Advanced Enzyme Technologies
IPO Flash
Visit us at www.sharekhan.com July 14, 2016
About the IPO
Advanced Enzyme Technologies (Advanced Enzyme) is coming out with an initial public offering (IPO) of 0.459-0.460 crore equity shares (of which offer for sale comprises 0.403 crore shares) with a face value of Rs10 each. The issue is priced at Rs880-896 per share. The company intends to raise Rs50 crore in fresh capital while the remaining Rs361 crore is OFS. Of the fresh capital raising, Rs40 crore will be used for the repayment of certain loans availed by Advanced Enzyme USA, its wholly-owned subsidiary.
Company Background
Advanced Enzyme is the largest enzyme company in India. It is engaged in the research & development, manufacturing and marketing of 400+ proprietary products developed from 60 indigenous enzymes. The company has fermentation experience of more than two decades in the production of enzymes. It is among the top 15 global companies (enzyme sales), and has the second
highest market share in India (next to the world’s largest enzyme company Novozymes). The company is operating
in two primary business verticals, namely Healthcare &
Nutrition (human and animal) and Bio-Processing (food and non-food). It sells these products to more than 700
global customers, spanning 50 countries.
Key industries for enzymes: The company supplies value-added and eco-safe enzyme products to diverse end-user industries like human healthcare & nutrition, animal nutrition, food processing, baking, dairy & cheese processing, fruit & vegetable processing, cereal extraction, brewing, grain processing, protein processing, oil & fat processing, biomass processing, textile processing, leather processing, paper & pulp processing, bio-fuels, bio-catalysis etc.
Manufacturing: The company has the capability to manufacture enzymes using all the four natural origins,
viz plant, animal, bacterial and fungal. Its major focus is
on developing enzymes through microbial fermentation.
IPO details
Issue opens July 20, 2016 Issue closes July 22, 2016 Issue size Rs404-Rs411.5 crore Offer size 0.459-0.460 crore shares;
OFS: 0.403 crore shares
Face value Rs10
Issue to public 0.457-0.458 crore shares (net of employee stock options) QIB portion 50% of net issue
Non-institution portion 15% of net issue Retail portion 35% of net issue Price band Rs880-896/share
Shareholding pattern
Shareholding pattern Pre-issue (%) Post-issue (upper price band)
No of shares % No of shares %
Promoters 1.75 80.5 1.48 66.5
Public 0.42 19.5 0.75 33.5
Key Business Verticals
Advanced Enzyme Technologies Limited
Healthcare & Nutrition Bio-Processing
Human Healthcare
& Nutrition Animal Nutrition Food Processing Non Food Processing
Key investment positives
Integrated company with presence across the enzyme value chain: Advanced Enzyme is an integrated company with presence across the enzyme value chain, covering
the entire range of activities - from R&D,
commercial-scale manufacturing, to marketing of enzyme products. It also delivers customized enzyme solutions, which helps the company to remain cost-competitive besides ensuring end-to-end quality control (resulting in
superior products). The company’s business model is
designed to capture opportunities arising from global megatrends by combining strong production capabilities with application of expertise and local delivery. It is continuously innovating and upgrading its products through formulation and application development.
Specialised business with high entry barriers: The enzyme industry is very concentrated and consists of
very few players like Biocon in the domestic market and foreign MNCs like Novozymes, DSM Nutritional Products and DuPont Danisco. This is because the manufacturing
of enzymes, enzyme products and enzyme solutions requires specialised knowledge of enzyme fermentation and the diverse end-user industries. The company works closely with partners and customers, which helps it to innovate and develop technologies that can be applied effectively to increase production. This strategy also
helps it to enhance operational efficiency and improve
enzyme & biotechnology industry) act as entry barriers to new players. As a result, the enzyme industry has very
few players and the top players account for a significant
portion of the global market share.
Diversified product portfolio and wide customer base:
Advanced Enzyme has a diversified product portfolio,
catering to various verticals and end-user industries with more than 400 proprietary enzyme products developed from 60 enzymes. The company has a wide presence in
Healthcare & Nutrition and Bio-Processing verticals, and caters to some of the leading companies such as Sanofi India, Cipla, etc. It has de-risked its business model by having a diversified client base, with top 10 customers
accounting for 41.48% of total revenues on consolidated basis in FY2016. In terms of geographical presence, USA, India, Asia India), Europe and other geographies (ex-India and USA) accounted for 54.94%, 36.44%, 3.63%, 3.84% and 1.15% of total revenues, respectively in FY2016.
