Advanced Enzyme Technologies was the top loser among A group stocks on Tuesday as it tanked 4.9 per cent on closing after the company announced its June quarter performance.
While consolidated revenues declined 17 per cent year-on-year in Q1, net profit tanked 43 per cent. This was the third consecutive disappointing performance by the company, which listed in August 2016.
Massive response to IPOThe company’s IPO had received a massive response with subscription of 116 times in July 2016. However, the market also tends to punish companies for their disappointing performances. The current market price of ₹279.2 is trading close to its 52-week low level of ₹267.6, and is down 41 per cent from its 52-week high of ₹475.40.
The company came out with an IPO price of ₹896 against a face value of ₹10; in May, it announced a stock split and reduced the face value to ₹2.
While the company has maintained a revenue target of ₹1,000 crore in the next five years, which will include organic and inorganic growth, the run rate will have to be higher in the coming quarters for the performance to catch up with the guidance, especially given the revenue decline reported in Q1. The revenue target of ₹1,000 crore is almost triple the FY17 revenues of ₹331.4 crore.
Some analysts feel that a revenue scale-up is achievable, especially given the good long-term prospects (organic) and inorganic expansion (zero debt status).
However, the impact of acquisitions on margins need to be addressed by the company and is a key area.
After all, the company has been able to command premium valuation not only due to its unique business but also its superior margin profile (operating margin in excess of 40 per cent).
Following the recent fall, the stock trades at 24 times FY19 earnings, which is seen as reasonable.
Amar Mourya, analyst at Emkay Global Financial Services, recommends a ‘buy’ on the stock and has a target price of ₹333.