Godrej Agrovet Ltd
NSE:GODREJAGRO
Earnings Call Analysis
Q3-2024 Analysis
Godrej Agrovet Ltd
The company is sharpening its focus on the Contract Development and Manufacturing Organization (CDMO) business, leveraging a new R&D center to support a robust pipeline of products. This strategic shift is anticipated to drive double-digit growth rates, potentially doubling the CDMO business every year based on its current smaller base. Innovative R&D has accelerated expansion and diversification efforts, particularly within enterprise products, to include fewer but more sustainable and strategically beneficial offerings. The impact of these new enterprise products is projected to materialize in FY '25 and onward.
Confidence is high for achieving 8% to 9% volume growth in the coming year, driven by favorable market conditions, such as stable raw material pricing due to government policies and a strong soya bean crop. These factors, combined with volume growth, are expected to facilitate further margin expansion.
R&D improvements are expected to demonstrate significant benefits by FY '25, despite volatile market conditions. Strategic decisions are being made to ensure that even amidst pricing and volume pressures, financial performance remains robust. This includes optimizing asset utilization and integrating new products into existing infrastructure to maximize returns.
Efforts are underway to segregate and delineate various states of plantations, with a focus on improving practices to increase fresh fruit bunch (FFB) per hectare. This initiative aims to tap into existing opportunities for enhancing agricultural productivity.
While acknowledging the extraordinary nature of the current financial year, the company seeks to maintain performance levels. A primary goal is to manage inventory levels and working capital efficiently, thereby ensuring financial hygiene. Attainment of such standards again in the next year would be considered a significant accomplishment.
The company is addressing market oversupply by aligning production closer to actual orders and liquidating inventories strategically. The aim is to achieve a more balanced supply-demand situation in the enterprise business, potentially taking another couple of quarters to gain visibility and stability. Meanwhile, margin pressure has reduced from past levels but still faces challenges due to current low export prices and diminished order sizes.
As the CDMO segment grows, it is expected to overtake the enterprise business, bringing higher contribution margins of 5% to 7% more. Additionally, lifecycle management projects are further boosting product sales margins by 4% to 5%. This segment's success is key to regaining and potentially exceeding previous gross margin levels, with FY '25 or FY '26 set as target milestones for the realization of full optimization and revenues from new products.
In current market conditions, enterprise margins range around 20% to 25%, whereas CDMO margins are projected to be at least 30%, possibly reaching 35% to 40%. This signifies a strategic value addition through the CDMO business, which provides higher profitability compared to the enterprise segment.
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Ladies and gentlemen, good day, and welcome to the Godrej Agrovet Limited Q3 FY '24 Post Results Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded.
Before we start, I would like to point out that some statements made in today's call may be forward-looking, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.
I now hand the conference over to Mr. Ranjit Cirumalla from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you, Zico. Good afternoon, everyone, and thank you for joining us on Godrej Agrovet Q3 and 9 Months FY '24 Earnings Conference Call. From the management, we have with us Mr. Nadir Godrej, Chairman of the company; Mr. Balram Yadav, Managing Director; Mr. Burjis Godrej, Executive Director; Mr. Vardaraj, Chief Financial Officer; and Mr. Anurag Roy, Chief Executive Officer of Astec LifeSciences. We would like to begin the call with opening remarks from the management, following which we will open the forum for a Q&A session. Thank you. I would now like to invite Mr. Nadir Godrej to make his initial remarks.
