Ami Organics (AOL), is focused towards manufacturing of advanced pharma intermediates (PI) for regulated/generic APIs and New Chemical Entities (NCE) and key starting material for agrochemical and fine chemicals. Ami Organics has set a price band of Rs 603-610 a share for the Rs 5.7 billion IPO.

Commenting on the IPO, Motilal Oswal Financial Services said, "We like AOL given its wide product portfolio in PIs, diversification efforts into other specialty chemical space, strong clients’ relation across geographies and robust financials. It is well placed to tap opportunity in the fast-growing specialty chemical market by leveraging its strong R&D and expanding product portfolio. The issue is reasonably valued at 41.2x FY21 P/E on post issue basis (avg. peer FY21 P/E of 45x), while it enjoys higher growth. We believe that the market would like to give premium valuation to such niche stories. Recommend Subscribe for Listing Gains."

Investment rationale

Strong and diversified portfolio of Pharma intermediates: AOL has built a strong and diversified portfolio of 450+ PI (88% revenue share in FY21) across 17 therapeutic areas which are high-growth and high margin, and commands significant market share both in India and globally. It is one of the major manufacturers of PIs like Dolutegravir, Trazodone, Entacapone, Nintedanib and Rivaroxaban of which first two contributed ~44% of FY21 revenues. India’s PI market is expected to grow at 10.6% CAGR over 2020-25F on the back of China+1 strategy of global players, further supported by GoI’s PLI scheme. AOL stands to benefit with wide portfolio and strong market share.

Acquisition of GOL in FY21 to expand its specialty chemical presence: By FY21-end, AOL completed the acquisition of Gujarat Organics (GOL), which enhanced its capacity by 3,600 MTA to 6060MTA. The acquisition would add preservatives (parabens - end usage in cosmetics, animal food, personal care) and other specialty chemicals (end usage in cosmetics, dyes polymers, agrochemicals) into AOL's existing portfolio, which command significant market share globally. It will enable AOL to diversify its portfolio and de-risk its business model. In FY21 GOL did a revenue of ~Rs 1 billion.

Robust Financials: Over FY19-21, AOL revenue/EBITDA/PAT grew at 20%/ 38%/ 52% CAGR, while EBITDA margins expanded from 17.6% to 23.5%, led by increasing presence in high margin products. Synergy benefits with GOL would start playing out from FY22 onwards and boost profitability. Post IPO, AOL will become debt free. It enjoys healthy return ratios of ~18%.

Issue Size: Rs 5.7 billion IPO consists of Rs 2 billion of fresh issue and OFS (by promoters/ investors) worth Rs 3.7 billion which would result in promoter's stake reducing to 41.1% post-IPO from 47.2% earlier. The funds raised would be utilized to repay debt (Rs 1.4 billion), fund working capital requirements (Rs 0.9 billion) and balance for general corporate purpose. AOL also undertook a pre-IPO placement of Rs 1 billion at Rs 603/share.

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