Advanced Enzyme tech’s IPO today; should you subscribe?

Advanced Enzyme Tech, the largest Enzyme Company in India, has come up with an Initial Public Offering (IPO) of 0.46 crore equity shares of face value of Rs 10 each with an issue size of Rs 405.03 crore to Rs 411.49 crore.

The IPO will be open from Wednesday July 20, 2016 and will close on Friday July 22, 2016. The price band for the issue has been decided at lower band of Rs 880 and higher band of Rs 411.49. It involves minimum bid of about 16 shares.

The issue has reserved 50% for qualified institutional buyer (QIB); while Non-Institutional Investor can subscribe to 15% and the remaining 35% for retail individual investors. 

So should you subscribe Advanced Enzyme?

Ridhi Mehta analyst of Anand Rathi says, “Having rich experience of over 20 years, in the domestic market, it is second only to global leader Novozymes. On financial front, the company has posted (compounding annual growth rate) CAGR of 14%, 22% and 24% in revenue, EBITDA (earnings before interest tax depreciation and amortization) and PAT (profit after tax) respectively between FY2012 – FY2016. Currently, it is Operating at ROCE (return on capital employed) of 35%. We expect AETL to post 25% growth in FY17.

At Upper end pricing of the IPO values Advanced Enzyme at 24.7x earnings in FY2016. It is available at PE of 20.3x its FY17 earnings. The company has no listed peer in India while global enzymes leader Novozymes trades at a PE ratio of 35.5. Thus we recommend strong “Subscribe” to the IPO, added Anand Rathi.

BP Wealth analyst believes that going forward the company would post a robust growth on the back of a well established business model along with an experienced management team. At the upper end of the price band Rs 896, advance enzymes is available at 24x to its FY16 earnings, The Company has no listed peer in India while global enzymes leader Novozymes trades at a PE ratio of 35.5. Thus, we give a ‘SUBSCRIBE’ rating to this issue.

Also, GEPL Capital suggests the company to be subscribed as they believe it stands to gain from operating leverage. At a P/E (price over equity) of 28.4x the agency believes it demands a discount to its domestic peers.

According to Way2Wealth, the company is currently working at a 45% capacity utilisation of its existing capacity of 360 CBM. Also long growth platform is solid considering the strong foundation in research and development.  A niche business model with high entry barriers and well set up client base will enable AETL to grow at faster rate in developing markets. At the offer price band of Rs. 880-896 the stock trades at 25x its EPS (earning per share) of Rs. 36. “Hence we advise clients to subscribe the issue,” they said.

Where Advanced Enzyme is expected to be a great deal for various analyst, Angel Broking views are neutral on the issue.

According to the Angel Broking, the company’s scale of operations is very small in comparison to its global peers and is dependent on few people (especially on the R&D front, which is critical for the business) and few products for sustaining its business. In addition, the impending Chinese competition could pose a threat to the company’s profitability. Further at Rs. 880-896 per share, which is the lower and upper end of the offer price band, the company is available at ~6.1-6.2x FY2017E P/BV (price over book value), which we believe fully discounts all the positives.