Advanced Enzyme Technologies Ltd IPO hit capital markets on Wednesday (July 20) with a 100 per cent book building initial public offering (IPO) of 46.03 lakh equity shares of face value of Rs 10 each in a price band Rs 880- 896 per equity share. The issue will close on July 22 (Friday).
The company on Tuesday gathered around Rs 123 crore from as many as 15 anchor investors. Kuwait Investment Authority Fund, DB International (Asia) Ltd, SBI Life Insurance Company Ltd, DSP Blackrock Equity Fund, L&T Mutual Fund Trustee Ltd and Tata AIA Life Insurance are among the anchor investors.
The issue was oversubscribed by 1.62 times on the second day of offer till noon.
Below are 10 things you should know about Advanced Enzyme Technologies IPO before subscribing:
About the company: Advanced Enzyme is the second largest enzyme company in India and among the top 15 global enzyme companies with a market share of around 0.9 per cent. The company is engaged in manufacturing, research and development and marketing of over 400 proprietary products developed from 60 indigenous enzymes.
Promoters: Chandrakant Laxminarayan Rathi and Vasant Laxminarayan Rathi are the promoters of the company. They have a cumulative experience of more than 70 years in the global enzyme industry.
Objective of the offer: The company intends to raise Rs 50 crore in fresh capital while the remaining Rs 361 crore is offer for sale (OFS). Of the fresh capital raising, Rs 40 crore will be used for the repayment of certain loans availed by Advanced Enzyme USA, its wholly-owned subsidiary.
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Lead managers: ICICI Securities and Axis Capital are book running lead managers to the issue.
Listing: Shares of the company will be listed on both BSE and NSE.
Financials: Net profit of the company has grown over 20 per cent CAGR in the past five years. Bottomline of the company stood at Rs 122.53 crore for the year ended March 31, 2016 against Rs 73.75 crore last year. Net profit of the company stood at Rs 47.68 crore, Rs 76.16 crore and Rs 27.75 crore in FY12, FY13 and FY14, respectively. Revenue of the company jumped from Rs 174.88 crore in FY12 to Rs 294.64 crore in FY16.
Return on net worth: During FY2016, the company reported return on net worth (RONW) of 32.1 per cent. This has also led to an improvement in its long-term borrowings–to-equity ratio to 0.04 times in FY2016 from 1.4 times in FY2012.
Valuation: Sharekhan in a research report said, “At the upper end of the IPO price band, the stock is valued at price-to-earnings, or P/E, ratio of 25.2 times 2015-16 earnings.
According to Reliance Securities, at the upper end of the IPO price band, the stock is valued at price-to-earnings ratio of 25.2x FY2016 earnings. At the price band of Rs 880-Rs896 per share, the public offer offer comes at a PE multiple of 25.2x trailing (FY16) earnings per share.
Should you buy? According to Angel Broking, given the management experience in the industry and the Indian cost advantage, the broking house expects that the company can post robust growth going forward. Angel Broking further believes that the company’s scale of operations is small in comparison to its global peers and its business is dependent on few products. “We believe the price fully discounts all the positives. Thus, we recommend a neutral view on the issue,” the brokerage house said in a research report.
Reliance Securities recommended ‘Subscribe’ to the IPO on the back of high return ratios, reasonable valuations and healthy earnings and EBITDA growth.
Hem Securities is bullish on the IPO, the brokerage house said, “Though domestically the company has no direct listed peer but if we compare it internationally then Advanced Enzyme Technologies looks reasonably priced as compare to its Novozymes. Hence, we are recommending ‘Subscribe’ on issue.”
Risks and concerns: Dependence on foreign subsidiaries, foreign currency fluctuations and revenue dependent on sales of the top five product groups are the key risk and concerns. Advanced Enzyme Technologies is dependent on their foreign subsidiaries incorporated in North America for the sale and marketing of most of their products in these regions. In case of any disruptions in operations of foreign subsidiaries due to any reason whatsoever, or if any of their key managerial personnel disassociate themselves from these subsidiaries, it could have a material adverse effect on their business, financial condition and results of operations.
Historical revenues have been significantly dependent on sales of their top five product groups. Any reduction or discontinuation in the demand of these product groups could have a material adverse effect on their business.
