Disclaimer – Analysis is NOT a BUY/SELL/HOLD Recommendation. It can be used for educational purposes. There can be lot of things which have been missed in analysis either due to lack of information or oversight etc.. Do your own diligence & contact your expert financial adviser before making any investment decision.

Ami Organics

SS9

CMP 1116, Market cap ~4100cr

ROCE ~20%, ROE ~15%, D/E ~0.16 PE ~57 (based on screener)

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Business

AMI Organics (AMI) is a research and development driven manufacturer of specialty chemicals with varied end usage and is focused on the development and manufacturing of advanced pharmaceutical intermediates for regulated and generic active pharmaceutical ingredients (“APIs”) and New Chemical Entities (“NCE”) and key starting material for agrochemical and fine chemicals. AOL has three manufacturing facilities (excluding the recent acquisition of Baba Fine Chemicals [BFC] during H1FY24). Company manufactures intermediates from the ‘N minus 8’ to the ‘N minus 1’ level (where N is the final active pharmaceutical ingredient [API])

Products, Segments and Strengths

Company operates in two segments

Advance Pharma intermediates — 185+ Products, Intermediates across 17 therapeutic areas, Chronic Therapy focus: ~90%, Majorly backward integrated to Basic Chemical level, 50-90% global market share key molecules

Fermion had been among the biggest clients for Ami Organics in this domain. Ami Organics had been supplying intermediates for APIs like Darolutamide (prostate cancer), Entacapone (Parkinson) and Trazodone (Antidepressant). Company would be supplying an advanced intermediate for the Darolutamide API, starting from Q4FY24. At present, the company is the exclusive supplier for the same.

Speciality chemicals –This is where we are interested in coming future

Niche KSM for Agrochem and Finechem companies, Parabens & paraben formulations, Salicylic Acid and other specialty chemicals that
find end-use in cosmetics, dyes, polymers and agrochemical industries, animal foods, and personal care industries
New segment – Electrolyte used in manufacturing cells for energy storage devices. This also has huge potential in solar industry, automobiles industry

Clients

Advance intermediates : Speciality chemicals sales ratio –Approximate is 82:18 which is expected to go towards 75:25 in coming time. FY23 Ratio was 84:16

Export Sales: Domestic Sales ratio is approx. 58:42 in FY23, Q2FY24 ratio was 54:46 due to China oversupply and price erosion factors

➢ Well established and long-term relations with domestic and MNCs across large and fastgrowing markets globally
➢ Diversified customer base, 58% of revenue from Top 10 customers in FY23, 13 customers associated since last 10 years, 50 customers associated since last 5 years
➢ Long term supply contract with key customers
➢ Prolonged adherence to stringent client requirements leads to new business from existing customer base as well as from new client. ➢High entry barriers due to long gestation period to be enlisted as a supplier, Involvement of complex chemistries, Regulatory requirements. First to Market in most of the products

Strong focus on R&D

120 R&D members with 16 PhD, 14 process patents, Average approx expense on R&D is 1.7% of Revenue over last 4 years. In absolute terms its almost 7-8Cr per year

The Patent Office, Government of India, has granted Pracess Patents to Company for its inventions titled:

1. A PROCESS FOR THE PREPARATION OF 2- (PIPERIDIN-4-YL)-1H-BENZO[D]IMIDAZOLE
2. APROCESS FOR THE DIRECT SYNTHESIS OF FEDRATINIB INTERMEDIATE
   for the term of 20 years in accordance with the provisions of the Patents Act, 1970. The above mentioned patented processes have been indigenously developed at the R&D Centre of Ami Organics Limited. With this the total number of Patents granted to Company for its innovative processes and technology stands at 9.(march2024)

Fundamental Ratios, Cash, Loans, EBITDA,PAT margin, Shareholding pattern

Sales and Profits have been growing decently(>25-30%) over past few years while for current FY24, it has slowed down, FY25 and FY26 seems to be the major booster for company going forward

Similarly ROCE and ROE has come down in last 2 years but still at reasonable levels

Debt to equity is at comfortable levels and can afford more debt for future expansions

Cash conversion cycle is on uptrend (not a good sign) and Working capital days are also increasing . Need to be monitored closely

Shareholding pattern

Increasing promoter holding, FII, DII are increasing stake, Public domain have few strong holdings as well

ALSO READ : Company at Y2K moment

Recent Developments

Advance Pharmaceutical Intermediates

➢ Fermion contract: – Signed a new contract for additional advanced intermediate taking total product under CDMO contract to 3 products. On track to start the production from Q4FY24 onwards from Ankleshwar Unit

15-sep-23 Ami Organics Limited has signed another definitive multi-year, multi-tonne agreement with Fermion. As part of the agreement, Ami Organics will supply an additional advanced pharmaceutical intermediate to Fermion. Based on the supply projection shared by Fermion, the total minimum contract value is expected to be multi-million Dollar, spread across multi-year horizon. The product is expected to start contributing meaningfully to the revenue from FY25. Ami Organics had signed its first agreement with Fermion in November 2022 for supply of an advanced pharmaceutical intermediate. This agreement is in addition to previous agreement and further increases the total value of the CDMO contract with Fermion.

