Advanced Enzyme Technologies Limited

Cmp-:189

Advanced Enzyme Technologies Limited (AETL) is a 30 year old almost Debt free company. AETL is engaged in the research and development, manufacturing and marketing of 400+ proprietary products developed from over 68+ indigenous enzymes and probiotics.

One of the most Important Aspect of the enzyme industry is that it is very concentrated and consists of very few players globally. Factors such as technical and specialized nature of the business, heavy reliance on research and development and dearth of qualified professionals with experience in enzyme, fermentation and biotechnology industry operates as an entry barrier to new players in the market. The company provides eco-safe solutions to wide variety of industries like human care and nutrition, animal nutrition, baking, fruit & vegetable processing, brewing & malting, grain processing, protein modification, dairy processing, specialty applications, textile processing, leather processing, paper & pulp processing, biofuels, biomass processing, bio catalysis, etc. The company aims to provide side-effect-free healthcare and eco-safe industrial solutions to its customers globally, and is today, the largest producer of enzymes in Central Asia.

In 2018 4 food enzymes got approved as a processing aid with Food Safety Standard Authority of India (FSSAI) and 4 enzymes were registered with REACH -ECHA (European Chemical Agency).

AETL is amongst Top 15 Global Enzyme Companies having 700+ customers spread across 45+ countries 68+ Enzymes & more than 100 Probiotics and Scientists, Microbiologists, Engineers, Food Technologists, Biotechnologist’s with total employees of more than 550. AETL has 7 state-of-the-art manufacturing facilities and 7 research development centers spread across India and US.

AETL has 22 patents granted till date.

Acquisitions-:

In 2017 AETL acquired Evoxx Technologies GmbH via its wholly owned subsidiary Advanced Enzymes Europe B.V Technologies for a consideration of € 7.65 million. Evoxx Technologies GmbH is an industrial biotech company focused on the development & production of industrial enzymes, as well as a few specialized carbohydrates for nutritional applications. Evoxx was founded as evocatal GmbH in 2006, and has a team of 35+ scientists & technicians across two sites in Germany.

In 2018 4 food enzymes got approved as a processing aid with Food Safety Standard Authority of India (FSSAI) and 4 enzymes were registered with REACH -ECHA (European Chemical Agency)

Key Characteristics-:

AETL is a research driven company and have invested significant resources in the engaged in Research & Development of various enzymes, proprietary enzyme products and customized enzyme solutions since inception. Total Research & Development expenditure as a % of net sales of the company rose to 8.82% in FY2019 (Rs 19.59 crore) from 5.68% in FY2018 (Rs 12.06 crore).

Capacity Utilization-:

Currently, AETL is operating at 55% (approximately) of the installed capacity of its fermentation assets, implying good headroom for growth in the times to come.

Financials-:

Yearly Performance-: Company’s growth has been in line with guidance. In FY19, operating revenues grew by about 6% from ₹3,957.0 million to ₹4,195.9 million, EBITDA grew by about 11% from ₹1,639.6 to ₹1,819.6 million, and our PAT (before minority interest) has grown 24% from ₹935.6 million to ₹1,159.0 million. As before, the Human Nutrition segment is largest revenue driver (contributing 76% of revenue), followed by the Animal Nutrition segment (12% of revenue) and the Bio Processing segment (12% of revenue). On the Operations front, capacity utilization continues to be in the 52%-55% range.

Quarterly Performance-: For the three months ended June 2019, sales rose 6% to Rs 110.34 crore. OPM rose 210 basis points to 48.5% which saw OP rose 11% to Rs 53.49 crore.

Debt has been reduced to about 50% as compared to 67cr in 2018 to 35 cr in 2019.

Cash balance has decreased from 61 cr to 23 cr in 2019 but investments has increased to 111 cr as compared to nil investments in 2018.

Company has 657 cr Rs of Reserves and Surplus.

Compounded Sales and Profit Growth for 3 year stands at around 12%.

Comments-: Overall we can expect AETL to grow at a minimum CAGR of 6-7% over the coming 2-3 years. With Operating Profit Margin of above 40% constant over past 6 years and Net profit margin of above 20% over the same period Advanced Enzyme Technologies Limited (AETL) is worth exploring for long term.

Additional Notes

What are enzymes?

Enzymes are natural protein molecules produced by all living organisms, functioning as highly specialized catalysts for accelerating the pace of chemical reactions, that is, they help a chemical reaction take place quickly and efficiently, without undergoing change themselves.

Subsidiaries-:

Advanced Enzymes USA (“AEU”): AEU is a body corporate engaged in the research, development and marketing of cutting edge, efficacious and all-natural enzyme solutions of the highest quality catering primarily to the North American and Latin American markets. AEU has stake in following corporations. In terms of the consolidated financial performance, AEU’s revenue for FY 2018-19 was ₹2,128.18 million, and PAT for FY 2018-19 was ₹822.84 million.