Good afternoon, everyone. I welcome you all to the Godrej Agrovet earnings call. I hope you're all doing well. Excluding nonrecurring and exceptional items, Godrej Agrovet reported a strong year-on-year growth of 26% in profit after tax in quarter 3 fiscal year '24, primarily led by the Domestic Crop Protection and Dairy businesses. The EBITDA margin continued to improve. Excluding Astec LifeSciences, growth and profit after tax were even higher at 65% in quarter 3 fiscal year '24. The Domestic Crop Protection business continued to deliver robust and consistent financial performance with an excellent growth of 73% in top line and a segment margin of 30% in quarter 3 fiscal year '24. Our food businesses also delivered healthy volume growth in branded products. The dairy business remains on a strong recovery path and achieved significant improvement in segment margin in quarter 3 fiscal year '24. The poultry business maintained volume growth in branded products. However, profitability was impacted by a drop in live bird prices. In the feeds business, sustained volume growth in cattle feed was offset by slightly lower poultry feed and flat aqua feed volume. The Vegetable Oil business profitability was impacted by lower end product prices coupled with a drop in Fresh Fruit Bunch volume. Astec LifeSciences continue to witness realization and demand headwinds in the enterprise product on account of an inventory glut across these markets. On a 9-month fiscal year '24 basis, profit after tax grew by 33% year-on-year. Except Astec and Vegetable Oil, all the other businesses contributed to strong growth and profitability. Now coming to the key financial and business highlights of each of our business segments. The Animal Feed segment achieved the highest ever quarterly volume in quarter 3 fiscal year '24. Continued growth in cattle feed volumes of 8% year-on-year was offset by lower poultry feed sales. Segment margin was adversely impacted due to the unfavorable commodity movement. In the Vegetable Oil segment, lower end product prices and a marginal drop in fresh food bunches impacted top line and profitability in quarter 3 fiscal year '24. Crude palm oil and palm kernel oil prices were lower by 9% and 12% year-on-year, respectively. The oil extraction ratio, however, improved sequentially as well as versus quarter 3 fiscal year '23. The stand-alone Crop Protection segment maintained strong growth momentum in the third quarter as well. The top line and margin growth in quarter 3 fiscal year '24 was driven by higher sales of in-licensed portfolio and plant growth regulator products, coupled with lower returns as compared to the previous year. In Astec LifeSciences and the enterprise business has been facing extremely challenging external market conditions, which have severely impacted its top line and margin performance. Continued destocking in the export market and excess supply from China resulted in a significant margin erosion of the enterprise business. The dairy business achieved robust improvement in segment margin, led by significant operational efficiency and lower raw material costs. Value-added products, revenues grew by 20% year-on-year in quarter 3, with the salience of value-added products increased to 36% of total sales in the 9 months of fiscal year '24 from 32% a year ago. Revenues and profitability of the poultry business were impacted by sharp drop in live bird prices on account of excess supply in quarter 3 fiscal year '24 vis-a-vis quarter 3 fiscal year '23. The Branded business, however, maintained early volume growth of 15% year-on-year in quarter 2. The Real Good Chicken category continue to achieve margin improvement. Our joint venture in Bangladesh, ACI Godrej, recorded PBT growth of 145% year-on-year on a local currency base -- basis in quarter 3 fiscal year '24. The margin profile includes significantly across categories, primarily due to favorable commodity position. That concludes our business and financial performance update for the quarter. With this, I close my opening remarks. We will now be happy to take your questions. Thank you.
[Operator Instructions] The first question is from the line of [ Sarvan Vora ] from Premier Capital.
My first question is to Mr. Roy on Astec LifeSciences. Sir, I wanted to better understand from you the -- how we are looking at the CDMO business going ahead and a little more qualitative color from you on how things have panned out in the last 2, 3 quarters since our R&D facility was commissioned?
Thanks for the question. So our CDMO business is moving as per our guidance and targets. In fact, very much on mark to hit the numbers and performance on the CDMO. Clearly, from April since we have put our new R&D centers, there have been a lot of products which we have put in pipeline. And at very fast pace, we are diversifying our existing portfolio from existing enterprise products and planning to bring in new products as we get into the next financial year. So very well on track on CDMO side of the business, meeting or exceeding our guidance. Despite the challenges from some of the innovative side of the business as well, there have been companies who have been deferring some of the CDMO volumes. We would be very few companies in the market wherein we have held on to those volumes and financial targets. So very much on target on the CDMO side.
Got it. Sir, your CapEx guidance for '24 and '25?
We are still working on putting that together. But as we have mentioned in the previous as well, while we are facing challenging scenarios in the market, any strategic investments particularly with reference to our future growth platforms like CDMO. We are not shying away for any new CapEx. We are on track on making those investments. Just to give you an example, our Herbicide 2 plant, which we had mentioned in the previous calls, it's on track for commissioning, and we'll be commissioning the next 1 to 2 months.