Strong R&D, enzyme development and manufacturing capabilities: Advanced Enzyme is basically a research
driven company and has invested significant resources in the R&D of various enzymes, proprietary enzyme
products and customized enzyme solutions since
inception. In the fiscal years of 2016, 2015 and 2014 on a standalone basis, the company spent ~5.84%, 7.18%
scientists, microbiologists, engineers, food technologists and biotechnologists. It is one of the leading enzyme manufacturers globally with fermentation capacity of
360 cubic meters. It has six geographically diversified
manufacturing facilities. Its manufacturing facilities are
flexible and multi-purpose in nature, and are capable
of developing quality enzyme products & solutions
with varying batch sizes (customised to meet clients’
requirements). The large production capacities, coupled with a globally competitive cost base, have enabled the company to develop new enzymes, enzyme products and customized solutions across business verticals for the domestic as well as international markets.
Financial stability and stable cash flows: Advanced
Enzyme has reported strong EBITDA growth at a CAGR of 22.06% from FY2012 to FY2016. Further, as on March 31, 2016, its long-term borrowings–to-equity ratio was 0.26. During FY2016, FY2015 and FY2014, the company reported Return on Net Worth (RONW) of 28.14%, 23.85% and 12.07%, respectively. The company believed that its robust financial position illustrates not only the growth
of operations over the years, but also the effectiveness of the administrative and cost management measures
implemented. The company’s financial stability and steady operating cash flows enable it to meet the
present and future product needs of its clients. A strong
balance sheet and financial performance give customers the confidence that the company will be able to support
them with products in terms of both capabilities and capacities.
Key risks
Completely depended on subsidiaries for sales in regions related to North America
Advanced Enzyme is significantly dependent on foreign subsidiaries incorporated in North America for the sale
and marketing of most of the products in these regions. Any disruption in operations of these foreign subsidiaries could have an adverse impact on its business prospects,
financial condition and results. For FY2016, around 54.94%
of its total revenues were derived from USA, 3.84% from Europe, 3.63% from Asia (ex-India) and 1.15% from other
geographies (ex-India and USA), aggregating to 63.56%
of total revenues, majority of which is attributable from
foreign subsidiaries.
No long-term contract with customers
The company has not entered into any long-term or
definitive agreements with its customers. If customers
choose not to source their requirements then business,
financial condition and results of operations may be
adversely affected. Additionally, customers have high and exacting standards for product quantity and quality as well as delivery schedules. Any failure to meet
customers’ expectations could result in cancellation of
orders. There are also a number of factors, other than
performance, that are beyond the company’s control and
that could lead to loss of customers. Currency risk due to high exports
Advanced Enzyme derives a significant portion of
its revenues from exports and is exposed to foreign
currency fluctuations. In case the company is unable
to effectively mitigate any adverse impact of foreign
currency fluctuations, it may adversely affect its business, financial condition and results of operations.
In FY2016, around 63.56% of its revenues came from the international operations, while ~36.44% was contributed by the Indian market.
Plant shutdown, inability to timely commercialise product may have a negative impact
For the company, manufacturing is the most critical part of its business and any shutdown of manufacturing facilities may have an adverse effect on business, results
of operations and financial condition. If the company is
not able to successfully commercialise new products, or
if the commercialisation is delayed, business, financial
conditions and the results of operations may be adversely affected.
Valuation
At the upper end of the IPO price band, the stock is
Financials (consolidated)
Profit & Loss account Rs cr
Particulars FY12 FY13 FY14 FY15 FY16
Revenue 171.7 220.4 239.5 223.1 293.8 Total expense 109.5 130.9 135.7 132.2 155.5 EBITDA 62.3 89.6 103.8 90.9 138.2 Other income 3.1 3.7 1.0 1.2 0.9 Depreciation 5.5 7.5 9.9 9.0 8.7 Interest 12.2 9.6 13.2 9.3 7.9 Exceptional items 0.0 0.0 54.0 0.0 0.0 PBT 47.7 76.2 27.8 73.7 122.5 Tax 14.0 25.9 6.4 22.8 43.2
PAT before minority interest 33.7 50.3 21.4 50.9 79.3
Minority interest 0.3 1.1 1.3 0.8 0.9
Reported PAT 33.3 49.2 20.1 50.1 78.4
Adjusted PAT 33.7 50.3 75.4 50.9 79.3
Tax rate (net of Deferred tax) 6.6% 14.6% 61.1% 40.1% 32.9%
Balance sheet Rs cr
Particulars FY12 FY13 FY14 FY15 FY16
Share capital 20.7 21.8 21.8 21.8 21.8
Reserves and Surplus 75.2 140.2 144.6 188.3 257.0
