Is Advanced Enzymes the Next Motherson Sumi?

Reading Time: 4 minutes

Source link | Twitter Profile | Youtube Channel

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.

  • 1982: Started as Advanced Biochemicals Private Limited

  • 2011: Acquired Cal-India Foods International for direct presence in the USA

  • 2012: Acquired AST Enzymes for consolidating USA presence

  • 2016: IPO & listing on the Indian Stock Exchanges

  • 2016: Acquired JC Biotech( a leader in Pharma Enzyme with a fermentation facility at Andhra Pradesh )

  • 2017: Acquired Germany based  Evoxx Technologies GmbH

Interestingly papaian was Biocon Ltd’s first product which was launched in 1978.

Also Read on FinMedium:  Future of HDFC Bank - Is HDFC Bank the Bank for the Buck Now?

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

Advanced Enzymes

Revenue Mix

As of Q1 FY21

Advanced Enzymes
Animal Health is the main constituents
Advanced Enzymes

 

India & USA are the main markets with the company focussing more on the domestic market & European market
Advanced Enzymes

R&D Focus

 

~5 % spending on R&D

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.

 

Tale of last 2 acquisitions (Revenue & PAT for FY20)

Moat

Financial Analysis

 

ROCE has dwindled due to CAPEX in the past 5 years

 

Cumulative CFO > Cummulative PAT over the past 10 years

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:

 

Advanced Enzymes has beaten Novozyme in margins, growth rates, leverage, revenue per employee front

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

Also Read on FinMedium:  Competition is For Losers | Saket Mehrotra

• 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:

The Common Ground

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.

Source link | Twitter Profile | Youtube Channel

Every Wednesday and Saturday, we send Info-Graphic and FinMedium Weekly Digest newsletters to our 25000+ Subscribers.

Join Them Now!


Amitabh Vatsya

Amitabh Vatsya

Amitabh Vatsya is an active Investment Vlogger (http://youtube.com/c/Sadhansimplified) | Loves to share his ideas at http://wealthsutra.wordpress.com | Follow him @amitabhvatsya
Please Share :)