Similarly, a lot of debottlenecking initiatives, initiatives for new product launches for diversification from our existing enterprise portfolio, all those investments will be part of the future CapEx. The exact numbers and detail, we'll talk about in the next conference call as we go through the budget and the strategic exercise in coming months.
Got it. Got it. And my second question on Godrej Agrovet. First of all, many congratulations on an improved performance. I want to get a more longer-term view from the management. So if I see the period between 2014 and '19, this was a company that made consistently return on capital above 20%. But if I see after that, these 5 years, the company has had various amount of challenges. And I'm looking at the 5-year period because it is long term enough. So I just wanted to think, how you think about the company over longer term. In -- just in continuation to that, our company's stock price remains below the listing price for almost 7, 8 years of listing. And I just want to get a sense, do you feel that the structure of the business having so many diversified businesses under one entity creates a negative hedge for the company? Just any thoughts around that.
So I -- let me just answer the portfolio question first. I think food and agri business is all over the world are cyclical as well as keen. And you have already seen what has happened to a company like Astec LifeSciences, which was a star company until about a few quarters ago, but this is the nature of this business -- these businesses. And one of the advantages we had at one time of having these multiple businesses was hedge, because at least -- even if 1 or 2 businesses don't do well, rest of the businesses will do well. But of course, there is a realization that we should do a few things, but we should do them in a bigger scale, for bigger investments. I think that portfolio strategy is being played out, will be played out in time to come and we are conscious of the fact that the share price needs to go up. So this kind of focus we will bring in the future. These things are not easy to do, to make these choices. It's not easy to conclude easily. I can definitely tell you as we go along Q-on-Q, we will make some or other [Technical Difficulty]
ladies and gentlemen, please stay connected while we reconnect the management line. We have the management line reconnected. You can go ahead, sir.
I don't know at what point it got disconnected. So can you refresh until what point you heard...
You were talking about the portfolio.
Yes, yes. So the portfolio is definitely under consideration. And I think in next few quarters, you will see some announcements where we will give you an indication that where we are going to put our capital in future.
Right, right. I just played that point because we are market leaders in all our segments and we just don't get the desired recognition that we should. So as a concerned investor, I just wanted to make that point for you.
100%. But I must tell you that if you see margin expansion is one of the key, I think, so far area for us. And we have already stratified that. Without Astec LifeSciences, all the other businesses have shown significant improvement. However, I think we will make these portfolio choices have to go along in future.
And even for asset, the future looks very bright because of the R&D center.
[Operator Instructions] The next question is from the line of Abhijit Takala from Kotak Securities.
Two, three on the key segments. First on Animal Feed, there's been a compression in margins this quarter again on the back of commodity prices. If you could please elaborate a bit on exactly what's happened there? And what we should expect in 4Q and maybe the early part of fiscal '25 as well?
So one thing which I just wanted to specify that Q-on-Q, it is very difficult because the commodity price movement. But, I think, if you see the first 9 months that our EBIT per tonne from INR 1,203 has gone to INR 1,435. So there is almost a 19% improvement in first 9 months. And this Q-on-Q variations will be there. And I can definitely tell you, this quarter will be -- this average is going to improve further because this quarter our margins will be better than the -- margin per tonne for the first 9 months.
Okay. Got it. So that's helpful. Then on the Vegetable Oil business, if it's possible to just share the data points around volumes and OER for the quarter. And also just wanted to check, when we look at the revenue numbers for the quarter, it's about minus 2%, whereas the CPO realizations are down about minus 9%, and there's also a 4% decline in FFB arrival volumes. So, I mean, how do we arrive at a 2% revenue decline number? Is it value-added products that have contributed to the revenues, if you could please explain that?
Go ahead.
So in terms of the volume drop in FFB, we had talked about in Q3, there was a 4% drop. But if you were to look at -- on a 9-month basis, we have an 8% growth in the FFB arrival which is there. On the question in terms of revenue versus the volume, it's because of the mix of the value-added products.
Was there any change in stock?
Inventory, there is no significant...
Nothing significant change. Okay.
Okay. But on these value-added products, would it be possible to just quantify the sales for the quarter?
