advanced enzymes1(Update version 3. To be updated further in run up to IPO)

IPO Size : The company’s IPO comprises fresh issue of shares aggregating to 50 crore and an OFS of up to 44.73 lakh shares. The breakup of offer for sale is  3.1 million shares by promoters; 0.5 million shares by Kotak Private Equity and 0.85 million shares by other shareholders.  Approx issue size is approx. 410 crore at upper end.

IPO Price: Rs. 880- Rs. 896

IPO Date :   Open July 20, Close July 22

Lead Managers :  ICICI Securities, Axis Capital.

Use of Funds : A significant portion of the proceeds of the Fresh Issue (50 cr)  will be utilized for investment in our wholly owned subsidiary Advanced Enzymes USA, which shall in turn utilize these funds for repayment / pre-payment of certain loans availed by it from the  Promoters.

Enzymes: Business Scenario

Enzymes act as  highly specialised catalysts for accelerating the pace of chemical reactions. Enzymes are used in a diverse range of applications, and therefore global demand for enzymes is influenced by a factors like GDP growth, manufacturing output, and per capita incomes. The global enzyme market can be broadly classified into two segments, namely Industrial and Speciality. The Industrial enzymes are used in high volume and low value-added applications, whereas Speciality enzymes are used in low volume and high value-added applications. The Industrial enzyme markets include food and beverages, cleaning products (detergents), biofuel production, animal feed, textiles, leather, pulp and paper, starch processing, etc.

The worldwide market for Food Enzymes is projected to reach USD 2.94 Billion by 2021, at a CAGR of 7.4% between 2016 and 2021.

The leading companies in this field are  E. I. du Pont de Nemours and Company (U.S.), Associated British Foods plc (U.K.), Koninklijke DSM N.V. (The Netherlands), Novozymes A/S (Denmark), Chr. Hansen A/S (Denmark), de Dyadic International, Inc. (U.S.), Advanced Enzymes (India), Puratos Group (Belgium), and Amano Enzyme Inc. (Japan).

About The Company

Advanced Enzyme figures in list of 15 largest companies in the world in this field. It has more than two decades of fermentation experience in the production of enzymes and has the second-highest market share in India, next only to the world leader Novozymes.

It is engaged in the research and development, manufacturing and marketing of 400+ proprietary products developed from 60 indigenous enzymes. Advanced Enzyme is a fully integrated enzyme manufacturing company. The company is promoted by Mr. Chandrakant Laxminarayan Rathi and Mr. Vasant Laxminarayan Rathi.

Advanced Enzyme operates in two primary business verticals – Healthcare & Nutrition (84.7% of total revenues in FY 2015) and Bio-Processing (15.3%  of total revenues in FY2015). The company offers these products to its global clientele of more than 700 customers spanning presence across 50 countries worldwide. We offer these products to our global clientele of more than 700 customers spanning presence across 50 countries worldwide. We supply these value-added and eco-safe enzyme products to diverse end-user industries like human healthcare and nutrition, animal nutrition, food processing, baking, dairy and cheese processing, fruit and vegetable processing, cereal extraction, brewing, grain processing, protein processing, oil and fat processing, biomass processing, textile processing, leather processing, paper & pulp processing, bio-fuels, bio-catalysis etc. Major focus of company is on developing enzymes through microbial fermentation.

Advanced Enzyme claims to be the largest in its space and is engaged in the research and development, manufacturing and marketing of more than 400 proprietary products developed from 60 indigenous enzymes. It has more than two decades of fermentation experience in the production of enzymes and says it ranks among the top 15 global companies in terms of enzyme sales, and has the second-highest market share domestically, next only to the world leader Novozymes.

It operates in two primary business verticals namely Healthcare & Nutrition (human and animal) and Bio-Processing (food and non-food) and the former generates bulk of its revenues. It offers these products to global clientele of more than 700 customers spanning presence across 50 countries worldwide. It supplies products to diverse end-user industries like human healthcare and nutrition, animal nutrition, food processing, baking, dairy and cheese processing, fruit and vegetable processing, cereal extraction, brewing, grain processing, protein processing, oil and fat processing, biomass processing, textile processing, leather processing, paper & pulp processing, bio-fuels, bio-catalysis, etc. Its major focus is on developing enzymes through microbial fermentation. Its top 10 customers accounted for less than 40 per cent of total revenues on consolidated basis for the six months period ended September 30, 2015. Its customers include Sanofi India, Cipla, Ipca Laboratories, Alkem Laboratories, and Emcure Pharmaceuticals

It has four R&D facilities, of which two are located at Thane, and one each at Sinnar (Nashik, Maharashtra, India) and Chino, California. It also has six manufacturing facilities of which four are located in India – two integrated fermentation, recovery & formulation facilities at Sinnar and Pithampur (Dhar, Madhya Pradesh, India), one extraction and recovery facility at Satpur (Nashik, Maharashtra, India), and one blending, mixing and formulation facility at Vashind (Thane, Maharashtra, India). Two blending, mixing and formulation facilities are located outside at Chino (California, the US).

