Ami Organics is commanding a strong premium in the grey market (at Rs 150+) due to various factors such as fairly-priced IPO, higher export potential and leading position as manufacturer of critical active pharmaceutical ingredients (APIs). Healthy subscription figures from QIB & NII during the IPO opening period also indicated demand for such businesses when compared to other listed players.
Being in high-growth high-margin therapeutic segment, Ami Organics enjoys superior return ratio compared to peers with return on capital employed (ROCE) of 25 percent and return on equity (ROE) of 32 percent in fiscal 2021. Further, with the debt reduction planned post the IPO money comes in and healthy business opportunities with new acquisitions, we see healthy topline and earnings growth in the coming years. This makes holding Ami Organics for long term fruitful.
Valuations parse, at the upper price band (Rs 610), the issue is asking for a market cap of Rs 2,223 crore with price earnings ratio at 41x based on FY21 earnings on post IPO versus industry average P/E at around 48-50x which seems IPO offer is fairly priced below industry.
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Owing to a stronger product demand speciality chemicals players are in focus in last 2-3 quarters on expectation of robust earnings growth for the next 2 years due to promising outlook in light of the “China Plus One” strategy.
Ami has over 450 pharma intermediates across 17 key therapeutic segments directly supplying its products to over 150 customers in India and 25 countries. Hence we assume that the sector will attract multi-year export opportunities in the current "Make for the World strategy" an initiative by the Indian Government which will add impetus to the emergence of India as a future manufacturing hub for the specialty chemicals industry, wherein Ami Organics is well placed to tap the sectoral growth with low competition and high entry barriers due to complex business nature.
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