We will share it off-line, Abhijit. Abhijit, one thing which I also want to tell you that just [ OPP ] business -- these are -- this is a plantation business, they are trees. Their behavior is never consistent with what has happened in the past. So sometimes, they will start producing early for a year -- when they got delayed also because it depends on temperature, monsoon condition. So I'm saying that you maybe look at this business as YTD in every area. So YDT, we will register a growth in volume, no problem. We will also get to get close to last year OER, which is lagging a little because these 3 months, even the FFB volume is going to left, the OER is very good. And pricing is related to international prices.
[indiscernible].
One additional thing you said the volatility of business is coming down, and that was the plan. We set up a refinery. And refinery is now fully operational, and have definitely hedged is drop in CPO prices to a certain extent. We also set up a solvent extraction plant, which is performing better than what we expected. We extract oil from palm kernel cakes also. So I think we will continue to undertake downstream investments and getting more and more value-added products out of the basic oil we produce.
Sure, sure. Understood. Also, just the annual fee, the category-wise growth rates for the YTD period, it would be possible to share that, Cattle Feed versus the others?
So Cattle Feed, close to 14% growth, but on a very big base of more than 0.5 million tonnes. And -- but the layer feed is our big problem there, we have a 14% reduction. And that is not of course we have lost market share. It is just because the population is -- was low during the peak months and that is also reflected in the very high -- or all-time high egg prices prevailing right now. In Aqua Feed, we have 15% growth. So overall, the growth is 14% -- 4% in volumes, but we believe that this year we will finish at about between 5.5% to 6% growth.
Got it. Just one last thing, if I may, if you permit me. On Astec, the CDMO revenues seem to be down year-over-year this quarter. So is it more of just a deferment issue or is it something else? And can we expect a rebound in the fourth quarter? And then just on the Tyson business, the decline in live bird prices, is that primarily because of festive season or something else? And what's the outlook over there?
So I think seasonality of live bird prices is not new. But what surprised is that the highest consumption and high prime month -- priced months are normally October, November and December. And there was so much of overproduction this year that the prices really declined. However, I must say that correction has already started happening. And we believe that prices will be back at July, August levels in February and definitely by March, and will continue for a few more months.
And for the Astec LifeSciences, we are this quarter, the CDMO business was deferred into the subsequent quarter. So it's not a loss in business, that's number one. The number two, we -- as I mentioned earlier, we are on target to meet or exceed our commitment on the CDMO performances, the revenues as we have indicated in the previous call. And number three, I think when it comes to the CDMO business, that's one of the suggestion from my side, the quarter-on-quarter performance typically doesn't work because you'll see a lot of times either some of the businesses have pulled into the previous quarters or deferred into the subsequent quarters. So quarter-on-quarter, it does not give a good gauge on how the business is doing. It's best to look at it on an annualized basis. That will give you a great view on how the businesses are growing.
[Operator Instructions] Our next question is from the line of Ankur Periwal from Axis Capital.
Okay. So first question on Astec again. We -- from an enterprise business perspective, there was pretty -- a lot pricing pressure there, due to which the mix had changed significantly. While CDMO, I take your point in terms of more a Q-on-Q deferral, and hence, from a YTD perspective or maybe even from a full year perspective broadly. What are your thoughts how the business mix is changing? And secondly, given the new R&D center has been up and running, your thoughts in terms of increase in R&D budgets, the molecules? And if you are diversifying apart from [ as well domestic ] to others?
Right. So our guidance on increased focus on CDMO business remains intact. The new R&D center has really helped us in our initiatives, wherein we created a good pipeline of the product as we get into subsequent years on the CDMO side. So our story or strategy around CDMO or our guidance to almost grow by 50%, 60% every year or even double looking at the smaller base from which we started is very much intact, and R&D has really given it a push to us. So that piece is very clear to us. On the existing enterprise products, since now we have a good R&D team with us, we have also started broadening our portfolio on the enterprise side. But as I've mentioned in the previous calls as well, we are taking very strategic bet on very few enterprise products. which would feature sustainable margins and which would have a good relationship profile with some of the customers we want to work with. So happy to say that at a very fast pace, we have been almost in the last stages of at least bringing in a couple of new products within the enterprise segment and the impact of that will be seen in, say, FY '25 and beyond on that part of the business as well. So I think 2 clear messages: one, keep pushing on the CDMO side of the business at much faster double-digit growth rate upwards of 40% to 50%; and then, diversify from the existing [ rolled ] products from where we had significant financial performance issues in the last 2, 3 quarters. And we have been working at very fast paces on all these 2 initiatives, thanks to our R&D center.