Financials 

Particulars Year ending
2016 2015 2014 2013 2012 2011
Revenue from operations 2937.6 2,231.14 2,394.50 2,204.18 1,717.41 1,165.73
EBITDA 1382.32 908.60 1,037.77 895.60 531.79 226.62
Exceptional items 539.16
Profit before tax 1,225.32 737.49 277.51 761.58 476.81 188.78
Profit after tax 784.35 501.02 200.86 492.19 333.36 170.11
Equity 217.66 217.66 217.66 217.66 207.32 207.32
Reserves 2,569.61 1,882.68 1,445.99 1,401.98 752.34 424.14
Networth 2,787.27 2,100.34 1,663.65 1,619.64 959.66 631.46
EBITDA Mrgin 47.06 40.72 43.34 40.63 30.96 19.44
NPM 26.7 22.46 8.39 22.33 19.41 14.59
RONW % 28.14 23.85 12.07 30.39 34.74 26.94
EPS 36.04 23.02 9.23 22.61 16.08 8.21
PE at Issue Price 24.86

Growth Ratios

Revenue yoy % (last yr) Revenue  3 yrs CAGR Revenue 5 yrs CAGR
31.66 10.05 20.3
OP yoy% OP 3Yrs CAGR OP 5Yrs CAGR
52.14 15.57 43.57
NP yoy% NP 3Yrs CAGR NP 5Yrs CAGR
56.55 16.8 35.76

The Results show a considerable uptrend in profitability in the current year as well as over the years . The results of 2013-14 were hit due to recall of products on account of contamination else the growth may have been even better.

The consolidated revenue from operations increased from at a CAGR of 20.3% over the last five years, while  consolidated Operating Profit  increased at CAGR of 43.57%. Consolidated profit after tax increased at CAGR of 35.76%.

 Assessment:

  • Advanced Enzyme’s spent 7.2% on R&D in 2015. It has four R&D facilities in Thane, Sinnar and California. As a result of its high focus on research and development, 13 patents have been registered in its name while applications for 4 patents are pending
  • US contributes a major portion of company’s  international revenues and the Company has significant presence in  North America region which is the  largest market for food enzymes . %. For the six months period ended September 30, 2015, 60.31% of the revenue was from international markets, while 39.69% was contributed by the Indian market.
  • The company has six geographically-spread and accredited manufacturing facilities enable us to produce a wide range of products and help cater to a diverse set of industries globally.
  • The market for Food Enzymes is projected to grow at a CAGR of 7.4% between 2016 and 2021.
  • ON the –ve side the company faced a major issue and had to voluntary recall several shipped enzymes on account of contamination causing a dent in its revenues & profits
  • Kotak Private Equity had invested Rs 30 crore in the firm in mid 2012 is offloading but retaining half  of its investment in equity. .
  • After seeing some growth pangs in 2013-14, the company is back on track
  • The company ranks among the top 15 global companies in terms of enzyme sales, and has the second highest market share in India after Novozyme.
  • There are high entry barriers in this business
  • Advanced Enzyme is  a consistent profit making and dividend paying Company since 1997.
  • The company  part from good track  record has good earnings visibility and demand growth.
  • For the year ended 2016 the company gave a stupendous EBITDA margin of 43.17% and PAT margin of 26.7 and reported an EPS of 36.04
  • At issue price of Rs. 896, the PE ratio based on 2016 results work out to be approx 25 which seems not very high for the growth exhibited by the company.
  • World leader, Novozymes who also happens to have the largest market share in India and is  listed at Copenhagen Stock Exchange-listed commands a PE of at 35.4
  • Continuing the tradition of some past IPOs starting from Equitas, Thyrocare, Ujjivan, Paraga Milk, Mahanagar Gas, Quess Corp, L&T Info the company seems to have something on the table for investors.
  • Investors seeking long term investment as well as short term listing gains may find it attractive.

 

 

 

 

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