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We all know how well Motherson Sumi (MSSL) has rewarded its long term investors. A magnificent 22X in the last 15 years in a cyclical industry like Auto components. Between MSSL & Advanced Enzymes Technologies Limited (AETL), I see stark similarities, which I will detail in the end.
Let us start with Advanced Enzymes background first:
Background of Advanced Enzymes
The journey began in 1957, when the founder Late L. C. Rathi pioneered the extraction of papain, an enzyme complex derived from papaya fruit and widely used for pharmaceutical and medical purposes. He went on to set up India’s first enzyme manufacturing plant in 1958.
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1982: Started as Advanced Biochemicals Private Limited
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2011: Acquired Cal-India Foods International for direct presence in the USA
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2012: Acquired AST Enzymes for consolidating USA presence
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2016: IPO & listing on the Indian Stock Exchanges
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2016: Acquired JC Biotech( a leader in Pharma Enzyme with a fermentation facility at Andhra Pradesh )
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2017: Acquired Germany based Evoxx Technologies GmbH
Interestingly papaian was Biocon Ltd’s first product which was launched in 1978.
Management
- Promoters have cumulative 7 decades of experience in Enzyme
- Head of R&D, CFO long associated for 18+ years
- Promoters own 58.13% of shareholding with no Share Pledge
Marquee Investor Profile
1. Orbimed:
World’s leading investment firm dedicated to health care with more than $14 billion of assets under management. It owns 11% stake+ Board Seat in Advanced Enzymes.
2. Nalanda Capital:
Nalanda invests primarily in those situations where it can be an active partner with the management team. They have recently bought ~ 4% stakes in Advanced Enzymes.
Business Model
Revenue Mix
As of Q1 FY21
R&D Focus
Good Capital allocation Strategy
The company have been a good capital allocator with one of the last 2 acquisition have become profitable unit from loss-making unit and JC biotech has started increasing its profitability.
Moat
Financial Analysis
Peer Comparison
Only 2 listed players are there in the Enzyme market so comparison with Novozymes (the market leader with 48% market size) is as below:
Growth Drivers: Advanced Enzymes
• The Company operating at 50% plant utilization factor
• Without any fixed asset capacity addition it can grow top-line till Rs 1200 cr
• The company need to invest in maintenance CAPEX & R&D only, so the company can grow without debt till the next 4-5 years
SWOT Analysis
Valuation
- A high margin growing debt-free business with a high barrier to entry.
- Stock is relatively undervalued.
- The stock has great potential so people with conviction in Enzyme growth story should invest.
Also Watch: Advanced Enzymes Analysis
Similarities of Advanced Enzymes with Motherson Sumi
The company resembles in the following areas with Motherson Sumi:
Only time will tell whether the Company can grow as MSSL did in the last decade, however one plus with this company is that the company is not a cyclical industry player but a niche player in a growing quasi commodity industry.
Read the latest research reports here.
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