Ami Organics - IPO Note

10th December 2022 - 12:03 am

Ami Organics is a 17-year old company located in the state of Gujarat and specializing in the high growth segments of Active Pharma Ingredients (APIs) and specialty chemicals. Essentially, Ami Organics caters to the pharmaceuticals and the agrochemicals space and has over 150 clients spread across 25 nations including India. Ami organics operates through 3 plants; all located in Gujarat at Ankleshwar, Sachin and Jhagadia with total capacity of 6,060 MTPA (million tonnes per annum). Jhagadia and Ankleshwar were acquired in Mar-21 and are not reflected in FY21 results.

Ami Organics IPO is tapping the primary market with an IPO of Rs.570 crore consisting of a fresh issue of Rs.200 crore and an offer for sale (OFS) of Rs.370 crore. The IPO is priced in the band of Rs.603-610.

Key terms of the Ami Organics IPO offer

Key IPO Details	Particulars	Key IPO Dates	Particulars
Nature of issue	Book Building	Issue Opens on	01-Sep-2021
Face value of share	Rs.10 per share	Issue Closes on	03-Sep-2021
IPO Price Band	Rs.603 - Rs.610	Basis of Allotment date	08-Sep-2021
Market Lot	24 shares	Refund Initiation date	09-Sep-2021
Retail Investment limit	13 Lots (312 shares)	Credit to Demat	13-Sep-2021
Retail limit - Value	Rs.190,320	IPO Listing date	14-Sep-2021
Fresh Issue Size	Rs.200 crore	Pre issue promoter stake	47.23%
Offer for Sale Size	Rs.370 crore	Post issue promoters	41.05%
Total IPO Size	Rs.570 crore	Indicative valuation	Rs.2,225 crore
Listing on	BSE, NSE	HNI Quota	15%
QIB Quota	50%	Retail Quota	35%

_{Data Source: IPO Filings}

Some highlights of Ami Organics core business

1. It has a leadership position in most of the specific APIs it manufactures
2. Commercialized over 450 pharma intermediates in 17 therapeutic areas
3. Eight patent applications approved and 3 more in process
4. Net margins improved from 9.77% to 15.85% over last 2 years
5. Completed Rs.100 crore pre-IPO placement with marquee investors
6. Pharma intermediates account for 88.4% of total revenues
7. Pharma intermediates Trazodone and Dolutegravir top revenue contributors

Important Financials of Ami Organics

Ami Organics is a profit-making company with consistent growth in top-line revenues, bottom-line net profits and net profits margins. Its return on net worth (RONW) is way above the peer group.

Financial Parameter	Fiscal 2020-21	Fiscal 2019-20	Fiscal 2018-19
Net Worth	Rs.166.93 cr	Rs.111.81 cr	Rs.82.22 cr
Revenues	Rs.340.61 cr	Rs.239.64 cr	Rs.238.51 cr
EBITDA	Rs.80.15 cr	Rs.41.02 cr	Rs.42.08 cr
Net Profit	Rs.54.00 cr	Rs.27.47 cr	Rs.23.30 cr
Net Margins (%)	15.85%	11.46%	9.77%
EBITDA Margins (%)	23.53%	17.12%	17.64%
ROCE (%)	25.25%	22.40%	29.11%
RONW (%)	32.35%	24.57%	28.33%

_{Data Source: Company RHP}

Across key ratios like net margins and return on equity, growth has been significant in FY21 over FY19. The only catch has been flat to lower ROCE. However, since a chunk of the fresh fundraising will be utilized for repayment of debt, the ROCE should improve in the coming quarters. Also, its capacity utilization at the Sachin facility is just 63% and an improvement will result in better-fixed cost absorption.

Currently, the capacity of the Ankleshwar plant and the Jhagadia plant have not been included as they were only acquired in March 2021. Once they also come on stream, the boost to the top line and the bottom line would be significant. Already, the RONW of Ami Organics is well above the peer group in the industry.

Investment Perspective for Ami Organics

Active Pharma Ingredient or APIs is a fast-growing segment globally. For a long time, China has been the global leader in the supply of pharma intermediates. However, post the pandemic and the supply chain constraints, most global pharmaceutical players are looking at India as a viable option. That opens up a big window of opportunity.

a) Nearly 70% of the fresh issue proceeds will go towards repaying of debt. This will not only improve the solvency ratios of the company but also improve the ROCE ratios. This is likely to favorably impact valuations post the IPO.

b) Among its top revenue-generating intermediates like Trazodone, Dolutegravir, Entacapone and Pazopanib, Ami Organics has an intermediates market share ranging from 70% to 85%, giving them leadership in these core segments.

c) Ami Organics is likely to gain from high entry barriers in the pharma intermediates industry. Compliance requirements are stringent and in this area, the company has built solid entry barriers since it takes a long time to get enlisted as an API supplier.

d) If you compare Ami Organics on the P/E ratio based on indicative post-issue valuations, it discounts FY21 profits at a P/E ratio of 41X. That is relatively attractive if you compare it with peer group companies like Aarti Industries and Vinati Organics.

Ami Organics brings to the table the combination of a solid financial track record, a commitment to reduce debt as well as smart entry barriers built up in the pharma intermediates business. The pricing is reasonable and Ami Organics may have the added advantage of being in the right industry at the right time.

Check: 7 Interesting Facts about Ami Organics