Verdict: Recent Acquisition makes it Attractive

Rs. 570 cr IPO:

• Rs. 370 cr OFS by 19 individuals (worth Rs. 327 cr) and by promoter (Rs. 43 cr)
• Rs 200 cr fresh issue to repay Rs.140 cr debt (debt free post IPO) and Rs. 90 cr for working capital. Rs. 100 cr already raised in pre-IPO in Aug at Rs. 603 per share. 

IPO Date: Wed 1^st Sep to Fri 3^rd Sep 2021

Price band: Rs. 603-610 per share

Mcap: Rs. 2,223 cr, implying 26% dilution

Listing: 14^th Sep 2021

Gujarat Based Specialty Chemicals Company

On 2,460 MT installed capacity and 63% utilisation, Ami Organics clocked revenue of Rs. 341 cr in FY21, of which, 88% from 450 pharma intermediates and 5% from specialty chemicals. 3 key pharma intermediates, accounting for 50% of revenue, enjoy global market share between 70-90%. Nearly half the revenue is from exports, especially to Europe (Italy, Finland, France, Spain), where company has competitive advantage of REACH registration.

Acquisition More than Doubles Capacity

On 31.3.21, company acquired 3,360 MT specialty chemicals capacity for just Rs. 93 cr, increasing its installed capacity to 6,060 MT from FY22 onwards. With a 3.5x potential asset turnover ratio, FY22 revenue can more than double YoY. The acquisition was partly funded via Rs. 65 cr debt (balance Rs. 28 cr internal accruals), which is aimed to be re-paid from fresh issue proceeds. Promoter holding will reduce from 47% to 41% post IPO.

EBITDA Margins of 20%

Between FY19-21, company’s revenue grew at 20% CAGR, with FY21 revenue at Rs. 341 cr and EBITDA at Rs. 82 cr, leading to 24% EBITDA margin. FY21 PAT was Rs. 54 cr, with 16% net margin and EPS of Rs. 17. Going forward, EBITDA margin may contract to 20-21%, as specialty products (for agro chemical, animal food, cosmetics acquired on 31.3.21) fetch lower margin than pharma intermediates.

Valuation Multiple Lower than Peers

Newly acquired capacity and ramp up in existing capacity may lead to FY22E EPS of about Rs. 27, discounting current year (FY22E) earnings by a PE multiple of about 22x, which is attractive, due to high growth visibility, debt-free balance sheet (post IPO) and 28-30% RoE. Larger chemical companies catering to pharma sector clocking similar EBITDA margins like Hikal, Atul and Aarti Industries are ruling at PE multiples of 36-55x, while mid-sized players like Neogen and Chemcon are trading at PE of 60x and 27x respectively.

While short-to-medium term prospects remain bright, valuation multiples across the sector appear stretched, with higher risk of correction in small cap stocks. Ami Organics’ margins being in lower end of the 18-45% EBITDA band, making it more vulnerable to any potential PE contraction, over the longer term.

Conclusion

Healthy growth visibility coupled with attractive valuation make Ami Organics IPO promising over the short-to-medium term.

Grey Market Premium (GMP) of Ami Organics: Grey Market Premium of Ami Organics is an unofficial figure, against guidelines of SEBI and we are strongly against it. To know how it operates, read our article ‘grey market premium’.

Disclosure: No Interest.