FERMENTA BIOTECH

Current Market Price-: 311 Rs

Fermenta Biotech Limited (formerly known as DIL Limited)

Introduction

Fermenta Biotech is a 70 years old company engaged in manufacturing several business which includes manufacturing of active pharmaceutical ingredients, lease rental business for commercial properties, Nutritional Premixes, Biotechnology as well as providing Environmental Solutions which include EPC – Engineering, Procurement & Construction for STPs, WTPs & ETPs.

Fermenta is a leading manufacturer and global supplier of Vitamin D3. It produces a range of variants – crystalline, oil, resin in oil, cold water dispersible (CWD) and feed grade powder, that can be used in applications like injectables, soft gel capsules, premixes as well as food and beverage fortification.

In India Company is the only manufacturer of the Vitamin D. As per the management comments, they are are not aware of any other company making this product in India so far, so more or less the entire market share subject to a few imports coming in here and there. Fermenta should be close to the entire market share, therefore almost 99% and above market share is of the Fermenta Biotech in Vitamin D segment.

Duphar-Interfran (DIL) was established in 1951, Promoted by a technocrat, D V K Raju as International Franchises Pvt Ltd. In the initial years, the company manufactured and sold toothpaste, anti-septic lotion and pharmaceutical specialities on a loan-licence basis. It was later company entered into collaborations with Philips-Duphar, Amsterdam (Solvay Duphar), and the Crookes Laboratories, London. These collaborators participated in the equity capital of the company to the extent of 25% each.

In 1963 company changed its name to Crookes Interfran and in1964, it entered into a collaboration with Solvay Duphar to manufacture vitamin D3.

Today Fermenta is one of the largest manufacturers of Vitamin D3 and a key global player. Headquartered in Thane, India, Fermenta caters to clientele across the globe, with a worldwide distribution network. Its state-of-the-art R&D centre is based at Thane, and world class manufacturing facilities are located in Kullu, Himachal Pradesh and Dahej, Gujarat. Apart from Vitamin D3, Fermenta also offers niche APIs, integrated biotechnology platforms such as enzymes for antibiotic synthesis as well as environmental solutions for waste water management and treatment.

Business/Products

Vitamin D3 and other APIs

Vitamin D3

Fermenta is a leading manufacturer and global supplier of Vitamin D3. It produces a range of variants – crystalline, oil, resin in oil, cold water dispersible (CWD) and feed grade powder, that can be used in applications like injectables, soft gel capsules, premixes as well as food and beverage fortification.

Fermenta has been manufacturing Vitamin D3 for over 50 years with a base of >300 customers and it is among the world’s three leading Vitamin D3 producers.

Various applications of Vitamin D3 manufactured include pharmaceuticals, dietary and nutritional supplements, food, feed, veterinary and rodenticides.

VIDAMIN D3 PRODUCTS

VITADEE 1— CWD/500CWD

Cholecalciferol Concentrate (Powder Form)

DS(Displersible Solution)

VITADEE- VEG 100 CWD

Applications-: For fortifying powder and liquid products such as baby food , milk powder , multi vitamins preximies and tableting applications. Catering to the needs of food , dietary and nutraceutical supplements.

CHOLECALCIFEROL-Crystalline Vitamin D3

Applications-: Pharmaceuticals, food , vetrinary & feed industries.

CHOLECALCIFEROL SOLUTION

CHOLECALCIFEROL CONCENTRATE (Oily form)

Applications-: Pharmaceuticals, food , vetrinary & feed industries.

VITAMIN D3 500 FEED GRADE PODER

Application-:  Animal Feed Supplement

VITAMIN D3 RESIN IN OIL

Application-:  Animal Feed Supplement

ERGOCALCIFEROL ORAL SOLUTION

VITAMIN D2 IN EDIBLE OIL

Applications-: Pharmaceutical & food Industry and Dietary & nutraceutical supplement.

Certifications & Accreditations.

SOURCES OF VITAMIN D

Nutritional Premixes

Fermenta offers premix solutions for fortifying food, in order to enhance its nutritional content. Fermenta’s blends are backed by its scientific expertise as well as global regulatory approvals. Designed for fortification, its high-quality innovative products add value to food without altering its sensory qualities

Food fortification enables delivery of nutrients in a large scale without modifying the dietary habits of the local population. It is a safe, cost-effective and efficacious means of improving the nutritional status of communities across the globe.

Fortification of staple foods such as oil provides manufacturers a competitive edge through enhancing the value of their products. Addition of micronutrient premixes is a scientifically proven and sustainable strategy to improve public health.

Biotechnology

Fermenta delivers proprietary specialised technologies through its enzyme portfolio across the biopharmaceutical product lifecycle.

