Advanced Enzyme Tech IPO: catalysing growth

ESWARKRISHNAN CHELLAM
BL RESEARCH BUREAU
COMMENT PRINT T+

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Sound revenue growth and comfortable operating margin make it a good bet
July 19, 2016:
Investors with a penchant for risk can consider subscribing to the initial public offer of Advanced
Enzyme Technologies with a two-to-three-year perspective. This Mumbai-based company is in the
business of manufacturing and marketing a range of enzyme products, catering to over 700
customers across 50 countries.
The company has been growing at a decent clip. Its revenue grew at the rate of 14 per cent annually
between FY12 and FY16 while its post-tax profit grew 24 per cent during the same period. The
companys leadership position in the domestic enzyme market, R&D capability and large portfolio of
products will support growth in the coming years. A reasonable debt-to-equity ratio of 0.26 times
also helps.
The issue is reasonably valued; the offer price discounts the companys 2015-16 earnings around 25
times. The company does not have any listed peers in India but the global major Novozymes, that is
45 times the size of Advanced Enzymes, trades at 35 times its 12-month trailing earnings. However,
since the stock is a small-cap, the price is likely to be volatile after listing.
Good visibility

With over 95 per cent of its revenue coming from the B2B segment, the companys product offerings
can be broadly classified under two primary business verticals; healthcare and nutrition, and bioprocessing. While the former comprises enzymes that are supplied to manufacturers of healthcare
and nutrition products for humans and animals, the bio-processing segment supplies enzymes to the
food and non-food processing sectors. But it is the health and nutrition business that brings in the
bulk of its revenue, having contributed 88 per cent last fiscal.
Bulk of its revenue is contributed by the US and India with 55 per cent and 36 per cent share,
respectively. The companys top 10 customers accounted for 41 per cent of total revenues in 2015-16.
The company has six manufacturing plants four in India and two in the US. According to the
management, the average capacity utilisation is estimated at between 40 and 45 per cent. This
provides room for increase in output without any additional capex spends.
The company has developed 60 indigenous enzymes and has 11 food enzyme dossiers with the
European Food Safety Authority as of July 2016.
Although it has 14 patents to its credit, the company prefers to take a proprietary route for specialty
manufacturing. Its product suite consists of over 400 proprietary products developed in-house from
60 enzymes.
Growth outlook
According to a report by Freedonia, a market research firm, growth in the global enzyme market is
expected at a moderate 6-7 per cent, while the Indian enzyme market is likely to grow faster at 15 per
cent annually between 2015 and 2022. The company, which enjoys 20 per cent domestic market
share, could gain from this trend.
In 2013-14, the company faced a setback when some consignments were recalled, on the company
suspecting these to be potentially contaminated. While the management has beefed up its quality
processes since, net profit took a hit of around 54 crore.
The companys financials have recovered since. The revenue share of healthcare and nutrition, a
high-margin business, has risen over the
last few years. Its share-to-total revenue increased to 88 per cent in 2015-16 from 74 per cent in
2012-13. In 2015-16, the company reported sales of 295 crore, up 32 per cent y-o-y. Operating
margins grew to 47 per cent from 41 per cent over the same period.
(This article was published on July 19, 2016)

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TOPICS
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