AMI Organics IPO Analysis

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AMI Organics is coming up with an IPO of around 570 crores with a fresh issue of 200 crores & offer for sale of 370 crores.The promoters are diluting a stake of around 6%. The company is a research driven company in specialty chemicals  required for manufacture of Pharmaceutical API.  The company has been registering a CAGR growth of around 12.5% in topline & 33% bottomline.The PE of the company is expected to be around 41 which is slightly higher than its industry PE of 39, still it is underpriced compared to some of its peers. Grey Market Premium as on today stands at 20%

IPO Details

Objectives of Fresh Issue & Pre IPO Issue

1.Repayment of Certain Financial Liabilities of the company:140 Crores

2.Funding working capital requirements: 90 Crores

3.General corporate purposes

Offer For Sale: Company will not receive any proceeds from offer for sale.

Company raised Rs.100 Cr in a Pre IPO Placement at 603 Per Share

Pre IPO Placement saw participation 

1.Plutus Wealth Mgt:30 Crores

2.Malabar India:44 Crores

3.IIFL Opportunity Fund:20 Crores

4.Malabar Value Fund:6 Crores

Company Overview

AMI Organics : Company Overview

Incorporated in 2004, a research & development driven manufacturers of specialty chemicals focussed towards development of API, New Chemical Entities & starting materials for Agro chemicals & Fine Chemicals

Recent Acquisition of Gujarat Organics Limited has led to expansion of portfolio to manufacture preservatives other specialty chemicals used in the manufacturing of cosmetics, dyes, polymers and agro-chemicals.

1. Pharma Intermediaries :88%

 Commercialized over 450 PI for APIs across 17 key therapeutic areas.

2. Specialty Chemicals:5%

Procuring permission to market & manufacture  in regulated markets pharmaceutical companies to make formulations.

• 8 Process Patent Applications & 3 Patent Applications Pending. 4 Trademarks registered

• Key therapeutic areas:anti-retroviral, anti-inflammatory, anti-psychotic, anti-cancer, anti-Parkinson, anti-depressant and anti-coagulant which are high growth

3 Manufacturing Facilities:Sachin, Ankleshwar & Jhagadia in Gujarat

Total Installed Capacity: 6060 MTPA

Capacity Utilisation at Sachin Facility:63%

Revenue From Exports currently stands at 51% Of Total Revenue

R&D Expenditure Ranges from 1% to 4% of topline FY 2021: 2% of Sales

Key Domestic Customers Laurus Labs, Cadila Health Care, Cipla

13 Customers since last 10 Years & 50 Customers since 5 Years

Industry Performance

API & Specialty Chemicals Industry Snapshot

• The global chemicals market was valued at $4,738 billion in 2019 with China accounting for 40% of the market share. It is expected to grow at a CAGR of 6.2% to $6,785 billion from 2019 – 2025.

• The Indian chemicals market is valued at $166 Bn (~4% share in the global chemical industry) in 2019. It is expected to reach ~$326 Bn by 2025, with an anticipated growth of ~12% CAGR. The specialty chemical industry forms ~47% of the domestic chemical market, which is expected to grow at a CAGR of around 11-12% over the same period

• In terms of region-wise demand, India’s specialty chemicals industry is expected to witness the maximum growth of 11- 12% CAGR over the next five years compared with other markets, due to rising demand from end-user industries, coupled with tight global supply on account of stringent environmental norms in China.

• Going forward, Global Pharmaceutical market is expected to grow at 4.5% from 2020 till 2025 driven by increasing convergence of technology & health and new models for the treatment of diseases based on advanced therapies.

• The Government of India announced a ₹99.4 billion package to boost the domestic API manufacturing industry. The package is divided into two parts; (i) ₹69.4 billion has been allocated for the PLI Scheme and (ii) ₹30 billion will be spent on setting up three bulk drug parks.

Financial & Valuations

Key Strengths & Risks

Key Strengths:

Diversified Portfolio Supported by strong R&D & Process Chemistry

Extensive Geographical presence & diversified customer base & long relations

High Entry Barriers due to long gestation period to be enlisted as a supplier & involvement of complex chemistry

Consistent Financial Performance within the last 3 years

High Market Share in Certain Key Products

Experienced promoters and a strong management team

Key Risks

50% Revenue comes from outside India which has been increasing in the last 3 years

Top 2 products contributing to 44% of revenue •Low R&D Expenditure at around 2%

5 Largest customers account for more than 44% of revenue with 16% coming from 1 customer

Import of Raw Material to the tune of 19% from China

No Long term fixed contracts with customers

Company subject to strong Environmental, Health & Safety Laws

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