IPO chemistry changes drastically as market mood swings!
Three years ago when Sensex was hovering about 36000 Ami Organics filed the draft prospectus for an IPO of Rs 100 cr. Come 2021, as the Index zooms to 56000, its IPO size bulges to Rs 569 Cr. Ironically, when the company is posting impressive performance, one of the original promoters whose family controls the largest chunk of around 24% has relinquished the promoter status and turned public investor!
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AMI ORGANICS OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 200 Cr (3,278,688 shares) |
| Offer for Sale | 6,059,600 shares (Rs. 369 cr) |
| Face Value | Rs 10 |
| Price Band | Rs 603 – Rs 610 |
| Mkt/Bid Lot | 24 Nos. |
| Implied M-Cap | Rs 2,223 cr |
| Implied Equity Cap | Rs 36.44 cr |
| Free Float | 58.95% |
| Lead Manager | Intensive Fiscal, Ambit and Axis Capital |
| Registrar | Link Intime |
| Listing At | BSE, NSE |
| INDICATIVE ISSUE SCHEDULE | |
| Opening : 1-Sep-2021 | Closing : 3-Sep-2021 |
| Allotment : 8-Sep-2021 | Refunding : 9-Sep-2021 |
| Demat Credit :13-Sep-2021 | Trading :14-Sep-2021 |
The Offer
Surat-based Ami Organics Ltd (AOL) is going public with a fresh issue of Rs 200 Cr (32,78,689 shares) and an offer for sale (OFS) of 60,59,600 shares (Rs. 370 cr). The offer is being made through the book-building route with a price band of Rs 603-610 for Rs 10 paid-up share. At the cap price, the value of IPO amounts to Rs 570 cr and the quantum of offer is equivalent to 25.62% of the paid-up equity.
Applicants should bid for a minimum lot of 24 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on September 14, 2021. Intensive Fiscal Services, Ambit and Axis Capital are acting as managers to the offer and Link Intime has been roped in as registrar to the issue. The bidding opens on Wednesday, September 1 and closes on Friday, September 3, 2021.
Out of the fresh issue amount, the company proposes to utilize Rs 140 Cr for repayment of loans. A substantial portion this (Rs 120 Cr) will go to Axis Bank whose affiliate is one of the book running lead managers to the IPO. The balance fresh issue amount is earmarked for working capital as well as general corporate purposes.
Lineage
AOL was initially formed as a partnership firm in January 2004. The firm was converted into a private limited company in June 2007. AOL claims that as on the date of the Red Herring Prospectus, Nareshkumar Ramjibhai Patel, Chetankumar Chhaganlal Vaghasia, Shital Nareshbhai Patel and Parul Chetankumar Vaghasia were promoters of the company.
However, three years ago (in July 2018), when AOL filed its IPO document for the first time, Girishkumar Limbabhai Chovatia, Nareshbhai Ramjibhai Patel and Chetankumar Chhaganlal Vaghasia were presented as the promoters of the company, holding 32.7% of the issued capital. The three promoters’ spouses were collectively holding more 48.3% which put the stake of the promoter group at 81%.
A revised draft offer document dated June 4, 2021 reveals that there was a separation agreement dated March 31, 2021 pursuant to which, Girishkumar Limbabhai Chovatia ceased to be a promoter of the company with effect from March 31, 2021 and his immediate family members and related companies/entities ceased to be the members of the promoter group of AOL. Accordingly, the promoters’ stake has declined to less than 48%.
AOL presents itself as a research and development driven manufacturer of specialty chemicals with varied end usage, focusing on the development and manufacturing of advanced pharmaceutical intermediates for regulated and generic active pharmaceutical ingredients and key starting material for agrochemical and fine chemicals. AOL’s pharma intermediates find application in anti-retroviral, anti-inflammatory, anti-psychotic, anti-cancer, anti-Parkinson, anti-depressant and anti-coagulant, commanding significant market share both in India and abroad.
The company recently acquired two additional manufacturing facilities from Gujarat Organics Ltd which has added preservatives and other specialty chemicals to its product portfolio.
Key Management
One of the original promoters, Nareshkumar Ramjibhai Patel, is the Executive Chairman and Managing Director of AOL. He is a qualified chemical engineer and has been associated with the company since 2004. Another promoter, Chetankumar Chhaganlal Vaghasia, is designated as Whole-time Director.