Fermenta developed proprietary enzymatic technologies with growing potential in the production of beta lactam antibiotics like Amoxicillin, Ampicillin, Cephalexin and Cefadroxil. It manufactures enzymes (Fermase PS 250, Penicillin G Acylase) used in manufacturing processes of various antibiotics. Fermenta’s enzyme technologies enable new and eco-friendly manufacturing practices, addressing sectors comprising the pharmaceutical industry, fine chemicals, bio-plastics and cosmetics, to mention a few

Penicillin G Amidase – Biocatalyst (Fermase PA 850)

Penicillin G Amidase – Biocatalyst (Fermase PS 250)

Candida Antarctica Lipase B (CAL B)

Environmental Solutions

Fermenta Biotech Limited offers a comprehensive set of solutions designed to sustainably tackle growing environmental concerns. Apart from a plethora of biotechnology products, company provides a holistic range of services ranging from design, engineering and construction of wastewater treatment plants to end-to-end operation and maintenance services

1. EPC – Engineering, Procurement & Construction for STPs, WTPs & ETPs

Fermenta provides design and manufacturing solutions for electromechanical equipment. Its core competency areas include engineering, procurement and construction of new STPs, WTPs and ETPs as well as operation & maintenance specialization.

Moving Bed Bio-film Reactor (MBBR) 

Sequential Batch Reactor (SBR) 

Activated Sludge Process (ASP) 

Membrane Bio Reactor (MBR) 

Ultrafiltration (UF) & 

Reverse Osmosis (RO)

Company has collaborated with 

Kalro

KLARO, a European market leader for wastewater treatment plants, offers German design & engineering for wastewater treatment, solutions for wastewater reuse, and grease & light fluid separators. It is part of the GRAF group since 2014. More than 500,000 people in over 70 countries derive benefit from KLARO’s sophisticated treatment technology.

Fermenta is the authorized distributor of KLARO in India. Together, Fermenta and KLARO bring in immense shared values and expertise in engineering techniques for waste water management.

Peschl

Peschl Ultraviolet GmbH with its headquarters in Mainz and international representation in Europe, Asia and the USA, is a globally-operating, family-managed consultancy and trading company operating in the field of ultraviolet technology. The company develops manufactures and markets equipment and components for application in environmental technology with preparative photochemistry being an area of special expertise.

Being a pioneer in photochemistry in India, Fermenta envisages synergies with Peschl’s competencies in order to bring innovative effluent treatment solutions to India.

Fermsept-Integrated Biotechnology

Fermsept, is ferment’s proprietary bio-product a synergistic blend of beneficial bacteria and enzymes for wastewater solutions that improve outlet quality while eradicating odor.

Based on the application, there are two products that include:

1. Fermsept-S : Specially formulated with extra efficiency for domestic wastewater treatment plants

b. Fermsept-E: Designed for commissioning and stabilization of Effluent Treatment Plants(ETPs) involving aerobic as well as anaerobic treatment technologies

Automation

Automation of existing as well as new STPs and ETPs to ensure intervention-free maintenance, remote access to real-time parameters, robust command and control platform.

Real Estate

Fermenta entered the property development business in 2012, following the establishment of a state-of-the-art IT park in one of Thane’s prime locations. The project, Thane One, is spread across ~200,000 square feet and is home to some of the marquee brands in the country including Tata Technologies Limited, Ashok Leyland Limited, Samsung India and Datamark BPO Service Private Limited among others. This led to other Real Estate ventures subsequently

Owned properties

Thane One building: ~ 200,000 sq. ft. leasable area, which is currently 100% occupied and has an additional freehold land of ~ 5.5 acres

Business Expansion/Future Plans

• Company is expanding from single Vitamin D3 to multi-vitamin, the company aims to widen its nutraceuticals ingredients basket within the next 5 years.
• Developing new technologies enabling FBL to get into value-added ingredients, improving stability, bioavailability and scalability.
• In this journey, the company is exploring inorganic opportunities as well.
• Distribution network already built for catering to an expanded nutraceutical basket.
• Single-vitamin to multi-vitamin Aim to broaden vitamin product bouquet to be more palatable to customers.
• Multi-vitamins to Nutraceuticals Target initially by penetrating functional food and nutraceutical supplements. Further strategically adding core nutraceuticals for tackling common health problems and adding medical nutraceuticals for infant feeding, chronic ailments, boosting immunity, etc.

Recent Acquisition

On the 1st December, 2020, the company’s wholly owned subsidiary Fermenta Biotech USA LLC acquired a 52% stake in the US-based Vitamin Company AGD Nutrition LLC, headquartered in Nacogdoches, Texas. The deal is expected to combine the expertise of both companies and result in synergies that will bring in greater operational capabilities to enhance company’s footprint in US market, which is one of the largest markets for human and animal nutrition. The name of AGD Nutrition LLC has subsequently been changed to Fermenta USA LLC reflecting the brand value of Fermenta and expected to capitalize on Fermenta’s growing recognition as a nutritional ingredient supplier in the US market. 

Financials

For the entire financial year 2021 there was a positive impact on the human side of the demand and consequently the volume and the average prices of human vitamin D3 40MIU were higher by 71% and 4% respectively over previous year. However, the volumes and the average prices of animal vitamin D3 feed were under pressure and were lower by 35% and 17% respectively over the previous year. 

The company saw a successful launch of its new product cholesterol from fish oil for the first time in the world for aquaculture market which saw a sales of approximately 23 Crores in the financial year 2021 constituting around 6% of total operational revenue.