Sure, sure. That's helpful. So YTD, in Astec, we have done around INR 300-odd crores revenue versus INR 500-odd crores year-on-year, 9-month numbers. Will it be fair to say that FY '25, the new products ramp up, et cetera, since you mentioned portfolio expansion there, should be to compensate for the products which we will let go of?
That is what we are targeting or focusing on, to what extent we should be able to cover these gas, we'll still have to see. So we are -- as we get into FY '25, our goal is to completely have a plan in place, such as these products don't come back in the pricing of the volumes. We still are able to get to some kind of financial performance, which are appreciable. That's one. And I would say it should cover broadly for all these negative losses from the existing [ rolled ] products.
Second thing, on our existing asset base also, we are also looking at what products we fit in so that we maximize our return on assets, clearly on the existing [ rolled ] products because of the huge inventories in the market, there have been pressures on utilizing our existing capacities as well to fullest on the enterprise product. So we are also modifying it appropriately to fit in our new product in a way wherein the CapExs could be minimized, while the revenues could be at the highest and switching in good double-digit margin for these products. So all those things have been heavily worked on in this lean period of 2, 3 quarters, and they are expected to show good benefits as we get into FY '25 despite volatility or challenging conditions in the market.
Sure. And just a follow-up there. You did mention on the fungibility of capacity by doing modification and limiting the CapEx there. From an operating margin perspective, CDMO was a margin-negative business versus enterprise. And these newer molecules or new products that we are working on, my sense is that these will be again margin accretive. So the current losses that we are seeing, any thoughts here in terms of profitability or margins, let's say, over the next 2, 3 years?
So I can't comment on the profitability part, but these will be sustained margin products, not too impacted by the volatilities in the market. So we're moving more in the direction of working on a long-term contract basis with the customers even on the enterprise side of the business with formulized pricing clauses inbuilt so that we are able to sustain some level of margins and not to prone to the external volatility.
Sure. That's helpful. Another on the animal feed side. So Balram, sir, volume growth, as you highlighted, was more impacted because of the slower sales in one of the segments. Any thoughts? And secondly here, the competitive dynamics in terms of the unorganized market, given the RM inflation and historically we have shown pretty strong volume growth there, any medium-term thoughts on both volume as well as sustainable margin that we can look at on the Animal Feed business?
So my sense is that, this year, we'll end up anything between, say, FY '24, 5% to 6% volume. And I would say that if layer feed comes back, which we are seeing now the placement has gone up, egg prices have been so good, that farmers are scrambling. And we would be very surprised that the will kick booking for the layer first is already in pipeline is booked until August, September of this year. So my sense is this is going to come back. Next year, I can definitely say 8% to 9% volume growth is not an issue. And as the volume grows, the margin will also expand. Government has decided not to export corn and [indiscernible], which will keep the prices of raw materials in check. And with a very good soya bean crop in Latin America, I don't think that we are going to see any high inflation in commodities in case these policies remain unchanged. So my sense is that I'm looking at least 7%, 8% volume growth and further margin expansion from where we are.
Great, sir. And last question, if I may. On the oil palm side, if I recollect, historically we have taken a lot of initiatives on the R&D side to improve our yields overall. Any update on that? And whether the full benefit of that is visible in the current numbers? Or how should one look at that?
