Ami Organics IPO opens on September 1 and a majority of analysts have assigned a "subscribe" rating to the initial public offering of the specialty chemicals company.
The analysts backed their recommendations by citing the company’s reasonable valuations, dominant market position and diversified product portfolio.
The Rs 570 crore IPO comprises of a fresh issue of shares for Rs 200 crore (reduced from Rs 300 crore after pre-IPO placement) and an offer for sale of Rs 370 crore by shareholders.
The net proceeds will be used for repayment of debt and working capital requirements. The price band for the offer, which closes on September 3, is Rs 603-610 per share.
“Considering the FY21 adjusted earnings per share of Rs 14.82 on post-issue basis, the company is going to list at a P/E of 41.16 with a market cap of Rs 2,222.7 crore, while its peers, namely Aarti Industries and Hikal, are trading at a P/E of 54.2 and 46.13, respectively,” Marwadi Financial Services said.
The brokerage assigned a ‘subscribe’ rating to the IPO, saying the company’s diversified product portfolio is supported by strong R&D and process chemistry skills and is available at a reasonable valuation compared with its peers.
Choice Broking, anticipating lower profitability in the medium term, said the issue is reasonably priced.
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“Considering the dominant market positioning of the company in the manufacturing of pharma intermediates for certain high-growth, high-margin therapeutic areas, business growth from the specialty chemicals and lower debt levels post-IPO, we assign a ‘subscribe’ rating for the issue,” it said.
Ami Organics is an R&D-driven manufacturer of specialty chemicals with varied end uses. It develops and manufactures intermediates for regulated and generic active pharmaceutical ingredients and new chemical entities and the key starting material for agrochemicals and fine chemicals.
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The company is the major manufacturer of intermediates for key APIs including Dolutegravir, Trazodone, Entacapone, Nintedanib and Rivaroxaban. Its pharma intermediates find application in anti-retroviral, anti-inflammatory, anti-psychotic, anti-cancer, anti-Parkinson’s, anti-depressant and anti-coagulant therapeutic areas.
Ami Organics has developed and commercialised over 450 intermediates for APIs across 17 key therapeutic areas and NCEs.
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Ami Organics supplies products to more than 150 customers directly in India and 25 countries. Exports accounted for 51.5 percent of its revenue in FY21 and grew at an annualised rate of 21.8 percent between fiscal 2019 and 2021.
The company’s financial performance has been consistent, with sales increasing at a CAGR of 19.5 percent and restated profit after tax rising at a CAGR of 52.3 percent between fiscal 2019 and 2021. The financials for 2020-21 don’t include revenue from the acquisition of two plants.
“We are positive on the long-term prospects of the company. Hence, we recommend a ‘subscribe’ rating to this IPO,” said Anand Rathi.
The company has three manufacturing facilities at Sachin, Ankleshwar and Jhagadia in Gujarat with an aggregate installed capacity of 6,060 million tonnes per annum.
India’s specialty chemical companies are gaining favour with global multinational companies as they look to reduce dependence on China. Currently, China accounts for 15-17 percent of the world’s exportable specialty chemicals, whereas India’s share is 1-2 percent, indicating the potential for growth.
However, Angel Broking said valuations are expensive and assigned a ‘neutral’ recommendation for the Ami Organics IPO.
“Based on FY21 numbers, the IPO is priced at a price-to-earnings of 35.6 times and EV/EBITDA of 25.7 times at the upper price band of the IPO, which is on the higher side compared to the listed peer group. The company already has a higher market share of 70-90 percent in key APIs, which will limit growth in near future,” the brokerage reasoned.
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