ADVANCED ENZYME TECHNOLOGIES

Going global with its enzymes

Promoted by second-generation enzymologists, the Rathi brothers, in 1989, the Thane (Maharashtra)-headquartered Advanced Enzyme Technologies is one of the largest Indian enzyme companies with a product basket of 400+ proprietary products developed from 68 indigenous enzymes probiotics. Recently, it has emerged as a global enzyme power house with three wholly-owned subsidiaries, three joint ventures and five stepdown subsidiaries. The company offers these products to 700+ customers spread across 45 countries. The company has been doing very well and its prospects going ahead are all the more promising.

Consider:

• Globally, the growth of the enzymes market piggybacks on a diverse spectrum of customers. This, together with a limited number of meaningful players, has created a conducive business environment for existing players in the space. Note that enzymes as ‘cost to percentage of sales’ is not material, yet its efficacy is very important to the end-product, including constituency of the end- product in terms of its taste, appearance, aroma and, thus, quality perception, leading to significant supplier stickiness. With a revenue bandwidth of just Rs 440 crore (~$60 million), AET remains a marginal player in the global enzymes landscape that is estimated at ~$10 billion and poised to grow at 6-7% CAGR as more and more applications across usage industries incorporate enzymatic technologies. Despite being a smaller player, AET’s product basket of >400 products is testimony to its proven capabilities.
• Having pioneered the production of enzymes in India, AET continues to set trends with research and development of new applications for the use of enzymes. Today, the company caters to diversified industries like human nutrition, animal nutrition and bio-processing. It provides its proprietary and customized enzyme products to various pharmaceutical and nutraceutical companies in India, other Asian countries, North America and Europe. The company has stateof-the-art manufacturing facilities and R&D centres across India, the US and Germany.
• AET faces little competition as it has a specialised business model with high entry barriers. One of the biggest challenges facing new companies looking to enter the enzyme segment is to offer continuous and differentiated solutions as per the client’s requirement — that demands real time R&D capability and flexibility in manufacturing. Large manufacturing capacities, proven capabilities, experienced promoters, customer stickiness, fairly consistent track record, ability to develop new products in-house and quest for unique acquisitions are some differentiators for AET.
• AET is poised to capture the growing opportunities in the enzyme and probiotics space backed by its proven capabilities and stable financials that have been fairly consistent, thanks to a mix of organic and inorganic growth. The acquisition route has contributed significantly in the company’s growth in the topline as well as bottomline. AET has acquired a number of companies, including Advanced Supplementary Technologies Corporation, JC Biotech, AEM of Malaysia and EVOII Technologies GmbH, a renowned German R&D company. While ASTC has enabled the company to consolidate its position in the US market, the acquisition of the German company has strengthened the company’s R&D capabilities with the state-of-the-art Directed Evolution Technology in creating the desired enzyme molecules.
• The company has made slow but steady progress on the financial front. During the last 12 years, its sales turnover has expanded from Rs 116 crore in fiscal 2011 to Rs 529 crore in fiscal 2022, with operating profit inching up from Rs 23 crore to Rs 203 crore and net profit spurting over seven times from Rs 17 crore to Rs 120 crore. Its financial position is getting stronger by the day and its reserves at the end of fiscal 2022 stand at Rs 1,066 crore – over 48 times its equity capital of Rs 22 crore. Its balance sheet is very healthy as it is an almost debt-free company.

The company is going from strength to strength, and continues the search for acquisitions to quicken its pace of growth. Its shares with a face value of Rs 2 are quoted around Rs 266.75 – down from the 52-week high of Rs 422 in line with global trends. Its shares are available at an attractive valuation and long-term investors can accumulate them at every decline.

CONSOLIDATED PERFORMANCE INDICATORS (Rs. in crore)

HIMADRI SPECIALITY CHEMICALS

Riding demand for carbon derivatives

Himadri Speciality Chemicals (HSCL) is a completely integrated speciality carbon company which has leveraged its deep knowledge of one of the most versatile substances – carbon. Over the years, with its core products and value-added by-products, the company has established one of the world’s most extensive value chains in the carbon segment. It is engaged in the manufacture of various grades of coal tar pitch and other value-added products derived during the distillation process. Prospects for the company are quite encouraging. At the current price, this is a safe investment with good chances of appreciation going ahead.

Consider:

• Himadri is a leading manufacturer of coal tar which is the by-product derived from coke oven batteries used in the steel industry while converting coking coal into low ash metallurgical coke. The gas thereby derived is converted into coal tar which is distilled and developed into multiple value-added derivatives. Himadri is India’s largest coal tar pitch producer and enjoys a hefty marketshare of 70 per cent, which the management expects to improve in the coming years by catering to more than two-thirds of the requirements of the aluminium and graphite industries. Coal tar demand is inelastic. Aluminium smelters cannot reduce production/shut down during a downturn owing to the significantly high cost of starting afresh. This gives the company an edge for roundthe-year stable business.
• The domestic demand for coal tar pitch grew at a robust pace of 7.5-8% between 2012 and 2017 and at around 10 per cent CAGR between 2017 and 2021. The aluminium industry is the key driver of the domestic coal tar pitch industry. The company has entered the carbon black industry by way of forward integration. It has forayed into speciality carbon black – a segment that has high growth potential. This has allowed the company to diversify its customer base and strengthen its high-margin, value-added product portfolio.
• Himardri has gone in for forward integration into SNF, a next-generation product. SNF is a product for the construction industry and is an admixture of agro chemicals, latex and gypsum. It improves the concrete mix workability and its compressive flexural strength. The company is India’s largest manufacturer of SNF, with an installed capacity of 68,000 tpa and a marketshare of 50%. It has also gone in for forward integration into advanced carbon materials used in batteries for electric vehicles. Going forward, specialty carbon black and advanced carbon materials will drive margin expansion.

The company has rapid strides on the sales front, with sale turnover during the last 12 years expanding from Rs 700 crore in fiscal 2011 to Rs 7,291 crore in fiscal 2022. However, its performance on the profitability front is disappointing. During the last 12 years, its operating profit has declined from Rs 199 crore in fiscal 2011 to Rs 156 crore in fiscal 2022 and the net profit during this period has dipped from Rs 113 crore to Rs 41 crore.

However, the outlook is better going ahead. Of course, the risk-reward ratio is high. But cautious investors who invest small to moderate amounts may do well.

PERFORMANCE INDICATORS (Rs. in crore)