Ami Organics - IPO Note

IPO Note
IPO
29/08/2021

Ami Organics is a 17-year old company located in the state of Gujarat and specializing in the high growth segments of Active Pharma Ingredients (APIs) and specialty chemicals. Essentially, Ami Organics caters to the pharmaceuticals and the agrochemicals space and has over 150 clients spread across 25 nations including India. Ami organics operates through 3 plants; all located in Gujarat at Ankleshwar, Sachin and Jhagadia with total capacity of 6,060 MTPA (million tonnes per annum). Jhagadia and Ankleshwar were acquired in Mar-21 and are not reflected in FY21 results.

Ami Organics IPO is tapping the primary market with an IPO of Rs.570 crore consisting of a fresh issue of Rs.200 crore and an offer for sale (OFS) of Rs.370 crore. The IPO is priced in the band of Rs.603-610.

Key terms of the Ami Organics IPO offer

 

Key IPO Details

Particulars

Key IPO Dates

Particulars

Nature of issue

Book Building

Issue Opens on

01-Sep-2021

Face value of share

Rs.10 per share

Issue Closes on

03-Sep-2021

IPO Price Band

Rs.603 - Rs.610

Basis of Allotment date

08-Sep-2021

Market Lot

24 shares

Refund Initiation date

09-Sep-2021

Retail Investment limit

13 Lots (312 shares)

Credit to Demat

13-Sep-2021

Retail limit - Value

Rs.190,320

IPO Listing date

14-Sep-2021

Fresh Issue Size

Rs.200 crore

Pre issue promoter stake

47.23%

Offer for Sale Size

Rs.370 crore

Post issue promoters

41.05%

Total IPO Size

Rs.570 crore

Indicative valuation

Rs.2,225 crore

Listing on

BSE, NSE

HNI Quota

15%

QIB Quota

50%

Retail Quota

35%

Data Source: IPO Filings

Some highlights of Ami Organics core business

1.    It has a leadership position in most of the specific APIs it manufactures
2.    Commercialized over 450 pharma intermediates in 17 therapeutic areas
3.    Eight patent applications approved and 3 more in process
4.    Net margins improved from 9.77% to 15.85% over last 2 years
5.    Completed Rs.100 crore pre-IPO placement with marquee investors
6.    Pharma intermediates account for 88.4% of total revenues
7.    Pharma intermediates Trazodone and Dolutegravir top revenue contributors

Important Financials of Ami Organics

Ami Organics is a profit-making company with consistent growth in top-line revenues, bottom-line net profits and net profits margins. Its return on net worth (RONW) is way above the peer group.

 

Financial Parameter

Fiscal 2020-21

Fiscal 2019-20

Fiscal 2018-19

Net Worth

Rs.166.93 cr

Rs.111.81 cr

Rs.82.22 cr

Revenues

Rs.340.61 cr

Rs.239.64 cr

Rs.238.51 cr

EBITDA

Rs.80.15 cr

Rs.41.02 cr

Rs.42.08 cr

Net Profit

Rs.54.00 cr

Rs.27.47 cr

Rs.23.30 cr

Net Margins (%)

15.85%

11.46%

9.77%

EBITDA Margins (%)

23.53%

17.12%

17.64%

ROCE (%)

25.25%

22.40%

29.11%

RONW (%)

32.35%

24.57%

28.33%

Data Source: Company RHP


Across key ratios like net margins and return on equity, growth has been significant in FY21 over FY19. The only catch has been flat to lower ROCE. However, since a chunk of the fresh fundraising will be utilized for repayment of debt, the ROCE should improve in the coming quarters. Also, its capacity utilization at the Sachin facility is just 63% and an improvement will result in better-fixed cost absorption.

Currently, the capacity of the Ankleshwar plant and the Jhagadia plant have not been included as they were only acquired in March 2021. Once they also come on stream, the boost to the top line and the bottom line would be significant. Already, the RONW of Ami Organics is well above the peer group in the industry.

Investment Perspective for Ami Organics

Active Pharma Ingredient or APIs is a fast-growing segment globally. For a long time, China has been the global leader in the supply of pharma intermediates. However, post the pandemic and the supply chain constraints, most global pharmaceutical players are looking at India as a viable option. That opens up a big window of opportunity.

a)    Nearly 70% of the fresh issue proceeds will go towards repaying of debt. This will not only improve the solvency ratios of the company but also improve the ROCE ratios. This is likely to favorably impact valuations post the IPO.

b)    Among its top revenue-generating intermediates like Trazodone, Dolutegravir, Entacapone and Pazopanib, Ami Organics has an intermediates market share ranging from 70% to 85%, giving them leadership in these core segments.

c)    Ami Organics is likely to gain from high entry barriers in the pharma intermediates industry. Compliance requirements are stringent and in this area, the company has built solid entry barriers since it takes a long time to get enlisted as an API supplier.

d)    If you compare Ami Organics on the P/E ratio based on indicative post-issue valuations, it discounts FY21 profits at a P/E ratio of 41X. That is relatively attractive if you compare it with peer group companies like Aarti Industries and Vinati Organics.

