The stock of Advanced Enzyme Technologies is down 29 per cent from its 52-week high price of ₹475 and 14 per cent in the last one month despite the stock split in May-end. This is because of the company’s disappointing financial performance in the last two quarters and high valuation at 31 times FY18 estimated earnings on the other hand.
However, the company has guided for a robust outlook and things will be back on track. It has set a revenue target of ₹1,000 crore in the next five years — which is almost triple the current (FY17) revenues of ₹331.4 crore. This will include organic and inorganic growth.
The company is looking for acquisitions to use its robust cash flows (only maintenance and R&D capex going ahead) and increase its capabilities, especially in research and development.
Operating cash flows stood at ₹114 crore in FY17 and has risen at an average 29 per cent in the last four years. On the other hand, debt has come down to ₹65 crore from ₹100-odd crore. The company plans to reduce debt further in the long term.
The company is also looking at increasing its geographical presence and planning to target more lucrative markets such as Europe followed by Latin America and Asia. “The share of India and US to our revenues, which is currently 90 per cent, can go to 70-75 per cent in three years time. It is our conscious focus of de-risking,” said Piyush Rathi, Chief Business Officer of the company.
Besides, the company is also looking to enter high-growth newer segments such as palm oil extraction, detergents and bio-diesel enzymes.
Emkay maintains ‘buy’
Emkay Global Financial Services maintains its ‘buy’ recommendation with a target price of ₹421 on the stock, implying an upside potential of 25 per cent. “New initiatives such as palm oil, detergent and bio-diesels should foster revenue growth over medium to long term. We continue to remain positive on the long-term prospects of the business and remain upbeat about new products, partnership and patents,” according to Amar Mourya, analyst at Emkay.
The company had witnessed an overwhelming response in its IPO with overall subscription of 115 times. Also, the stock had debuted and closed at more than 30 per cent gain over its issue price. It has gained 89 per cent since its listing in August.
Advanced Enzyme is an integrated player with presence across the enzyme value chain right from R&D to marketing and distribution of enzymes. The company has indigenously developed more than 60 enzymes with R&D spending of 3-4 per cent of its consolidated revenues every year.
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