Virendra Nath Mishra, a Master of Science (Chemistry), is another whole time director in charge of operations. He has over 25 years of experience in the research and operations management in the specialty chemicals manufacturing sector. He was initially appointed as production manager by AOL and has been associated with the company since 2005. Prior to joining AOL, he was reportedly associated with K.A. Malle Pharmaceuticals and Surya Organics.
Stakeholders
Presently, AOL has 32 shareholders of whom six are from the promoter group, controlling 47.22%. Under the public category, 26 people hold 52.78%. In the offer for sale, one promoter is offloading 7 lakh shares (2.11%). Two erstwhile promoters now clubbed with public are selling 45.5 lakh shares (13.72%). Seventeen other public shareholders are offering 8,09,600 shares (2.44%). Post-offer for sale, the six promoter group shareholders will have 41%, the erstwhile promoter and associates who now form part of the public will control 24% and the balance will be held by employees and public.
Business Track
AOL claims to have developed and commercialized over 450 pharma intermediates for Active Pharma Ingredients across 17 key therapeutic areas since inception. Its revenue from pharma intermediates business was 88%, 91% and 85% for fiscals 2021, 2020 and 2019 respectively.
Besides the domestic market, AOL reportedly supplies pharma intermediates to various multi-national companies who cater to the large and fast-growing markets of Europe, China, Japan, Israel, UK, Latin America and the USA. In the fiscals 2021, 2020, and 2019 exports contributed 52%, 46% and 50%, respectively, of the company’s revenue. Exports have grown at a CAGR of around 22% between fiscals 2019 and 2021.
AOL claims to supply products to more than 150 customers in India and 25 other countries overseas. Some of its domestic customers include Laurus Labs, Cadila Healthcare and Cipla. The company has established long standing relationships with some of its key customers. Thirteen of them have been customers since last 10 years and fifty of its customers have been associated with AOL for the past five years.
The specialty chemicals that AOL manufactures find applications in the agrochemicals and fine chemicals industry. With the recent acquisition of facilities with 3600 MTPA AOL hopes to expand its speciality chemicals portfolio further. The company’s new additions of specialty chemicals find use in cosmetics, preservatives and agrochemicals.
AOL’s revenue from specialty chemicals business was Rs 16.59 Cr, Rs 7.43 Cr and Rs 2.22 Cr respectively for fiscals 2021, 2020 and 2019, accounting for 4.9%, 3.1% and 0.9% respectively of its total revenue for the same periods. The revenue for fiscals 2021, 2020 and 2019 does not include the business of Gujarat Organics which was acquired in March 2021.
AOL has three manufacturing facilities located at GIDC, Sachin (installed capacity 2,460 MTPA ), GIDC, Ankleshwar (1,200 MTPA) and GIDC Jhagadia (2,400 MTPA). The Ankleshwar and Jhagadia facilities were ones acquired from Gujarat Organics this year.
Financial Track
AOL has grown impressively in last four years. Revenue has more than doubled, from Rs 160 cr in fiscal 2017 to Rs 341 cr in fiscal 2021. EBIDTA has surged from Rs 23 cr to Rs 82 cr in this period. Net profit has vaulted from Rs 12 cr to Rs 54 cr. The company’s capital base has zoomed from just Rs 1.5 cr in fiscal 2018 to Rs Rs 31.50 cr in March 2021 due to two bumper bonus issues worth Rs 30 cr. Its reserves have climbed from Rs 37 cr in March 2017 to Rs 135 cr in March 2021 despite the two bonus issues.
In August this year the company has made a private placement at a premium of Rs 593 a share which boosted the reserves from Rs 98 cr to Rs 234 cr. Post public issue, this is likely to shoot up to Rs 430 cr on account of the hefty share premium that the company is going to collect through its IPO.
