Advanced Enzyme Technologies IPO Review

India’s biggest enzyme company Advanced Enzyme Technologies Ltd IPO will be opened on 20th July, 2016. Advanced Enzyme Technologies is planning to raise 412 Cr with this IPO. Issue price of this IPO is fixed in the range of Rs 880 to Rs 896. Let’s explore and try to find out an answer that Advanced Enzyme Technologies Ltd IPO is worth for investment or not.

Advanced Enzyme Technologies Ltd is engaged in research, development, manufacturing and marketing of Healthcare, Nutrition and Bio-processing products. Advance Enzyme operates in two primary business verticals namely Healthcare & Nutrition (human and animal) and Bio-Processing (food and non-food).

The company is engaged in the research and development, manufacturing and marketing of over 400 proprietary products developed from 60 indigenous enzymes. Having more than two decades of fermentation experience in the production of enzymes, it ranks among the top 15 global companies in terms of enzyme sales and has the second highest market share domestically, next only to the world’s largest enzyme company Novozymes. 

It offers products to its global clientele of more than 700 customers spanning presence across 50 countries worldwide.

Objects of the Issue:

The Offer consists of a Fresh Issue by the company and an Offer for Sale by the Selling Shareholders.

Prepayment / repayment of certain loans availed by its fully-owned subsidiary Advanced Enzymes USA.

Exit route for existing investors

General Corporate purpose

Company Promoters:

1. Mr. Chandrakant Laxminarayan Rathi
2. Mr. Vasant Laxminarayan Rathi

Major shareholders in Advanced Enzyme
Name of shareholder Equity Shares Percentage (%)
Vasant Laxminarayan Rathi 7,480,900 34.37
Chandrakant Rathi Innovations and Projects Private Limited 4,295,400 19.73
Atharva Green Ecotech LLP 2,492,940 11.45
Vasant and Prabha Rathi Generation Trust 1,500,000 6.89
Pradip Bhailal Shah 750,800 3.45
Kotak India Venture Fund I 679,900 3.12
Mukund Madhusudan Kabra 381,100 1.75
Kishor Laxminarayan Rathi 343,200 1.58
Kotak India Venture (Offshore) Fund 336,600 1.55
Rachana Rathi 325,000 1.49
Total 21,765,600 100.00

Financial:

On performance front, the company has (on consolidated basis) posted turnover of Rs. 220.42 cr, Rs. 239.45 cr. Rs. 223.11 cr. Rs. 293.76 cr. and net profit of Rs. 49.22 cr., Rs. 20.09 cr., Rs. 50.10 cr., Rs  78.44 cr. for FY 13, FY 14, FY 15 and FY 16 respectively.

Thus is has posted CAGR of 14.4% for top lines and CAGR of 24.1% for bottom lines for these years despite troubled fiscal 2014.

 

Advanced enzyme

Moreover, Advanced Enzume has a diversified customer base which includes Sanofi India, Cipla, Ipca Laboratories, Alkem Laboratories, and Emcure Pharmaceuticals. Its top 10 customers accounted for 41.4% of its consolidated revenues in FY2016 while geographical reach or dependence for business is also fairly diversified with 54.94% of revenue coming from USA, 36.44% from India, 3.84% from Europe, 3.63% from Rest of Asia, and 1.15% from other geographies in the latest FY.

Positive

The Company has 13 patents registered in its name and applications for registration of 4 patents are pending

The Company has very good R&D team consist of over 55 scientists, microbiologists, engineers, food technologists and biotechnologists.

Diversified product range and wide customer base.

Advanced Enzyme Technologies Ltd is 2nd largest enzyme company of India.

First IPO in enzyme segment

Negative

There are certain criminal matter against non executive and nominee director Mr. Kunisetty Venkata Ramakrishna of the company. Failure in this proceeding may have adverse impact on reputation of company.

There are significantly dependent on its foreign subsidiaries especially in North America for the sale and marketing of most of its products in these regions.

They have not entered into any long term or definitive agreement of its customers.

Is historical revenues have been significantly dependent on sales of its top five product groups.

Any reduction in demand or sell of these products will adversely impact on business.

Valuation:

Upper end pricing of the IPO values Advanced Enzyme at 24.9 times its consolidated earnings per share (EPS) of INR36.03 in FY2016. At 880 per share, the PE ratio drops to 24.4. Advanced Enzyme has no listed peers. The company has no listed peer in India while global enzymes leader Novozymes trades at a PE ratio of 35.5.

If we attribute the last earnings on post IPO equity then the asking price is at a P/E of 25 plus. As per RHP there is no listed peer for this company to compare with and this is being the first mover IPO in enzymes which are specialty chemicals for healthcare. Thus one may compare it with pharma sector that commands composite P/E of around 32.

 Conclusion:

Reasonable pricing makes this IPO a worthy bet for short to medium term. ( MARKET PREMIUM JUMPED TO 385-390 )

 DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here

L&T Infotech Ltd IPO review

Low valuations, but lower growth too

Incorporated in 1996, Larsen & Toubro Infotech, a subsidiary of Larsen & Toubro Ltd is Mumbai, India based IT Solutions & Services Company.

