Advanced Enzyme Technologies IPO – What are the hidden factors?
Advanced Enzyme Technologies IPO Review
Thane (Maharastra) based, Advanced Enzyme Technologies IPO would open for subscription on 20th July, 2016. Advanced Enzyme Technologies Limited is one of the largest Indian enzyme company, engaged in the research and development, manufacturing and marketing of 400+ proprietary products developed from 60 indigenous enzymes. The company revenues grew at 14% CAGR in last 5 years. What are the hidden factors of Advanced Enzyme Technologies IPO? Should you invest in this Advanced Enzyme Technologies IP? In this article, I would do this IPO Review.
About Advanced Enzyme Technologies Limited
The company is one of the largest Indian enzyme company, engaged in the research and development, manufacturing and marketing of 400+ proprietary products developed from 60 indigenous enzymes. Advanced Enzyme operate in two primary business verticals namely Healthcare & Nutrition (human and animal) and Bio-Processing (food and non-food). It ranks among the top 15 global firms in terms of enzyme sales and has the second highest market share domestically, next only to the world’s largest enzyme company Novozymes. The firm offers products to its global clientele of over 700 customers across 50 countries.
Issue details of Advanced Enzyme Technologies IPO
- IPO opens: 20-Jul-2016
- IPO closes: 22-Jul-2016
- Face Value: Rs 10 per share
- Issue price band: Rs 880 to Rs 896 per share
- Issue size: Rs 412 Crores on lower price band
- Market lot: 16 shares and in multiples of 16 shares therein
- Minimum investment: Rs 14,336 on lower price band
- Retail Discount: Retail investors do not get any discount in the IPO but company employees will get a discount of Rs 86 per share.
- Lead Managers: Axis Capital and ICICI Securities.
- Listing: BSE / NSE
- Download Advanced Enzyme Technologies IPO Prospectus at this link.
Objects of the Advanced Enzyme Technologies Ltd IPO issue
- The object of the fresh issue is to invest in Advanced Enzymes USA, the wholly owned subsidiary for repayment / pre-payment of certain loans availed by Advanced Enzymes USA
- To carry out the sale of up to Equity Shares by the Selling Shareholder. The company would not get any proceeds.
- General corporate purposes.
Company Financials (reinstated-Consolidated)
- The company generated revenue of Rs 174.87 Crores for the year ended Mar-12 and Rs 294.63 Crores for the year ended Mar-16.
- The company posted a profit of Rs 33.33 Crores for the year ended Mar-12 and profit of Rs 78.43 Crores for the year ended Mar-16.
- Its restated-consolidated EPS for FY 2016 is Rs 36.03 and last 3 years average EPS Rs 27.22
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Reasons to invest Advanced Enzyme Technologies IPO
- Strong revenue growth of 14% CAGR in last 5 years. However, in FY15, the revenues have dropped by 7% compared to FY14.
- Good Profits of 22% in FY15, 26% for FY16.
- First IPO in the enzymes segment, hence catching fancy.
Reasons not to invest in an Advanced Enzyme Technologies Ltd IPO
- Company, its Subsidiaries, its Group Companies, its Promoters and its Directors are parties to certain legal proceedings. Any adverse decision in such proceedings may have a material adverse effect on its business, results of operations and financial condition.
- There are certain outstanding criminal matters involving its Non-executive and Nominee Director Mr. Kunisetty Venkata Ramakrishna. Failure to defend these proceedings successfully may have an adverse effect on its reputation.
- They are significantly dependent on its foreign Subsidiaries incorporated in North America for the sale and marketing of most its products in these regions. Any disruption in the operations of these foreign Subsidiaries could have a material adverse effect on its business, prospects, financial condition and results of operations.
- They have not entered into any long term or definitive agreements with its customers. If its customers choose not to source their requirements from, its business, financial condition and results of operations may be adversely affected.
- Its historical revenues have been significantly dependent on sales of its top five product groups. Any reduction in demand for these products or permanent or temporary discontinuation in manufacturing of these products could have a material adverse effect on its business, prospects, financial condition and results of operations.
During the second half of the fiscal year ended March 31, 2014, they conducted a voluntary recall of some
consignments of goods of enzymes, which were potentially contaminated, on account of which they incurred an exceptional charge of Rs 539.98 million for the fiscal year ended March 31, 2014. There is a risk that they may face a similar situation again in the future, which if it materializes, may significantly impact its business, reputation, financial conditions and results of operations.
- Intellectual property rights are important to its business. Since its business is based on evolving, innovative and unique methods and using the same for developing enzyme products and solutions, it is very important for us to ensure the confidentiality of its intellectual property rights. We may be unable to protect them from being infringed by others, including its current and / or future competitors/employees.
- Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 19 onwards.
Recommendation / Investment strategy – Advanced Enzyme Technologies IPO
- On the upper price band of Rs 896 and on FY16 EPS of Rs 33, P/E ratio works out to 24.4x. Similarly, on last 3 years EPS of Rs 27.22, P/E Ratio works out to 32.92x. Means company is asking the upper band of issue price of Rs 896 for a P/E ratio between 24x to 33x. There are no listed peers to check whether the issue price is reasonably priced or overpriced.
- Company revenues grew at 14% CAGR in last 5 years. It is generating good margins. Since it is the first IPO in enzymes segment, it is catching the attention of investors. Considering all these factors, one can invest in this IPO from a short term to long term perspective. If you are able to get good listing gains, nothing like it.
Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy this IPO. Please consult your investment advisor before you invest in such high risk investment options.
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Advanced Enzyme Technologies IPO – What are the hidden factors