So let me split the OER into 2 parts. So one part is all the initiatives which we have taken in the existing yielding plantations, I think this is -- it is almost at a level where we are very comfortable. The marginal improvement is still possible, but it won't be very, very material. You must also say -- know that we have upped our game after that NMEO-OP scheme in terms of increasing plantation from 3,000, 4,000 hectares per annum, now we are going to be about 11,000, 12,000 hectares per annum. And from next year onwards, you'll see 15,000, 16,000 hectares per annum increase will be there. Traditionally, the juvenile plantations, the production will be less and the yield will be less. So we will have -- on our part, we will start segregating and start showing that how much is yielding and how much is juvenile and how much is in growing state so that you can understand it more. But I think now more work is needed to increase FFB per hectare, rather than oil per tonne of FFB. I think there, we still feel that there is a reasonably good opportunity by improving the package of practices. And I don't know whether you follow us or not, we have started setting up the Samadhan center. And we have already set up 6, 7 centers, which are one-stop shop for farmers, including a training room. We give fertilizers, the aftermarket services for drip irrigation, and all the critical things needed, including training, plus harvesting assistance, equipment assistance, et cetera. I think that is one thing which -- wherever we have set up a Samadhan center, we are seeing improvement in both areas, yield as well as OER. And we will -- today, we are at about 6, 7 this year -- next year, that is FY '25, we are going to set up about 14, 15 more. And that will be our big initiative in terms of improvement of efficiencies and productivity.
Our next question is from the line of Siddharth Gadekar from Equiris.
Yes, my question is for Anurag. Sir, on enterprise business, we just spoke about diversifying away from the existing products that we have. Could you give some sense in terms of like what kind of segments are we targeting there? And in terms of Chinese competition also, how are we looking at things? Secondly, on the existing enterprise product prices, if you look at the products -- if you look at the pricing, they are currently below cost. Could you give some sense of how much inventory are we carrying in these -- those 2 products?
Right. So let me add to what I was saying earlier. When I say diversification, I'm not saying that the existing products, we are moving away from it. We're diversification -- diversifying to other products in the same platforms or in a different technology platform. So that if in future, we go through such market volatility, we have a better play across the enterprise products to balance our sustained margins. So that's one clarification, which I want to bring. So if we -- as we go into next year and the whole platform still remains subdued from the pricing perspective, we'll have a few of the other products, which could at least give us the utilizations and some level of profitability. So that's one part of it. Second part of it, these products are in the [indiscernible] platform or the related the technology platforms where we are very well equipped, looking at our existing asset profile. So they could or could not be in the existing [indiscernible] platform, that what we are looking at, what best we can fit in the existing asset base which we have currently. So that's answer to your second question. Was there -- yes, I think -- I hope that answers the 2 parts of the question.
Just one more thing in terms of inventories, how much inventory you have in raw material and finished goods [indiscernible]?
See, on the inventory side, on few of our products, we have been successfully able to liquidate our inventory and we are at market price right now. So we are getting the products at the market price and the final prices on those products are also selling at the market price. But the caution here is, right now, the export prices are so low that even on those products, making it and selling it still is not fetching too much of profitability. So on few of them, we have successfully liquidated our inventory. There are still 1 or 2 products where we are still carrying the inventories -- very strategically looking at the right uptick in the demand profile, we'll be liquidating that in the coming quarters.
[Operator Instructions] Our next question is from the line of Harsheel Meta from Mehta Vakil and Company.
My question was regarding the stand-alone Crop Protection business. It's very pleasing to see the turnaround in this business compared to last year. I just wanted to understand how our stand-alone Crop Protection business as a kind of differentiated from the broader industry given that the broader crop protection industry has had a very, very difficult year while our business is turning around? So it would be good to just kind of have your thoughts on that.
So I think first thing that you know what we have gone through and the kind of efforts we have undertaken to clean the portfolio and clean the inventories we had. And last year, we took those hits also. So I think we have cleaner plates. But this year's profitability was largely driven by our Hitweed and Hitweed Maxx, these 2 herbicides, which accounted for most of the profits. They registered almost 70% plus growth this year. This is -- there are 2 things -- 2 parts to it: one is increase in the number of partners that we have who are selling these products. And an extremely good season with timely rain. So I would say that we have been extremely lucky to have a year like this where everything went right for these products. The second part of increase in profitability. Our in-licensing products, particularly Gracia, Rashinban and Hanabi given to us by Nissan. And I think they were the -- these products have excellent quality, have been accepted by the farmers very quickly and have given our profitability. Going forward, I am very sure that we -- even if we maintain this year Hitweed and Hitweed Maxx volume, it will be a great achievement because I don't think that every year will be a great year. I would wish that, but may not be that great a year, but we will try to hold this performance. And what is most important for us is that definitely, this is an extraordinary year for [indiscernible]. Even if we have a repeat of this year, keeping our inventory levels better, working capital, et cetera, et cetera, at a very, very comfortable and hygienic level, it will be a very good achievement next year.