L&T Infotech is ranked 6th largest IT company in India in terms of export revenues and among top 20 IT service provider in the world. The services offered by L&T Infotech includes application development, maintenance and outsourcing, enterprise solutions, infrastructure management services, testing, digital solutions and platform-based solutions.

Issue Details :

Issue Opens On: Monday July 11th, 2016

Issue Closes On: Wednesday July 14th, 2016

Issue Type:100% Book Building

Issue Price Band: Rs.705–Rs.710 per share

Discount: Rs.10 to Retail Category Only

Face Value Per Share: Rs.1

Minimum Bid Lot: 20 Equity Shares and in multiples of 20 equity shares thereafter

Minimum Order Value: Rs.13,900 to Rs.14,000 (after discount)

Issue Size: Rs.1,225 crore

Proposed Listing: Bombay Stock Exchange and National Stock Exchange

Lead Managers: Citigroup Global Markets India Private Limited, Kotak Mahindra Capital Company Limited and ICICI Securities Limited

Registrar: Link Intime India Private Limited

Objects

The public offering is purely an offer for sale with the parent firm Larsen and Toubro Ltd looking to divest about 10.3% of its stake in the company.

The company is offering a special discount of Rs. 10 per share to retail investors.

Financial

On performance front, the company has (on a consolidated basis) posted turnover of Rs. 3873.54 cr., Rs. 4837.18 cr., Rs. 5069.54 cr. and Rs. 6143.02 cr. and net profits of Rs. 561.61 cr., Rs. 996.41 cr., Rs. 768.53 cr. and Rs. 922.18 cr. for the fiscal 2013, 2014, 2015 and 2016 respectively. For the fiscal 2014 it has other one time income of Rs. 300.24 cr.

Latest earnings shows EPS of Rs. 54.30 and thus asking price is at a P/E of around 12 plus that augurs well as industry composite P/E is around 19. Thus offer price appears to be reasonable. Management is confident of doubling its revenue in next three years.

LT

In terms of geographies covered, L&T Infotech derives the largest chunk of its revenue from North America at 69.4% followed by Europe at 17.2%. Asia Pacific accounts for only 2.2% while the remaining 6.2% of the revenue is contributed by rest of the world.

Post the restructuring of its engineering business which the parent hived off into a separate company, L&T Infotech has employee strength of 21,073. Around 52.5% of these employees are working onsite while 47.5% have offsite assignments.

L&T Infotech is India’s Sixth largest IT services firm by revenue draws majority of its revenue from Banking, Financial Services and Insurance (BFSI, 47percent – 26.3 percent BFS, 20.7 percent insurance), followed by energy & process (12.7 percent), CPG, retail & pharma (9.3 percent), automotive and aerospace (6.8 percent), media & entertainment (6.2 percent) and hi-tech & consumer electronics (5.2 percent). Digital services accounted for 11.1 percent of revenue in FY16.

Positive

NASSCOM has ranked L&T Infotech as sixth largest company in India in terms of export revenue. Company has accounted more than 68% of its revenue through the North America which is one of the biggest importers of Indian IT services

Strong revenue growth of 20% CAGR in last 5 years.

Good profit over 15% in last couple of years.

Extensive portfolio of IT services and solutions

Strong management culture, focus on emerging technologies

Company has been working to expand its operations in new geographical areas including Australia, Singapore, Japan, South Africa, India, Germany, France, Nordic region and the Middle East.

L&T Infotech is a part of one of the biggest diversified industry in India. Being a part of L&T Group whose business ranges from hydrocarbons, aerospace, automotive, heavy engineering and oil and gases etc. company gets benefited from insight experience of the businesses that operates in these verticals.

Negative

There are outstanding criminal proceedings pending against the company, its promoters and one of its directors.

Company revenues are highly dependent on clients primarily located in North America and Europe.

Since most of the company’s revenue comes from export, company is exposed to exchange rate fluctuations which could negatively impact our business, financial condition and results of operations.

L&T Infotech will not be enjoying the proceeds of the present issue as this being an offer for sale, the entire sale amount of around Rs 1,200 crore will go the parent L&T.

Exchange rate fluctuations in various currencies.

Restrictive immigration reforms in the US may have a substantial impact on business model and practices.

Concentration risk: Largest client alone contributed 14.9 per cent of firm’s revenue in FY16.

Valuations

Low valuations, but lower growth too

Current Market premium @ Rs. 62/- to Rs.67/-

L&T Infotech Comparison With Peers

Tata Consultancy Services Limited ( TCS ) per share  FV 1,  EPS 123.15 , PE 19.94x

Infosys  per share  FV 5,  EPS 58.73 , PE 19.96x

Wipro  per share  FV 2,  EPS 35.99 , PE 15.73x

HCL Technologies per share  FV 5,  EPS 43.74 , PE 16.41x

Tech Mahindra per share  FV 5,  EPS 32.12 , PE 15.83x

Hexaware Technologies   per share  FV 5,  EPS 13.06 , PE 17.21x

Mindtree per share  FV 5,  EPS 35.95 , PE 18.48x

L & T  Infotech Limited  per share  FV 1,  EPS 56.13 , PE 12.6x

Industry P/E ratio: Average: 19.35x

Conclusion : Reasonable pricing makes this IPO a worthy bet for medium to long term. ( MARKET PREMIUM IS 62-67 ONLY )

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here