Rating Rationale
December 28, 2023 | Mumbai
Advanced Enzyme Technologies Limited
Ratings reaffirmed at 'CRISIL A+/Stable/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.100 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings on the bank facilities of Advanced Enzyme Technologies Ltd (Advanced Enzyme).

 

The ratings continue to reflect healthy operating efficiency of the company, driven by capabilities across the value chain, healthy relationships with customers, extensive experience of the promoters and a strong financial risk profile. These strengths are partially offset by large working capital requirement and susceptibility to changes in food and drug safety regulations.

For fiscal 2023, operating income rose by 6% over fiscal 22 to Rs 563 crores driven by growth in the animal healthcare segment and bioprocessing segment. Further, in H1FY24, due to revival in demand in human nutrition segment, the company witnessed ~18% growth year on year. Revenue growth is expected to remain modest over the medium term, supported by rise in application for enzymes, probiotics and bio-catalases across human nutrition and other end user industries Operating margin declined to 33% in fiscal 2023 as compared to 39% in fiscal 2022 due to high material and freight costs, change in sales product mix and adverse performance in the subsidiaries catering to the overseas operations owing to slowdown in such markets. Operating margins are expected to remain healthy and stable around 33-35% in the medium term on account of slower recovery in higher margined global markets and limited pricing flexibility to pass on the price increases.

 

Although operations remain working capital intensive, they have not led to elevation in debt levels, with the working capital requirement funded primarily through internal accruals and liquid surplus. No major capital expenditure (capex) is envisaged over the medium term. Setting up of a research and development (R&D) facility at an estimated cost of Rs 70-80 crore is expected to be funded entirely through internal accruals and liquid surplus over the next three fiscals. Hence, the company is expected to sustain its net debt-free balance sheet and healthy credit metrics over the medium term.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Advanced Enzyme and its subsidiaries, Advanced Enzymes USA, Advanced Bio-Agro Tech Ltd, Advanced Enzymes Europe BV, Advanced Enzytech Solutions Ltd, JC Biotech Pvt Ltd, SciTech Specialities Pvt Ltd and Saiganesh Enzytech Solutions Private Limited. This is because all these entities, together referred to herein as Advanced Enzyme, are in the same business operate under a common management and have financial linkages.

 

CRISIL Ratings has amortised the goodwill on consolidation over five years, in line with its criteria. Other intangibles have been amortised over 10 years, in line with the relevant criteria.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong market position: Extensive technical know-how and a large product basket led to the company’s leadership position in the domestic healthcare and nutrition segments. International sales account for around 49% of the revenue, with the US being a major contributor. The company has more than 700 clients spread across more than 45 countries and a comprehensive product basket of more than 68 enzymes and probiotics and over 400 proprietary products.

 

  • Healthy operating efficiency, driven by capabilities across the value chain: The healthy operating margin and return on capital employed of 33% and 17%, respectively, in fiscal 2023 reflect healthy operating efficiency, backed by superior capabilities in R&D, manufacturing and distribution. The company has seven R&D centres and nine manufacturing facilities across India and the US, with total fermentation capacity of 500 cubic metre.

 

  • Healthy financial risk profile: The financial risk profile is expected to remain strong over the medium term despite acquisitions on account of growing networth which stood at Rs 902 crore as on March 31, 2023, healthy accretion to reserves and low debt leading to comfortable gearing of 0.01 time. Debt protection metrics were robust, indicated by net cash accrual to total debt and interest coverage ratios of 9.54 times and 53.5 times, respectively, in fiscal 2023.

 

Weaknesses:

  • Large working capital requirement: Gross current assets (GCAs) were high at 197 days as on March 31, 2023, driven by large inventory and receivables of 120 and 68 days, respectively. The GCAs were high because of diverse manufacturing locations and distribution channels, large portfolios of enzymes, wide variety of customer industries, timely customer service, high export contribution and considerable new product development. The company also undertakes formulation activities   at its US facilities as per customer requirement, which entails higher inventory. Nevertheless, the company largely funds the requirement through internal accrual, and reliance on debt is minimal.