Ami Organics brings to the table the combination of a solid financial track record, a commitment to reduce debt as well as smart entry barriers built up in the pharma intermediates business. The pricing is reasonable and Ami Organics may have the added advantage of being in the right industry at the right time.

Check: 7 Interesting Facts about Ami Organics
 

Next Article

Sovereign Gold Bonds 6th Tranche opens on 30th August

Sovereign Gold Bonds
29/08/2021

The sixth tranche of the Sovereign Gold Bonds issue for FY22 (the last for H1) opens for subscription on 30-Aug and closes on 05-Sep. This SGB tranche is priced at Rs.4,732 per gram, which is lower than the fifth tranche. In addition, digital applications get an additional discount of Rs.50 per gram, so the effective price will be Rs.4,682 per gram.

Sovereign Gold Bond prices are linked to benchmark 24-carat gold prices in the Indian market and units equivalent to grams of gold are issued. The returns on gold bonds will depend on the price of gold but there is an assured interest of 2.50% per year payable semi-annually. The gold principal of SGBs and the interest are guaranteed by the government.

Also Read: Merit in Buying Digital Gold

Sovereign gold bonds can be held in physical certificate form or in your Demat account. These bonds have a maturity of 8 years but after 5 years the RBI offers a buyback window for investors. In addition, SGBs are also listed after a period of 6 months, although liquidity in secondary markets is quite thin. Only if SGBs are held till maturity, the capital gains are free of tax. Otherwise, gains will be taxed at non-equity rates. Interest will be fully taxable.

Investors can buy a minimum of 1 gram of gold equivalent and a maximum of 4 kg per person and 20 kg in the case of trusts in one year. However, multiple family members can each buy up to 4 kg in a year. These gold bonds can be purchased from designated post offices, from SHCIL, from the online broking platforms of BSE and NSE as well as through banks. However, payment banks and SFBs are not eligible to sell Sovereign Gold Bonds.

Since 2015, the government has sold gold bonds worth Rs.32,389 crore till date.
 

See: How to buy Digital Gold

Next Article

Bharti Airtel to raise Rs.21,000 crore via Rights Issue

Bharti Airtel Rights Issue
29/08/2021

The board of Bharti Airtel has approved the issue of rights shares to the tune of Rs.21,000 crore or about $2.83 billion. The company has announced that the rights will be priced at Rs.535 per share, which represents a discount of 9.78% to the closing price of the stock on 27-Aug. Normally, companies issue rights to existing shareholders at an attractive discount to make the subscription attractive.

Bharti Airtel is yet to announce the record date for the rights issue because the rights offer will only be made to shareholders whose names appear in the register of shareholders as on the record date. Normally, 2 trading days prior to the record date is considered the last cum-rights date and the day after that, the stock starts trading ex-rights.

The board has already spelt out terms of payment for the rights issue. eligible shareholders will only have to pay 25% of the amount at the time of application of rights and the balance 75% will be payable in two instalments within a period of 36 months. The instalment dates are yet to be decided. Existing shareholders will get 1 rights share for every 14 shares held.

This will be the single biggest rights issue in India after the Rs.53,000 crore rights issue by Reliance Industries in 2020, which also entailed paying the rights subscription in 3 instalments. That means, Bharti shares will also trade simultaneously under partly-paid and fully-paid categories.

Promoters will fully subscribe to their quota of rights and will also take up any rights not taken up by other shareholders. Bharti Airtel needs a continuous supply of funds to take on competition from Reliance Jio as well as to pay the AGR dues of Rs.20,000 crore that is still pending to the Department of Telecommunications towards AGR charges. Rights proceeds will be used to bridge the funding gap.

Next Article

3 Hospital Chains to raise Rs.6,300 crore via IPOs

Hospital Stocks
IPO
30/08/2021

With hospital stocks doing extremely well in the Indian markets in the year 2021, there are a slew of hospital company IPOs lined up. Since January 2021, listed hospital plays like Apollo Hospitals, Fortis Hospitals and Max Healthcare have all outperformed the Nifty by a margin. The rising health consciousness post the pandemic and the more concerted move towards organized healthcare has been a blessing in disguise for hospitals.

Read: Hospital Stocks Trading at All Time Highs

Three leading hospitals viz. Cloud Nine Hospitals, Medanta Hospitals and Park Group are planning IPOs in the next 6-8 weeks. Between them, these 3 hospitals are expected to raise close to Rs.6,300 crore via the IPO route. Here is a quick rundown.

