Ami Organics Ltd-BUY

Company Overview

Ami Organics Limited is a specialty chemicals manufacturer with a strong focus on advanced pharmaceutical intermediates, which are crucial components in the production of regulated and generic pharmaceuticals, as well as New Chemical Entities (NCE) and key starting materials for agrochemicals and fine chemicals. The company operates three manufacturing facilities in Gujarat, India, and recently expanded its capabilities through the acquisition of Gujarat Organics Limited. This acquisition has boosted its manufacturing capacity for Advance Pharmaceutical Intermediates to 6,060 metric tonnes per annum. Ami Organics boasts a portfolio of over 520 products and serves customers globally, with exports accounting for 59% of its sales in FY23. The company has also ventured into the development and manufacturing of an additive electrolyte for energy storage devices.

Investment Rationale

Strong competencies in the advanced pharma intermediate business

Ami Organics holds a dominant market share of 50-90% in key molecules across 17 therapeutic areas, with 91% of these molecules belonging to the fast-growing chronic segment. The company serves over 185 customers and added 40 new customers in FY23. Despite a 5% YoY growth in the pharmaceutical intermediates business in Q1FY24, primarily due to sluggish export demand and robust domestic market performance, Ami Organics anticipates improving margins in this business by 50-100 basis points in FY24. The company has signed a multi-year, multi-tonne agreement with Fermion to supply an intermediate for their patented product, expected to significantly contribute to revenue from Q4FY24 onwards. The pharmaceutical market is witnessing marginal growth and gaining momentum, positioning the pharma intermediates business for healthy revenue growth

Shifting gears into Specialty Chemicals business

Ami Organics acquired two manufacturing facilities from Gujarat Organics Limited, strengthening its specialty and fine chemicals portfolio. These facilities produce chemicals for electronic applications, personal care products, and petrochemicals. The company’s focus in the specialty chemicals business has been on operational streamlining, capacity optimization, and process upgrades. Ami Organics is transitioning some major specialty chemical products to newer technologies, improving capacity utilisation and margins in the specialty chemicals business

Valuation and Outlook

Ami Organics Ltd. is poised for growth, with substantial order wins in the electrolyte additives segment, where it has already received approvals from six customers. The company maintains a strong market share in critical therapeutic areas, particularly in the chronic segment, which is experiencing accelerated growth compared to other pharmaceutical API markets globally. The organisation is committed to enhancing the performance of its specialty chemicals business, both in terms of capacity utilisation and margins. Organic revenue and operating performance are expected to improve gradually, driven by new product launches in pharma intermediates, successful order wins in electrolyte additives, and a strategic shift toward specialty chemicals.
In terms of valuation, we have assessed the company at 60 times FY25E earnings, leading to a target price of INR 1,518, offering a 15% upside from the current market price. This target is projected over a 12-month investment horizon. Ami Organics Limited presents promising growth prospects, supported by its strong market presence and strategic business diversification.