 

  • Susceptibility to regulatory and compliance-related issues: The company remains susceptible to regulatory changes related to food and drug safety norms. Any noncompliance could lead to product recall, discontinuation of business by the customers and litigation, which may adversely affect the business and financial performance. However, the company has actively taken steps to mitigate such eventualities and has displayed healthy recovery in the past.

 

  • Exposure to fluctuations in foreign exchange (forex) rates: Exports, mainly to the US, account for most of the revenue (49% in fiscal 2023). A natural hedge to the extent of imports and the use of pre-shipment and post-shipment credit facilities mitigates the impact of forex rate fluctuations.

Liquidity: Strong

The company has healthy liquidity with Rs. 483 crores in liquid surplus as on March 31, 2023. Most of it is maintained in the US-based subsidiary as a significant proportion of profits are generated therein. Healthy expected cash accruals coupled with a large liquid surplus is expected to comfortably meet moderate capex and increase in working capital requirements. Further, the company also has access to fund-based limits of Rs 32.5 crore which has been marginally utilized in the past.

 

ESG Profile

CRISIL Ratings believes that Advanced Enzyme Technologies Limited’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The pharmaceutical sector can have a significant impact on the environment owing to greenhouse gas emissions, water use and waste generation. Social impact is characterized by the impact on the health and wellbeing of consumers on account of its products and on employees and local community due to its operations.

 

Key ESG highlights

 

There is growing importance of ESG among investors and lenders. The commitment of Advanced Enzyme Technologies Limited to ESG principles will play a key role in enhancing stakeholder confidence and access to capital markets.

Outlook: Stable

Advanced Enzyme should continue to benefit from its robust market position and healthy operating efficiency, while the financial risk profile should remain strong on account of adequate cash accrual and moderate capex.

Rating Sensitivity factors

Upward factors

  • Significant and sustained increase in revenue, at a compound annual growth rate over 15% while maintaining operating margins at over 40%.
  • Sustained healthy financial risk profile owing to prudent capex plans and working capital management.
  • Sustained build-up of cash surplus.

 

Downward factors

  • Considerable increase in leverage, with gearing over 1 time, due to larger-than-expected, debt-funded capex or acquisitions.
  • Adverse impact on the business risk profile due to any regulatory or compliance-related action.
  • Decline in operating profitability to less than 30% on a sustained basis.

About the Group

Advanced Enzyme was incorporated in 1989 by Mr V L Rathi and Mr C L Rathi as Advanced Biochemicals Pvt Ltd; it was renamed in 2005. The company was listed on the Bombay Stock Exchange and National Stock Exchange in August 2016. It is one of the largest enzyme companies in India, with competencies across the value chain: R&D, manufacturing and marketing/distribution of enzymes. It has multiple operating subsidiaries.

 

Advanced Bio-Agro Tech Ltd markets animal nutrition enzymes, Advanced EnzyTech Solutions Ltd markets non-food bioprocessing enzymes and Advanced Enzymes USA (Advanced US) is a holding company for the operating and marketing subsidiaries in the US that cater primarily to the human healthcare and nutrition segment. Evoxx Technologies GmBH has presence in Germany and carries out R&D of industrial enzymes and carbohydrate for food processing. JC Biotech Pvt Ltd mainly manufactures anti-inflammatory enzyme. SciTech Specialities Pvt Ltd provides platform for effervescent technology-based manufacturing of tablets and sachets on P2P basis.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs crore

563

533

Profit after tax (PAT)*

Rs crore

104

124

PAT margin

%

18.4

23.2

Adjusted debt/adjusted networth*

Times

0.01

0.01

Interest coverage

Times

53.51

70.37

*adjusted for amortisation of goodwill

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of

allotment

Coupon

Rate

Maturity

date

Issue size

(Rs crore)

