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Advanced Enzyme Technologies Ltd. (AETL) is the largest Indian enzyme company and is engaged in the research & development, manufacturing and marketing of 400+ proprietary products developed from over 68 indigenous enzymes and probiotics. The company has manufacturing facilities and research & development centers in India, US and Germany. It exports its products to more than 45 countries across six continents. Revenue for 9M FY21 grew by 10.5% YoY and stood at Rs. 368.6Cr. EBITDA for the period was Rs. 176.6Cr as against Rs. 153.6Cr in the previous year and grew by 15% YoY. PAT grew by 17% YoY and came in at Rs. 114.5Cr. The company works in three segments and provides solutions to a wide variety of industries like human healthcare & nutrition, animal nutrition, baking, fruit & vegetable processing, brewing & malting, grain processing, protein modification, dairy processing, specialty applications, textile processing, leather processing, paper & pulp processing, biofuels, biomass processing and biocatalysis etc.

Revenue likely to be doubled by 2026: The company was able to maintain its international sales during the pandemic. For the nine month ended Dec. 2020, revenue grew by 10% YoY mainly due to human nutrition segment. AETL has very less competition as the enzyme industry is characterized by high entry barriers and continuous requirement of research & development. The company is constantly working on acquisitions and is planning to double its revenue in the next five years. Acquisitions in the area of biocatalyst, animal feed and probiotics are expected. Apart from this, growth in animal feed is expected with the ease of lockdown restrictions

Expansion in B2C segment: The USA, Japan and Europe account for more than 90% of the total global nutraceutical market. The global market is estimated to grow upto USD 336bn by 2023. AETL has strong nutraceuticals business through its B2C sales in the US. Sales are mostly through online platforms like Amazon. It is planning to expand its B2C sales in India in nutraceuticals, baking areas etc. New acquisitions are likely to boost this segment. B2C sales are stable and comparatively more profitable, thus expansion in the B2C sales will bolster revenue growth for the company.

Sustainable margins: AETL has healthy gross margins, reflecting operational efficiency and strong manufacturing & distribution capabilities. In Q3 FY21, EBITDA grew by 25.6% YoY with around 100bps expansion in the margin. This was mainly on account of better product-mix whereas, reduction in finance cost led to the growth in PAT margin. Also, the new tax regime has been adopted by the company which will improve the earnings. Along with an increase in revenue, it is expected that AETL will be able to maintain its EBITDA and PAT margins in the range of 46-48% and 30-32%, respectively

Valuation: At current market price of Rs. 355, AETL is trading at a TTM P/E multiple of 27.1x. We value AETL at a P/E multiple of 28x to its FY22 earnings to arrive at a target price of Rs. 424 per share. Thus we assign ‘BUY’ rating to the stock.

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