14-Dec-23 Ami Organics and Fermion ink another agreement for two additional Advanced Pharmaceutical Intermediate with Fermion. The products are slated to be manufactured at the Ankleshwar Facility and is expected to start contributing meaningfully to the revenue from FY25

Specialty Chemicals

• Received orders for a UV Observer product used in Paint Industry. Expect commercial production to start from Q3 FY24
• Electrolyte additives update- Advanced stages of negotiation of contract with couple of customers.
• Process upgradation for existing products – methyl salicylate and parabens
• it is working on two additives, not been manufactured so far by any other company in India. In this space, the company has received approval from nine customers and expects a large commercial order

Ami Organics Limited has signed a non-binding MOU with a global manufacturer of Electrolytes for manufacturing of electrolytes for battery cells and allied materials in Gujarat, India. In furtherance to this, the company will also sign an MOU with Government of Gujarat for
investment amounting up to Rs 300 crores for set up of dedicated manufacturing facility for electrolytes business in the state of Gujarat, in the upcoming Vibrant Gujarat Summit 2024.

Capex ongoing

Pharma intermediates capacity to expand to 4x

Related to the Fermion contract is the capacity expansion plan in Ankleshwar at a capital outlay of Rs 190 crore. Here, one block is dedicated for Fermion. This would carry on supplies related to the recent contract. Machinery installation in progress in block-1 at Ankleshwar unit, Started the recruitment process for the new facility. On track to commence the production activity in Q4 FY24 .The Ankleshwar facility is envisaged to have 436 KL — nearly 3x bigger than the existing facility 

Acquisitions

Baba Fine Chemicals Acquisition – Completed acquisition of majority partnership stake in Baba Fine Chemicals during Q2FY24. The acquisition of Baba Fine Chemicals (55 percent stake) is interesting as it deals with high entry-barrier products (photo-resistant chemicals), having applications in the semiconductor industry.

To reduce operational cost , the board has approved investment in a 16 MW solar power plant which along with already work in progress 5 MW solar power plant that will nullify our electricity expense once fully operational.

Company decided to fully impair the existing investment of Company, in the joint venture Ami Oncotheranostics LLC, as it is presumed that revenue generation from Ami Oncotheranostics will take significant time considering the inherent nature of its research activity in terms of
longer gestation period and uncertain success rate

Transformation of acquired entities like Gujarat Organics

Recently they acquired two manufacturing facilities Gujarat Organics (which was making loss makings as they did green field expansion in 2018) as Guj Org was making losses, it was bought by AMI Organics and turned EBITA margin moved from meagre 2% to 10% as of now (expected to touch 18% by next 2 year – also highlighted in their conf call as they are moving from batch processing to continuous flow chemistry). This acquisition enhances its specialty and fine chemical portfolio to enter Agrochemical, Cosmetics & Polymer Industry.
Due to this acquisition, one of client of Guj Organics referred them to make this electrolyte addictive. And hence, they have ventured into electrolyte addictive (belonging to carboxylic group) which is made by AMI in the whole Asia (except for few Chinese companies)

Details about Baba Fine chemicals

Valuations

Expected Cumulative sales projections for FY25 and FY26 is 2800-3500cr (considering existing business will also grow at 18-20%) and with PAT margin of 14% , we get PAT of 390-525 cr cumulatively. So stock price may move towards 2000-4200 Range by 31Mar26. There could be short term downside in stock which can be used for accumulation in case we are convinced about projections and sales

Risks

Susceptibility to raw material cost could affect Company profitability.

Inherent regulatory risk (USFDA compliance)

Competitive nature of industry driving pricing pressures. Oversupply from China does impact company growth in targeted markets

Combination of low margin and high margin products causes volatile OPM –This risk is expected to reduce with integration and business of other acquisitions done in recent years

High Capex ongoing and timely completion and start of production along with capacity utilization is a risk which needs to be monitored

High capital working requirements remain a risk. This is due to its wide portfolio, AOL needs to maintain sufficient inventory of the raw material as well as finished products.

Fermion contract getting cancelled midway

No major breakthrough in BFC business or electrolyte business

Technicals on 13Jan24

Stock has been consolidating between 900-1300 mostly in last 2+ years

Technicals on 3-Mar-24

Conclusion

If you have understood the triggers and industries it cater to + RISKS which can materialize and have patience then think of buying this company in every dip market offers else Ignore the stock

Stock might be volatile in short term and give a chance to buy around 1000-1200 range for long term investment purpose

Also Read : ICEMAKE Refrigeration : Time to Chill

Disclaimer – Analysis is NOT a BUY/SELL/HOLD Recommendation. It can be used for educational purposes. There can be lot of things which have been missed in analysis either due to lack of information or oversight etc.. Do your own diligence & contact your expert financial adviser before making any investment decision.

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