Advanced Supplementary Technologies Corporation (“AST”): AST is a leading manufacturer of enzyme-based strength supplements to support cardiovascular, anti-inflammatory, joint, digestive and colon health. AST uses only non-genetically modified, natural ingredients, tested by its team of leading scientists and industry experts. AST helps customers achieve a healthy lifestyle with enzyme supplements that are formulated and manufactured in-house, assuring customers of the highest quality, activity, purity and safety. AST is a subsidiary of Advanced Enzymes USA.

Cal-India Foods International (doing business as Specialty Enzymes and Bio-technologies, “SEB”):SEB is a leading producer of enzymes in the Western Hemisphere. Specialty Enzymes and Biotechnologies offers complete enzyme solutions for healthcare and nutrition primarily to North America and Latin America. A subsidiary of Advanced Enzymes USA, the company specializes in creating customized enzyme blends, from conception to finished products, and also offers highly effective established enzyme products.

Enzyme Innovation, Inc. (“EI”): Enzyme Innovation is a subsidiary of SEB, USA focused on marketing and business development of industrial enzymes in Americas. Enzyme Innovations caters to industries like Baking & Milling, Brewing & Malting, Brewing & Distilling, Fruit & Vegetable processing, Animal Feed, Protein Modification, Grain Alcohol, Paper & Pulp, Waste Management, Wine and Detergents & Cleaning aids. EI specializes in customized solutions.

Dynamic Enzymes, Inc. (“DEI”): DEI, inter alia, offers high quality systemic and digestive enzyme supplements through retail channels.

Advanced Bio-Agro Tech Limited (“ABAT”): ABAT is, inter alia, engaged in the business of promotion, development, marketing and selling products of your Company in the Animal Health and Nutrition segment and also developing market in crop saving drugs, composting etc. ABAT has established itself as a leader of poultry enzyme solutions within the Indian sub-continent, and offers solutions to the large South East Asian markets of Vietnam, Thailand and Malaysia. In terms of the financial performance, during FY 2018-19 ABAT’s revenue was ₹395.39 million and PAT was ₹55.02 million.

Advanced EnzyTech Solutions Limited (“AESL”):Advanced EnzyTech Solutions is a wholly owned subsidiary of AETL. AESL is engaged in the business of promotion, development, marketing and selling products of your Company in the bioprocessing non-food segment such as textile, pulp and paper and other process industries and providing enzymatic and other solution to them including providing of solution to pollution related problems faced by the process industries by using the said products. AESL aims to replace the traditional harsh chemical processes in these industries with newer, eco-friendly, yet cost-effective solutions using enzymes, micro-organisms and bio-degradable chemicals. In terms of the financial performance for FY 2018-19, AESL’s revenue was ₹94.69 million and PAT was ₹5.23 million.

JC Biotech Private Limited (“JC Biotech”): JC Biotech has become a subsidiary as 70% stake of JC Biotech was acquired by AETL as on that date. Apart from continued development and manufacturing of biopharmaceutical molecules. In terms of the financial performance for FY 2018-19, JC Biotech’s revenue was ₹488.83 million and PAT was ₹98.25 million.

Advanced Enzymes (Malaysia) Sdn. Bhd.:As it’s a newly acquired company during 2017 (incorporated in 2016), AEM has been conducting trials on products & yet to generate sales. During the year, expenditure were incurred on payment of salaries of technical person, administration and on trial on products and resulted in a loss of ₹4.78 million. The said subsidiary will be engaged in supplying and providing enzyme based solutions for extraction of palm oil from palm fruits.

Advanced Enzymes Europe B.V., Amsterdam (Netherlands) (“AEE BV”):AEE BV is an SPV for European market and holds 100% equity of evoxx technologies GmbH. In terms of the consolidated financial performance (including evoxx technologies, GmbH) for FY 2018- 19, AEE BV’s revenue was ₹166.74 million and loss of ₹120.47 million (which includes about ₹35.16 million of operational loss and a ₹48.03 million of amortization expense and finance cost of ₹46.27 million).

evoxx technologies GmbH (“evoxx”): AETL bought 100% stake in evoxx during August 2017 through AEE BV. Revenues for evoxx was ₹166.74 million and had negatively impacted the bottom line by ₹60.66 million (which includes about ₹33.93 million of operational loss and a ₹18.05 million of amortization expense and finance cost of ₹8.68 million )

Sectorial Outlook-:

Enzyme market size is estimated to exceed USD 9.5 Billion by 2024.

Global probiotics ingredients market valued at USD 2303 million in 2019 and is expected to reach USD 3,560.7 million by 2025 growing at an estimated CAGR of 7.7% over the next five years.

Among bacterial probiotics, lactobacilli genus dominated the market and the segment was valued at USD 1061.4 million in 2018 and is expected to grow at an anticipated CAGR of 7.9% from 2019 to 2025.