028)


Your Company has to abide by stringent regulations and specifications pertaining to its products in its domestic and export markets. For instance - newly marketed food enzymes need a prior market authorization by the US Food and Drug Administration (FDA) in the US and by the European Food Safety Authority (EFSA) in Europe. Additionally, few EU Member States have additional national legislations on food enzymes. These legislations include specifications for purity and activity and are aimed at ensuring the safety of enzyme preparations for the final consumers. The Company has to incur significant cost to conform to the regulations and any non-conformance may result in fines and other penalties, which may be derogatory to the Companys image.

Your Company operates in a highly competitive market. Some of the key factors driving competition in the industry include product functionality and quality, pricing, customer service, product innovation and effectiveness of marketing and distribution channels. To survive and succeed in a stiff competitive environment, it is very important for the Company to distinguish its product and service offerings through a clear and unique value proposition. Some of the competitors of the Company have greater financial, marketing and other resources, which enables them to pursue more vigorous marketing and expansion activities. Intense competition may have a material adverse impact on the Companys operations.

Internal Control and Risk Management System

In your Company, an internal control system is in place to ensure the effectiveness and efficiency of the operations. Internal control system plays a significant role in the process of risk identification and its mitigation. It is a valuable contribution which ensures compliance of applicable laws and regulations.

Risk management is the primary function of the internal control system. In your Company, proper communication channel from top-to-bottom and vice versa safeguard the internal control system by considering internal and external factors in an appropriate and timely manner.

Your Company has adopted a revised Risk Assessment & Management policy in supersession of the existing policy, which embeds the vision that a robust Risk Management system ensures commensurate controls and monitoring mechanism for smooth and efficient management of Business. The Policy outlines the framework for identification, measurement, evaluation, monitoring and mitigation of various risks. The Internal Auditors have also reviewed the Risk Management framework of the Company. The Risk Registers are prepared by the concerned departments wherein the respective risks are identified along with its current control activities and the mitigation plans, if any. Thereafter, the registers are reviewed periodically.

IT system is continually improved on preventive basis and to address challenges faced by IT system due to hacking and other issues.

We evaluate the effectiveness and efficiency of an internal control system by setting up the targets on a continuous basis with corrective actions in case of any deficiency by comparing it with its actual results.

Your Company maintains appropriate and adequate Internal Control System / Internal Financial Control commensurate to its size and nature of operations. Your Companys Internal control systems are tested and certified by the Internal Auditors and Statutory Auditors of the Company.

Material developments in Human Resources / Industrial Relations

Your Company continues to place significant importance on its Human Resources and enjoys cordial relations at all levels. Our constant endeavour is to invest in people and people processes to improve human capital for the organization and service delivery to our stake holders.

Attracting, developing and retaining the right talent will be a key strategic imperative and the organization continues its undivided attention towards that. Your Company recognizes the fact that Human Capital is one of the vital constituents of a successful organization. The growth of your Company and execution of new projects places emphasis on the recruitment process and your Company has been successful in attracting professional talent. New talent was inducted into the organization to fill the gaps at various levels within the organization this year. Your Company is having a talented pool of around 331 employees as on March 31,2020, comprising of professionals from diverse backgrounds like R & D, Sales, Finance, Legal, IP & Regulatory, manufacturing etc. Your Company strives to provide a conducive and supportive work environment to help the employees excel through various employee engagement programs. The management strengthens Human Resources by making available better tools, technology, techniques at the work place to harness the latent potential as it has always aimed at bettering the performance of individuals and groups.

To sharpen the skills, update the concepts and to gain more knowledge Human Resource department constantly organized various training and development programs. For certain critical functional heads, external technical training was provided to make them ready for taking up new projects. Employees health and safety measures were taken care at work places, manufacturing areas, etc. Human Resources endeavours to create a culture where learning is a natural outcome of all engagements. It is important to have a growth mindset where learning grows when you share and help others succeed. Your Company has stressed lot of importance on de-stressing techniques as it strongly believes that "A happy individual always performs well". Industrial relations at the Company were cordial throughout the year.

Cautionary Statement

Statements made in this Management Discussion and Analysis Report may contain certain forward-looking statements based on various assumptions on the Companys present and future business strategies and the environment in which it operates. Actual results may differ substantially or materially from those expressed or implied due to risk and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India and abroad, volatility in interest rates and in the securities market, new regulations and Government policies that may impact the Companys businesses as well as the ability to implement its strategies. The information contained herein is as of the date referenced and the Company does not undertake any obligation to update these statements. The Company has obtained all market data and other information from sources believed to be reliable or its internal estimates, although its accuracy or completeness cannot be guaranteed.