On a standalone basis in Q4 FY2021 

• Revenue from operations for the quarter was Rs.91 Crores, which was an increase of approximately 26% on a year-on-year basis. 
• Operating EBITDA reported was Rs.18 Crores which was an increase of about 33% on a year-on-year basis. 
• Operating EBITDA margin stood at approximately 20% as against 19% a year ago. 
• Net profit after tax reported was Rs.9.7 Crores which was an increase of 35% on a year-on-year basis.
• PAT margins stood at 10.7% as against 10% a year ago. 

For FY2021 on a standalone basis. 

• The operating income for the year was 373 Crores which was an increase of approximately 24% over the previous year. 
• Operating EBITDA reported was Rs.94 Crores which was an increase of about 35% over the previous year. 
• Operating EBITDA margin stood at 25.1% as against 23.1% a year ago. 
• Net profit after tax reported was Rs.52 Crores which was a decrease of about 18% on a year-on-year basis. 
• PAT margins stood at 14% as against 21% a year ago. 

Vitamin D Industry Overview

The Vitamin D market is estimated to account for about USD 1.1 billion in 2019 and is projected to reach a value of nearly USD 1.7 billion by 2025, growing at a CAGR of 7.0% from 2019 to 2025.

Around the world 1 in 3 women and 1 in 5 men over the age of 50 will suffer an osteoporotic fracture. In fact, a bone will break every 3 seconds because of this disease. Osteoporotic fractures are a result of osteoporosis, a condition in which the bones become more fragile due to bone deterioration or low bone mass.

Numerous studies across various regions of India indicate that approximately 70-90% of apparently healthy population is Vitamin D deficient.

According to the 2019 Alltech Global Feed Survey, Asia Pacific is home to several of the top 10 feedproducing countries, including China, India, and Japan; and accounted for more than 36.0% of the world’s feed tonnage. China dominated as the top feed-producing country in the world, with 187.9 million metric tons (207.1 million tons).

Data shows the Vitamin D3 market saw an 80.5 per cent jump from 2014 levels, whereas the Vitamin D combinations products market size witnessed a 141.5 per cent jump.

Nutraceutical Industry 

• The USA, Japan and Europe account for more than 90% of the total global nutraceutical market.
• North America nutraceuticals market is a mature market and is likely to progress at a CAGR of over 7.8% from 2016 to 2024. Increasing utilization of functional food and beverages by the baby boomer population in North America is expected to augment market growth. 
• Central & South America accounted for a market share of 7.2% in 2016 and is projected to ascend at a CAGR of 9.0% from 2017 to 2025 in terms of revenue owing to growing demand for nutraceuticals in Brazil.
• Dietary supplements segment is expected to ascend at a CAGR of over 9.7% from 2017 to 2025 on account of rising product demand from Brazil, China, India, South Korea, Poland, and Mexico. • Focus of nutraceutical players is now shifting towards developing economies, especially those across Asia Pacific, including India.
• In 2017, the Indian market held only 2% market share of the global nutraceutical market and its estimated valuation stands at around $5 billion as of 2019. It is expected to reach $11 billion by 2023, increasing at a CAGR of 21%. By 2023, India is also expected to hold at least 3.5% market share of the global market.
• Asia Pacific is predicted to ascend at the fastest CAGR of 9.9% over the forecast period on account of rapid growth of the market in China, Japan, and India.

Management’s Comments

Company has also completed Backward Integration and thus it is expected that the company would benefit from Backward integration from two ends, one is the efficiencies Company get in the cholesterol production from wool grease that it purchases. Number two is margins. Margins alone in terms of EBITDA margins in this year numbers have almost about 25 Crores of other new products that company has has launched including fish oil which is the major portion. So since the launch year both because of production efficiencies and market entry Fermenta’s margins were very negligible. If we take that out the new product contribution at the topline and the EBITDA line EBITDA margins would be showing much higher maybe even 27% also or even more.

About 75 Crores of loans in company’s books that is standing towards real estate and It is completely being serviced by the rentals alone.

Company is expecting to have its topline target to be the four-digit number however management is not sure if they could achieve the same in 4 years but at max they are expecting in 6 years. Considering the time frame of 5-6 years we can expect at the modest level 15% cagr growth which is a decent growth assumption and also in some of the years there can be high anomaly with significant high growth in revenues. How quickly company might be able to achieve this target would depend on the how efficiently company implements all its plans but that is the first objective Shariq.

Company is carrying out Capital Expansion in two phases and the first phase is set to complete in the current year with the benefits accruing from next year itself and the next phase would be complete in 2023 with complete benefits occurring since then.

Company also has fixed deposits to the tune of 25 Crores or 30 Crores.

Conclusion

Fermenta Biotech only manufacturer of the vitamin d products in India covering almost 99% of the market share as per the management , also company is involved in various other businesses having negligible amount of debt coupled with the fixed deposits of 25-30 crores and promoters holding around close to 60% of the shares of the company . Thus Fermenta Biotech is worth exploring for long term.