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New issue (IPO) Analysis of Advanced Enzyme Technologies
Onward and Upward …
Advanced Enzyme Technologies is entering primary market on Wednesday 20th July, 2016, to raise Rs. 50 crore via fresh issue of equity shares of Rs. 10 each and an Offer For Sale (OFS) of upto 40.35 lakh equity shares, both in the price band of Rs. 880-896. Issue size aggregates to Rs. 411.5 crore at the upper end of the price band, of which, OFS portion is of Rs. 361.5 crore. Representing 20.6% of the post issue paid up capital at the upper end, issue closes on Friday 22nd July, 2016.
Advanced Enzyme Technologies is the largest enzyme company in India, with fermentation capacity of 360 cubic meters and has the second highest market share domestically, next only to the world''s largest enzyme company Novozymes. Having 6 manufacturing facilities (4 in India and 2 in California) and 4 R&D facilities (3 in India and 1 California), company (along with its subsidiary) has 13 patents and 172 trademarks registered in its name, with 4 patents and 14 trademarks pending before relevant authorities.
Advance Enzyme operates through two segments viz., Healthcare & Nutrition segment (79.72% of total revenue in FY16) and Bio-Processing (20.28% of total revenue in FY16). Geographically, US is important focus market for the company, which contributed nearly 55% of revenue in FY16, followed by India, accounting for 36% revenue, while rest is made up by Europe and other geographies. Company having global clientele of more than 700 customers, generated nearly 42% of total revenue from top 10 clients.
Having presented the background of the company, let us take a look at its financial performance.
In FY16, company’s total income rose to Rs. 295 crore, from Rs. 224 crore in FY15, representing growth of 32% over FY15. EBITDA rose to Rs. 139 crore from Rs. 92 crore in FY15, with margin expanding to 47.2% from 41% seen in FY15. This resulted in PAT (after minority interest) of Rs. 78.4 crore, against Rs. 50.1 crore seen in FY15, registering stupendous growth of 56.6%, leading to an EPS of Rs. 36.03 for FY16.
Over the past 5 years (FY11-FY16), company’s total income has grown at a CAGR of 14%, while PAT has registered healthy CAGR of 23.9.
As on 31-03-2016, equity stood at Rs. 21.77 crore, while Net Worth was at Rs. 278.73 crore. Company has been focused on de-leveraging its balance-sheet consistently, and as a result, consolidated debt has come down from Rs. 175 crore in FY11 to Rs. 69 crore as on 31-03-2016, representing healthy cash flow generation by the company. Currently it has Cash & Cash Equivalents of Rs. 26 crore and Inventory of Rs. 60 crore. Promoters are holding 80.53% stake in the company, which will reduce to 66.5% post IPO.
At the upper end of the price band, company is seeking market cap of Rs. 2,000 crore and EV of Rs. 2,043 crores. This leads to EV/EBITDA multiple of 15x and 12x for FY16 and FY17 respectively, and PE multiple of 25x and 21x for FY16 and FY17 respectively. Also, let us re-iterate here that company has robust EBITDA margin of 47.2% and delivered Return of Net Worth of 28.14% in FY16 with lean balance-sheet.
In the absence of directly listed peer domestically, we compared Advanced Enzymes with Novozymes, world leader in industrial enzymes with market share of 48%, which is currently trading at PE multiple of 33x. This is at 57% premium to PE multiple of Advanced Enzyme Technologies (at the upper end of the price band). On a comparative basis, with premium for leadership status and scale of operations having given to Novozymes, the valuations of Advanced Enzymes is seen reasonable, given good return ratios and better margins, coupled with lean balance-sheet.
Going ahead, global enzyme demand is expected to be led by speciality enzymes, including diagnostic, research & biotechnology enzymes, bio-catalysts and increasing penetration of enzymes into their potential applications in developing countries. Also, company has deep roots in US, the largest consumer of enzymes in the world. Also, the wide spectrum of user industry including human health care and nutrition, animal nutrition, baking, fruit & vegetable processing, brewing & malting, grain processing, protein modification, dairy processing, textile, paper etc gives comfort on earnings visibility and demand growth.
To conclude, issue is seen reasonably priced, with scope for capital appreciation and listing gains seen as well valued attractively and investment is advised.
Disclosure: No Interest
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