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Ami Organics Consolidated Financials (in Cr) |
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| Year Ended |
Mar-21 |
Mar-20 | Mar-19 | Mar-18 |
Mar-17 |
| Revenue |
340.61 |
239.64 | 238.51 | 188.22 |
160.26 |
| Operating Profit |
80.15 |
41.02 | 42.08 | 30.52 |
23.13 |
| OPM% |
23.5 |
17.1 | 17.6 | 16.2 |
14.4 |
| Other Income |
1.38 |
2.84 | 0.38 | 2.96 |
0.21 |
| EBIDTA |
81.53 |
43.86 | 42.46 | 33.48 |
23.35 |
| EBIDTA % |
23.8 |
18.1 | 17.8 | 17.5 |
14.5 |
| Interest |
5.62 |
5.59 | 4.75 | 3.23 |
3.3 |
| Depreciation |
4.19 |
3.52 | 2.60 | 1.91 |
1.37 |
| Net Profit |
54.00 |
27.47 | 23.30 | 18.50 |
12.05 |
| Equity (Implied) |
36.44 |
10.50 | 10.50 | 1.50 |
1.50 |
| Reserves (Implied) |
430.5 |
101.31 | 71.72 | 56.18 |
37.49 |
| Borrowing |
117.18 |
53.83 | 48.25 | 41.27 |
23.56 |
| Fixed Assets |
160.80 |
73.90 | 59.60 | 45.20 |
25.90 |
Valuation
In August 2021, AOL has made a pre-IPO placement of Rs 100 cr at a price of Rs 603 a share. For the public, it has fixed a price band of Rs 603 – Rs 610. As compared to its industry peers, perhaps, the valuation may look steep. Nonetheless, considering the future prospects in view of its recent significant addition to its specialty chemicals capacity, the valuation seems to be reasonable.
While the earning potential may justify the offer price, one should also keep in mind the fact that the erstwhile promoter group, who will control nearly one-fourth of the equity, can dump their holdings in the marker after the lock-in period as their average cost of holding would be negative after the offer for sale,.
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HOW AMI ORGAMICS COMPARES WITH INDUSTRY PEERS |
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Financials |
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| (Amount in Cr) |
Ami Organics |
Smruthi Org | Valiant Org |
Neuland Labs |
| Market Cap |
2223 |
381 | 3494 |
2153 |
| Borrowing |
117 |
10 | 186 |
145 |
| Fixed Assets |
161 |
32 | 543 |
419 |
| Revenue |
341 |
127 | 755 |
937 |
| Other Income |
1 |
1 | 6 |
16 |
| EBIDTA |
82 |
29 | 211 |
163 |
| Interest |
6 |
1 | 5 |
18 |
| Net Profit |
54 |
17 | 131 |
81 |
| Equity Cap |
36 |
11 | 27 |
13 |
| Reserves |
430 |
49 | 475 |
773 |
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Stock Features |
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| Current Price (Rs) |
610 |
333 | 1287 |
1669 |
| Face Value (Rs) |
10 |
10 | 10 |
10 |
| Book Value |
128 |
53 | 185 |
609 |
| Promoter Stake % |
41.1 |
63.4 | 41.7 |
36.2 |
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Profitability |
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| OPM % |
23.5 |
22.6 | 27.2 |
15.7 |
| Net Margin % |
15.8 |
13.5 | 17.2 |
8.5 |
| Cash EPS |
15.97 |
18.39 | 50.02 |
93.26 |
| Earnings Per Share |
14.82 |
14.95 | 42.20 |
62.50 |
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Return |
||||
| RONW % |
32.3 |
28.3 | 26.1 |
10.3 |
| ROCE % |
27.2 |
35.7 | 27.6 |
13.2 |
|
Discounting |
||||
| Price/Earnings |
41.2 |
22.3 | 30.5 |
26.7 |
| Price/Cash EPS |
38.2 |
18.1 | 25.7 |
17.9 |
| Price/Book Value |
4.8 |
6.3 | 7.0 |
2.7 |
| Price/EBIDTA |
27.3 |
13.1 | 16.6 |
13.2 |
| Price/Revenue |
6.5 |
3.0 | 4.6 |
2.3 |
| Price/Fixed Assets |
13.8 |
12.0 | 6.4 |
5.1 |
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Distribution |
||||
| Dividend % |
0 |
30 | 50 |
50 |
| Yield % |
0 |
0.9 | 0.4 |
0.3 |
Concern
The split among the promoters before the IPO does not augur well for the stock as long as the outgoing promoters hold large chunk of shares. Also, the penchant for related party deals especially the public company buying land from members of the promoter group raises credibility issues.