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Advanced Enzymes Technologies Ltd

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About the Company

Advanced Enzymes is a research-driven company with global leadership in manufacturing of enzymes and probiotics. They are the largest Indian enzyme company engaged in the research and development, manufacturing and marketing of 400+ proprietary products developed from over 65 indigenous enzymes & probiotics.

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 60 61.57 -2.55% 60.15 -0.25% 120.16 116.3 3.32%
PBT 14.26 11.88 20.03% 18.19 -21.61% 32.45 26 24.81%
PAT 11.15 8.85 25.99% 13.27 -15.98% 24.42 19.7 23.96%

Consolidated Financials (In Crs)
  Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 112.97 105.16 7.43% 111.4 1.41% 224.37 209.83 6.93%
PBT 41.6 36.63 13.57% 47.47 -12.37% 89.07 78.81 13.02%
PAT 31.84 25.86 23.12% 33.97 -6.27% 65.81 57.1 15.25%

Detailed Results

    1. The consolidated performance for the quarter was modest with revenue growth of 7.4% YoY. The standalone performance was down with a 2.5% YoY decline.
    2. The EBITDA for Q2 grew 12% YoY while PAT grew 23% YoY.
    3. In the different segments, the revenue growth breakup is:
      • Animal Healthcare: Up 9% YoY
      • Human Healthcare: Up 7% YoY
      • Industrial Bioprocessing: Up 13% YoY
    4. The company has maintained its position as the 2nd highest market share player in the enzymes market in India.
    5. Human Healthcare dominates the company’s operations with 74% revenue contribution, the other 2 segments of animal healthcare and industrial bio-processing account for 12% and 14% each respectively.
    6. H1 results followed a similar trend with a 7% YoY rise in revenues, an 11% YoY rise in EBITDA and a 15% YoY rise in PAT.
    7. The company also reduced its finance costs drastically which saw a drop of 70% YoY.

Investor Conference Call Highlights

  1. The company’s German subsidiary Evoxx has done well in the quarter with revenues of Rs 5.8 Cr and EBITDA of 1.7 Cr.
  2. The company closed their Malaysian subsidiary as the management felt that they didn’t need a separate entity to do all the work there and everything could be handled from India itself.
  3. The growth drivers for the company in the next few years are probiotic, human nutrition, animal feed, biocatalyst, and the baking industry.
  4. The management asserts that raw material prices should not be viewed sequentially but on a year on year basis and that they do not see any major deviations from current levels in it.
  5. The management feels that they should be able to achieve their 10% revenue growth target for the year despite the challenges they are facing in their major markets of the USA and India.
  6. The management has guided that they should be able to at least match last year’s gross margins of 43% in FY20.
  7. In terms of geography, the company still sees India as its primary growth driver.
  8. The R&D expenses for the quarter were around Rs 4 Cr.
  9. The current capacity utilization of the company’s facilities is around 50%.
  10. The management wants to bring this up to near 100% in the next 3 years. If this happens then the company should also see margin expansion from current levels.
  11. The management believes that the USA market is in a slowdown and thus has seen revenues go down while in India the company is facing some competitive pressure in the human nutrition market.
  12. The management asserts that they have been in a consolidation phase in the past one year and they should see better growth from the next half-year or Q4 onwards.

Analyst’s View

Advanced Enzymes has been a market leader in the enzymes industry in India. The company has built an impressive portfolio of products and subsidiaries all over the world. The past year has been muted for the company with <10% revenue growth and capacity utilization at only 50%. The management asserts that they have been in a consolidation phase in the past year and they should start seeing growth from Q4 onwards. It remains to be seen whether everything will go according to what the management has stated and the current predicament is not a result of a deeper systemic issue. Nonetheless given its market positioning in the enzyme industry in both India and abroad and the company’s track record, Advanced Enzymes remains an interesting stock to watch out for.

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 60.1 54.76 9.75% 57.71 4.14%
PBT 18.19 14.12 28.82% 12.58 44.59%
PAT 13.27 10.85 22.30% 9.15 45.03%

 

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 111.39 104.66 6.43% 113.05 -1.47%
PBT 47.47 42.18 12.54% 46.48 2.13%
PAT 33.96 31.23 8.74% 33.46 1.49%

Detailed Results

    1. The consolidated performance for the quarter was muted with revenue growth of only 6% YoY. The standalone performance was slightly higher with 10% YoY growth.
    2. The EBITDA for Q1 grew 12% YoY.
    3. Segment-wise revenue growth is as follows:
      • Animal Healthcare: Flat 0% YoY
      • Human Healthcare: Up 7% YoY
      • Industrial Bioprocessing: Down 1% YoY
    4. The company has maintained its position as the 2nd highest market share player in the enzymes market in India.
    5. Human Healthcare dominates the company’s operations with 76% revenue contribution, the other 2 segments of animal healthcare and industrial bio-processing account for 12% each.
    6. The company has also reduced their geographical dependence on the USA with US revenues accounting for 45% of total revenues as compared to 51% a year ago.

Investor Conference Call Highlights

  1. The management has attributed to the increase in profitability to their current product mix and strong performance of the domestic unit.
  2. The EBITDA margin of current quarter is 49% vs 46% a year ago.
  3. The company’s Evoxx unit is now EBITDA positive.
  4. The chairman has reiterated its growth guidance of 10% revenue growth in FY20.
  5. The effective tax rate has risen to 28% which may cause some decline in end profits. The rise in tax rate has occurred due to the expiration of tax benefits like SEZ holidays, etc.
  6. The top 10 clients have contributed only 35% of total revenues for the company, highlighting good diversification in client concentration.
  7. The R&D expenditure for the company for Q1 came in at Rs 48 million which is just above 4% of revenues.
  8. The management has indicated that R&D costs can rise to 5% to 7% in the year.
  9. The revenue contribution of the top product of the company is 23% of overall revenues at Rs 25.7 Cr in Q1.
  10. The second biggest product contributes 14% to overall revenues.

Analyst’s View

Advanced Enzymes is India’s largest enzyme company with a strong thrust on developing in-house research-based innovative products. Their current focus continues to be in the area of human and animal nutrition. They are making serious efforts towards expanding the product portfolio and market of probiotics. They are also trying to expand their presence in the fast-growing huge global market of Animal Feed. Currently, they are running at about 55% capacities, hence there is no immediate significant Capex requirement for funding their growth in the near term. Customer concentration was an issue with the company since long. Even today, the top 10 customers form about 35% of the total sales. However, it’s a marked improvement from the situation a couple of years ago. Export forms around 60% of the total turnover, thereby development in global enzyme industry have a direct bearing on the company’s performance. The pledging of shares by the promoter group was an overhang on the stock for a long time. With the recent release of all the pledge, the market should focus on the business performance going forward. Advanced Enzymes continues to be an interesting and unique business to look at.

 

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