Complexity

Level

Rating assigned with outlook

NA

Pre-shipment packing credit *

NA

NA

NA

15.00

NA

CRISIL A+/Stable

NA

Overdraft facility#

NA

NA

NA

12.50

NA

CRISIL A+/Stable

NA

Post Shipment Credit @@

NA

NA

NA

10.00

NA

CRISIL A+/Stable

NA

Pre-shipment packing credit @

NA

NA

NA

5.00

NA

CRISIL A+/Stable

NA

Cash Credit

NA

NA

NA

5.00

NA

CRISIL A+/Stable

NA

Letter of credit and Bank guarantee

NA

NA

NA

2.50

NA

CRISIL A1

NA

Proposed long-term bank loan facility

NA

NA

NA

40.00

NA

CRISIL A+/Stable

NA

Proposed working

capital facility

NA

NA

NA

10.00

NA

CRISIL A+/Stable

*- Interchangeable with Rs 15 crore of CC/WCDL/BC/SLC/ULC/BD and Rs 10 Crore of BG

#- Fully interchangeable with working capital demand loan

@@- Interchangable with PCFC, CC, Working capital demand loan, LC and Bank Guarantee sublimit of Rs 4 Crore

@- Interchangable with LC, CC, FDBP, PDB, Buyer Credit, WCDL and OD sub limit of Rs 2.5 crores

Annexure – List of entities consolidated

Subsidiaries

Extent of consolidation

Reason

Advanced Enzymes USA and its step-down subsidiaries Speciality Enzymes & Probiotics,

AST Enzymes, Enzyme Innovations

Full consolidation

100% subsidiary

Advanced Bio-Agro Tech Ltd

Full consolidation

60% subsidiary

Advanced Enzymes Europe BV and its step-down subsidiary evoxx technologies

Full consolidation

100% subsidiary

Advanced Enzytech Solutions Ltd

Full consolidation

100% subsidiary

Advanced Enzymes (Malaysia) Sdn Bhd:*

Full consolidation

100% subsidiary

JC Biotech Pvt Ltd

Full consolidation

85% subsidiary

SciTech Specialities Pvt Ltd

Full consolidation

51% subsidiary

Saiganesh Enzytech Solutions Private Limited

Full consolidation

50% subsidiary

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 97.5 CRISIL A+/Stable   -- 31-10-22 CRISIL A+/Stable 18-08-21 CRISIL A+/Stable 16-10-20 CRISIL A+/Stable CRISIL A/Stable
Non-Fund Based Facilities ST 2.5 CRISIL A1   -- 31-10-22 CRISIL A1 18-08-21 CRISIL A1 16-10-20 CRISIL A1 CRISIL A1
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 5 Axis Bank Limited CRISIL A+/Stable
Letter of credit & Bank Guarantee 2.5 HDFC Bank Limited CRISIL A1
Overdraft Facility& 12.5 HDFC Bank Limited CRISIL A+/Stable
Post Shipment Credit^ 10 ICICI Bank Limited CRISIL A+/Stable
Pre Shipment Packing Credit% 5 DBS Bank Limited CRISIL A+/Stable
Pre Shipment Packing Credit$ 15 Citibank N. A. CRISIL A+/Stable
Proposed Long Term Bank Loan Facility 40 Not Applicable CRISIL A+/Stable
Proposed Working Capital Facility 10 Not Applicable CRISIL A+/Stable
& - Fully interchangeable with working capital demand loan
^ - Interchangable with PCFC, CC, Working capital demand loan, LC and Bank Guarantee submit of Rs 4 Crore
% - Interchangable with LC, CC , FDBP, PDB, Buyer Credit, WCDL and OD sub limit of Rs 2.5 crores
$ - Interchangeable with Rs 15 crore of CC/WCDL/BC/SLC/ULC/BD and Rs 10 Crore of BG
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Anuj Sethi
Senior Director
CRISIL Ratings Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com


Poonam Upadhyay
Director
CRISIL Ratings Limited
D:+91 22 6172 3385
poonam.upadhyay@crisil.com


Naman Bhargava
Rating Analyst
CRISIL Ratings Limited
B:+91 22 3342 3000
Naman.Bhargava@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 

 



About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK


CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to:
https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.

 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html