[Operator Instructions] Our next question is from the line of [ Mayur Matani ] from Maheshkumar and Company.
My question pertains to Astec Limited. As you have mentioned that we are facing the challenges in the enterprise business side, but I would like to have more understanding as to what kind of quarterly run rate can we maintain in our enterprise segment side because last quarter, our revenue was hardly INR 30 crores? So in terms of revenues, taking into account the market which is there right now, we'll be able to have a revenue of INR 50 crores on a quarterly basis in the times to come, or that also seems to be difficult?
See, in the times to come, definitely yes. In fact, I would like to believe that we'll come back to the previous levels. What we are doing in these products is a correction in the market because of huge inventory pileup according to some analyst reports or even if you pull up the export data and see how much of volumes have been pushed in some of these [ rolled ] global products you'll. Be surprised to look at those numbers, those are equivalent to 12 to 18 months of the volumes actually which were floating around in the global market, right? So that's the situation. This will come back, the key part is when? And that's what we all are figuring out. And until we reach that point, what is happening in the market, and I mentioned in the last conference call as well, that they've been destocking complete price erosion in the export market. Right now, the price erosion has, to some extent, abated. It has reached to almost the bottommost level and we are not seeing price erosion. The real pain is the prices are staying at those decimally low levels. That's number one. And the second is because we are still seeing the inventories in the market, there has not been any meaningful demand coming from the big players. Earlier at times, for some of our [ rolled ] products, one order could be 200 to 300 metric tons. Currently, an order size is 800 kg to 1 tonne. So there has been no meaningful demand which is coming from the market. So now we are also reconsidering in a way that we liquidate our inventories and then align our production to orders. So currently, on these enterprise products, most of the companies are moving in that direction until we achieve a substantial supply-demand balance. So, I could say another 5, 6 months or it depends on how China opens up in the next 2, 3 weeks, but another couple of quarters at least to have some kind of visibility on the enterprise balance -- supply-demand balance, and then it has to come back basically.
Okay. Right. And second pertains to the CDMO business. So my question basically pertains to the gross margins and the operating level profitability, which we can maintain over the future. So earlier, we were doing gross margins of 40% on a company level basis where our CDMO business was a small proportion. Now going by what you are saying in the future prospects, our CDMO business can easily cross the enterprise business. So when do you see that impact on the margins, positive impacts on the margin coming through at the company level? And our employee costs due to the negative operating leverage and the things that you have mentioned that it stood at nearly more than 25% of our overall sales. So when the positive operating leverage will kick in from the new R&D facility as well as the increasing sale of the CDMO business?
So right now, with this adversity in the market, good things that has happened is we had our R&D center, we are diversifying our enterprise portfolio and really pressing the pedal on the CDMO pipeline. And I would not hesitate to say that as we get into FY '25, the current market situation per se, the CDMO component of the business will overtake the enterprise business, wherein we are definitely fetching 5% to 7% higher contributions as compared to the enterprise business. And add to that, we are now able to take up lot of lifecycle management projects in the R&D, which are again adding 4% to 5% margins on our product sales. So we are very confident that we get back to these gross margins or exceed those gross margin numbers which we have seen in the business earlier. And it could be as soon as maybe FY '25 or FY '26. So typically, as you know, for the CDMO business to pick off, if everything goes well on the commercial side and the development side, it takes roughly 3 years to scale up. So any new products coming into the pipeline, year 3 is when you realize the complete optimization and revenues for those products. So that's what we are targeting, and I think we have been confident to achieve that in the coming years.
So just I would like to know that we are mentioning that our contribution margins are 5% to 7% higher than the enterprise business. But the situation has changed quite a lot, so can you put the number to the contribution business in the CDMO business?
Yes. I mean strategic stake. So if you're making 20%, 25% on enterprise, you will be looking at 30% plus at least on CDMO, getting even as high as 35% to 40%.
Ladies and gentlemen, that was the last question for today. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you. I hope we have been able to answer all your questions. If you have any further questions or would like to know more about the company, we would be happy to be of assistance. Stay safe and stay healthy. Thank you once again for taking the time to join us on this call.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.