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Healthcare division sustains strong traction; maintain Buy

* ADVENZY’s reported Q3 EBITDA/PAT were above our estimates by 40%/46%, driven by a sales beat (on better-than-anticipated growth in the Human Healthcare division) and strong operating margins (led by better product mix and cost control measures).

* Human HC surpassed Rs1bn sales (up 35% yoy) on healthy domestic pharma sales, while Industrial Processing was up 12% yoy. Animal HC fell 29% yoy on bird flu concerns and Covid19 impact. Key business regions India/USA/EU saw robust growth of 49%/14%/5.5% yoy.

* Management’s growth guidance of doubling revenues in the next 4-5 years is driven by positive outlook in enzymes, probiotics and biocatalysts, among other opportunities. Recently acquired SSPL delivered strong growth in 9MFY21 (Rs300mn vs. Rs267mn in FY20) and we estimate ~Rs100mn contribution in Q4FY21.

* Growing penetration of enzymes across applications in mature and emerging markets should continue to aid healthy topline growth, complemented by inorganic acquisitions. We upgrade our FY22/23 estimates by 3-4% by baking in margin improvement on favorable product mix. We raise the TP to Rs 382 (20x FY23E) and maintain Buy with EW in EAP.

Human Healthcare division crosses Rs1bn mark; Animal HC growth curtailed temporarily: Q3FY21 sales grew 23% yoy to Rs1.38bn on strong growth in Human HC (35%) and Industrial processing (12%). Growth in the Human HC division was led by healthy consumption from domestic and international customers, and pent-up demand. Biocatalysts (~4% of sales) and probiotics too saw improving adoption trends, which complemented the overall momentum. Management believes that as the Indian pharma market grows due to evident structural tailwinds, biocatalysts too would see immense opportunities. Animal HC, on the other hand, fell 29% yoy, led by concerns around bird flu and subsequent weak consumption due to Covid-19. During the quarter, ADVENZY transferred leasehold rights to its property at Jalna in Maharashtra and recognized a gain of Rs7.2mn under other income. It has received land approval for its R&D facility (~Rs1bn facility at Nasik), which is undergoing process for completion.

Outlook positive: Growing penetration of enzymes across applications in mature and emerging markets should continue to aid healthy topline growth, complemented by inorganic acquisitions. We upgrade our FY22/23 estimates by 3-4% by baking in margin improvement on favorable product mix. We raise the TP to Rs 382 (20x FY23) from Rs368. We maintain Buy with EW in EAP. Key downside risks are a slowdown in the US economy and a muted offtake of the top-selling product.

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