Total Equity 96.0 162.0 166.4 210.0 278.7
Minority Interest 1.6 2.4 3.6 4.5 5.4
Long term borrowings 139.3 116.7 87.5 54.0 38.8
Deferred tax liabilities 5.7 13.3 12.8 14.8 17.4
Long term provisions 0.0 0.0 0.0 0.0 0.2
Short term borrowings 36.0 33.7 39.1 23.6 29.6
Trade payables 18.2 16.9 10.4 11.6 12.3
Other current liabilities 44.2 42.6 59.6 82.3 58.5
Short term provisions 8.0 8.7 28.9 17.2 10.8
Total Liabilities 349.0 396.3 408.3 418.1 451.7
Fixed assets 264.6 288.6 289.5 292.4 293.5
Investments 0.1 0.1 0.1 0.1 0.1
long term loans and advances 12.0 13.9 16.8 16.0 18.0
Other non-current assets 0.1 0.3 9.0 6.0 0.3
Inventories 29.1 44.6 49.9 52.6 60.5
Trade receivables 32.7 39.1 32.4 37.0 41.8
Cash and bank balances 5.3 3.7 2.6 4.3 26.3
Short term loans and advances 4.1 5.5 7.2 8.8 4.5
About industry Industry size
The global enzyme market stood at $5.1 billion in 2012, of which industrial enzymes constituted $3.6
billion, or 71% of the total world demand. The balance
29% was contributed by specialty enzymes. Enzymes are natural protein molecules produced by all living organisms, functioning as highly specialised catalysts for accelerating the pace of chemical reactions. They help
a chemical reaction to materialise quickly & efficiently,
without undergoing any change themselves. Enzymes are responsible for many essential biochemical reactions and metabolic processes in microorganisms, plants,
animals, and human beings. But, they are not alive. Enzymes are highly efficient in increasing the reaction
rate of biochemical processes that otherwise proceed very slowly, or in some cases, not at all, and are also
biodegradable. Moreover, with the positive environmental
profile offered by enzymes, there exist opportunities in
the form of substituting non-renewable chemicals with the intent of reducing energy consumption or decreasing the production of harmful wastes.
Growth in enzymes
Going forward, the global enzyme demand is expected
to experience a broad-based growth, led by strong demand across all enzyme types, with market growing
by 6.3% every year to $7.0 billion in 2017 from $5.1
billion in 2012. The market is further expected to grow
at a 5-year CAGR of 6.5% after 2017, reaching a size of
$9.5 billion by 2022. Through this period, the growth in the global enzyme demand is expected to be led by specialty enzymes, including diagnostic, research and biotechnology enzymes, as well as biocatalysts and increasing penetration of enzymes into their potential applications in developing countries.
World enzyme demand by market (in USD million)
Market / Year 2002 2007 2012 2017 2022
Industrial Enzymes
Food & beverages 570 940 1320 1865 2555
Cleaning products 530 740 920 1245 1690 Biofuel production 90 290 515 555 640 Animal feed 168 310 395 540 745 Other industrial 362 420 480 555 670 Total 1720 2700 3630 4760 6300 Specialty enzymes
Research & biotechnology 380 543 815 1180 1720
Diagnostic 203 282 430 640 950
Other specialty 97 175 255 370 530
Total 680 1000 1500 2190 3200
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Geographical distribution of global enzyme market
North America dominates the global enzyme market,
accounting for 41.5% of the global enzyme demand in
2012, implying a market size of $2.1 billion. Western Europe, Asia Pacific and other regional markets (which include Central & South America, Eastern Europe and Africa / Middle East) accounted for 21.2%, 21.6% and 15.7% of the global enzyme market, respectively in 2012. Between 2002 and 2012, the share of North America and Western Europe in the global enzymes market has been gradually declining, while that of Asia-Pacific and other regional markets (including Central & South America, Eastern Europe and Africa / Middle East) has been on
an upswing. The fastest growth in industrial enzyme
demand will occur in the world’s developing countries,
such as those in Asia-Pacific, Central America and South
America, since these areas have not yet adopted the same level of technological development or enzyme use
as have countries in North America and Western Europe. Consequently, there exists a great opportunity for
market penetration to increase. This trend is expected
to continue going forward, with Asia-Pacific becoming the second largest enzymes market in the world by 2017 - further outpacing Western Europe by 2022. However, even by 2022, North America shall continue to be the
largest market, accounting for 34.8% of the global enzyme
demand, with Asia-Pacific, Western Europe and other
regional markets accounting for 18.1%, 29.2% and 18.0%
of the market size, respectively. Demand for enzymes in
the Eastern Europe is also expected to be above average.
World enzyme demand by region (in USD million)
Region / Year 2002 2007 2012 2017 2022
North America 1065 1576 2130 2630 3310
Western Europe 645 910 1090 1390 1715
Asia-Pacific 395 683 1110 1745 2770
Other Regions: 295 531 800 1185 1705
Central & South America 112 203 321 470 665
Eastern Europe 105 175 245 350 490
Africa/Middle East 78 153 234 365 550
