| Advanced Enzyme Technologies Limited | ||||||
| Long-term rating upgraded to 'CRISIL A+/Stable' ; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has upgraded its rating on the long-term bank facilities of Advanced Enzyme Technologies Limited (Advanced Enzyme) to 'CRISIL A+/Stable' from 'CRISIL A/Stable' while reaffirming the short-term rating at 'CRISIL A1'. |
| Analytical Approach |
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For arriving at the ratings, CRISIL 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, Advanced Enzymes (Malaysia) Sdn Bhd and JC Biotech. That is because all these entities, collectively referred to herein as Advanced Enzyme, are in the same business and under a common management, and have financial linkages. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position Extensive technical know-how and a large product basket led to a leadership position in the domestic healthcare and nutrition segment. International sales account for about 57% of revenue, with the US as a major contributor. The company has more than 700 clients spread across 45 countries, and a comprehensive product basket of 68 enzymes and probiotics, and over 400 proprietary products. * Strong operating efficiency, driven by capabilities across the value chain A healthy operating margin and return on capital employed of 46% and 32%, respectively, in fiscal 2020, reflect strong capabilities in research and development (R&D), manufacturing, and distribution. The company has five R&D centres and seven manufacturing facilities across India and the US, with a total fermentation capacity of 480 cubic metre. * Healthy financial risk profile The financial risk profile is expected to remain strong over the medium term, despite moderate debt-funded capex and acquisitions, due to a growing networth and adequate profitability. Comfortable gearing of 0.04 time as on March 31, 2020, gives adequate flexibility to borrow. Debt protection metrics have been robust, with net cash accrual to total debt and interest coverage ratios of 7.5 times and 51.08 times, respectively, for fiscal 2020 Weaknesses * Large working capital requirement Gross current assets were high at 167 days as on March 31, 2020, driven by sizeable inventory of 122 days due to diverse manufacturing locations and distribution channels, timely customer service, high export contribution, and considerable new product development. The company also undertakes processing at its US facilities as per customer requirement and hence entails higher inventory. Nevertheless, the company largely funds the requirements from its internal accrual and hence the reliance on debt is minimal. * Susceptibility to regulatory and compliance-related issues The company remains susceptible to changes in regulations related to food and drug safety norms. Any non-compliance could lead to product recall, discontinuation of business by customers, and litigation, which may adversely affect business and financial performances. However, the company has actively taken steps to mitigate such eventualities and displayed healthy recovery in the past. * Exposure to fluctuations in foreign exchange (forex) rates Exports account for most of the revenue (57% in fiscal 2020), mainly to the US. A natural hedge to the extent of imports and the use of pre-shipment and post-shipment credit facilities mitigate the impact of forex rate fluctuations. The company hedges 25-30% of its net exposure. |
| Liquidity Strong |
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Liquidity is likely to remain strong. Unencumbered cash and marketable securities were adequate at Rs 207 crore as on March 31, 2020. Out of these around Rs 126 crore is maintained in the US-based subsidiary as a significant proportion of profits are generated therein (53% of consolidated operating income in fiscal 2020). Cash accrual is projected at over Rs 150 crore per annum, which will comfortably fund the yearly capex of Rs 30-40 crore and incremental working capital requirement. Bank lines worth Rs 47.5 crore had low utilisation of 13% during the 12 months through June 2020. |
| Outlook: Stable |
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Advanced Enzyme should continue to benefit from its established market position and healthy operating efficiency, while the financial risk profile would remain strong due to adequate cash accrual and moderate capex. |
| About the Group |
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Advanced Enzyme was set up in 1989 by Mr V L Rathi and Mr C L Rathi as Advanced Biochemicals Pvt Ltd; its name was changed in 2005. The company was listed on the Bombay Stock Exchange and National Stock Exchange in August 2016. It is one of the largest Indian enzyme companies with competencies across the value chain: R&D, manufacturing and marketing/distribution of enzymes and probiotics. The company caters to vide variety of industries and based on their supplies of enzymes customers are segregated into human healthcare and nutrition, animal health and nutrition , bioprocessing for food industry and bioprocessing for non- food processing including bio-catalysis .It has multiple subsidiaries operating in similar businesses. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#Fully interchangeable with working capital demand loan, letter of credit and bank guarantee | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - List of Entities Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#Fully interchangeable with working capital demand loan, letter of credit and bank guarantee | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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