Cloud Nine Hospitals IPO

Cloud Nine is planning to raise up to Rs.3,500 crore through the IPO route. Based out of Bengaluru, Cloud Nine operates a chain of hospitals for women, children and for fertility treatment. Cloud Nine is already backed by big PE names like Sequoia, True North and New Quest. It is currently valued at around $1 billion and will use the proceeds of the IPO to add another 6 facilities to take their total hospital count to 24.

Medanta IPO

Gurugram-based Medanta was founded by high-profile heart specialist Dr. Naresh Trehan. Medanta runs the largest single location private hospital with 1,300 beds, including 246 critical care beds. Like Cloud Nine, Medanta is also backed by extremely strong PE investors Carlyle and Temasek. Medanta will look to raise about Rs.2,000 crore through the IPO.

Park Hospitals IPO

Park Hospitals is again based in North India and runs a chain of around 12 hospitals. This will be the smallest of the three IPOs and would look to raise around Rs.800 crore through the IPO route.

With private hospitals seeing a moderation in capex, the time is ripe for them to show good ROI and get better valuations. IPO route can be the best way to do that.

Next Article

Vijaya Diagnostics and Ami Organics IPOs to raise Rs.2,465 cr

Ami Organics & Vijaya Diagnostics IPO
IPO
30/08/2021

After a brief lull in the IPO markets, the action will return this week. Two IPOs; Vijaya Diagnostics and Ami Organics will open for subscription on 01-Sep, Wednesday and close on 03-Sep, Friday. Vijaya Diagnostics will entirely be an offer for sale while Ami Organics will be a combination of fresh issue and OFS.

Vijaya Diagnostics IPO

This South based diagnostic laboratory specializes in radiology and pathology testing. It is tapping the IPO market with an offer for sale of Rs.1,895 crore. The promoter Surendranath Reddy as well as Karakoram Fund and Kedaara Fund will take partial exit via OFS. The IPO has 50% allocation for QIBs, 35% for retail and 15% for HNIs. Retail investors can apply in minimum lots of 28 shares. The IPO price band is Rs.522-531.

Vijaya Diagnostic enjoys the robust ratio of B2C/B2B in the diagnostics industry at 93:7, which enabled better operating retention per customer and per test. Vijaya’s net margins and ROCE expanded sharply between FY19 and FY21. The IPO values the stock at 60 times P/E, which is better than industry standards.

Ami Organics IPO

Ami Organics is a Gujarat based pharma intermediates manufacturer with 3 plants at Sachin, Jhagadia and Ankleshwar. It supplies to pharma companies for their API business. The Rs.570 crore IPO consists of Rs.200 crore fresh issue and Rs.370 crore OFS. The IPO has 50% allocation for QIBs, 35% for retail and 15% for HNIs. Retail investors can apply in minimum lots of 24 shares. The IPO price band is Rs.603-610.

Ami Organics has completed pre-IPO placement of Rs.100 crore with marquee institutions. Ami Organics saw sharp improvement in net margins and RONW between FY19 and FY21. As 70% of the IPO will be used to reduce debt, this should help ROCE in future. Its top pharma intermediate products have 70-75% market share in their respective segments. The IPO is priced at 41 times P/E, better than peer group.

 

Also Read:

1.   IPOs in September 2021

2.  Upcoming IPOs in 2021

Next Article

5 Stocks to Buy Today: 31st August

by 5paisa Research Team 31/08/2021

Every morning our analysts scan through the markets universe and chose the best momentum stocks to buy today. The stocks are recommended from a wider list of momentum stocks and only the best ones make it to the top 5 list. We also update on the performance of earlier recommendation every morning to help you with your trading journey. Here is a list of five stocks to trade today. The average holding period could be between 7-10 days on average.  

Stock Recommendations - August 31

 

Stock

Current Market Price

Stop Loss

Target 1

Target 2

CAMS

3,588

3,490

3,700

3,850

Strong momentum likely to continue

Holding Period: 1 week

 

Stock

Current Market Price

Stop Loss

Target 1

Target 2

DIVISLAB

5,104

4,970

5,260

5,400

Upmove supported by strong volumes

Holding Period: 1 week

 

Stock

Current Market Price

Stop Loss

Target 1

Target 2

POLYCAB

2,033

1,970

2,165

2,300

Stock has crossed previous resistance

Holding Period: 10 Days

 

Stock

Current Market Price

Stop Loss

Target 1

Target 2

GREAVESCOT

139

134

150

-

Double bottom pattern on chart

Holding Period: 5 Days

 

Stock

Current Market Price

Stop Loss

Target 1

Target 2

IOLCP

557

540

594

-

1) Contrarian trade

2) Small exposure can be created with strict stoploss

Holding Period: 10 Days