Sharekhan IPO Flash

Advanced Enzyme Technologies

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July 14, 2016

Advanced Enzyme Technologies

IPO Flash

Company Background

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;

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 worlds 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.

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

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.

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.

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.

Shareholding pattern
Shareholding pattern

Pre-issue (%)

Post-issue (upper price band)

No of shares

No of shares

1.75

80.5

1.48

66.5

Public

0.42

19.5

0.75

33.5

Total

2.18

100

2.23

100

Promoters

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Advanced Enzyme Technologies

Key Business Verticals

Advanced Enzyme Technologies Limited

Healthcare & Nutrition

Human Healthcare
& Nutrition

Bio-Processing

Animal Nutrition

Food Processing

Key investment positives

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.

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, commercialscale 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 companys 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.

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 (ex-India), Europe and other geographies (exIndia and USA) accounted for 54.94%, 36.44%, 3.63%,
3.84% and 1.15% of total revenues, respectively in
FY2016.

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
the performance of their end products. Technical and
niche nature of the business, heavy reliance on R&D
and dearth of qualified professionals (with experience in

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Non Food Processing

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%
and 5.94%, respectively on R&D activities. Currently,
the company has four R&D facilities located at Thane,
Sinnar and Chino (California, USA). These R&D facilities
are supported by a team of 55+ members comprising

July 14, 2016

Sharekhan IPO Flash

Advanced Enzyme Technologies

geographies (ex-India and USA), aggregating to 63.56%

of total revenues, majority of which is attributable from
foreign subsidiaries.

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.

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 companys control and
that could lead to loss of customers.

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 borrowingsto-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 companys 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.

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.

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

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Valuation
At the upper end of the IPO price band, the stock is
valued at P/E ratio of 25.2x FY2016 earnings.

July 14, 2016

Sharekhan IPO Flash

Advanced Enzyme Technologies

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

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

12.2

9.6

13.2

9.3

7.9

EBITDA

Interest
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
Particulars

Rs cr
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

1.6

2.4

3.6

4.5

5.4

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

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

12.0

13.9

16.8

16.0

18.0

Minority Interest
Long term borrowings

Short term provisions

long term loans and advances

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

Other current assets

1.2

0.6

0.7

0.8

6.6

349.0

396.3

408.3

418.1

451.7

Total Assets

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July 14, 2016

Sharekhan IPO Flash

Advanced Enzyme Technologies

About industry

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.

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

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

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

1720

2700

3630

4760

6300

Research & biotechnology

380

543

815

1180

1720

Diagnostic

203

282

430

640

950

97

175

255

370

530

680

1000

1500

2190

3200

2400

3700

5130

6950

9500

Industrial Enzymes

Total
Specialty enzymes

Other specialty
Total
Grand total

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July 14, 2016

Sharekhan IPO Flash

Advanced Enzyme Technologies

Geographical distribution of global enzyme market

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.

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 worlds developing countries,

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

78

153

234

365

550

2400

3700

5130

6950

9500

Africa/Middle East
World Enzyme Demand

The views expressed in this report are our views only and have been arrived at after analysis of the public offering details. This is not
a recommendation under our Stock Idea category. It may/may not be included in the Stock Idea by our analysts at a later date.

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July 14, 2016