Ami Organics IPO opens tomorrow; should you subscribe?

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The Rs 569.64 crore public issue of Ami Organics is set to hit the street tomorrow, September 01. The three-day offer closes on Friday, September 03. The price band of the issue is fixed at Rs 603-610 per share having a face value of Rs 10 per share. Investors can bid for a minimum of 24 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,640 at the higher end of the price band. A retail investor can at max apply for 13 lots or 312 shares for Rs 1,90,320.

The specialty chemical manufacturer issue comprises fresh issuance of equity shares of Rs 200 crore, and an offer for sale of up to 60,59,600 equity shares totalling Rs 369.64 crore by promoters existing shareholders. Net proceeds from the fresh issues towards repayment of certain debt, funding working capital requirements and general corporate purposes.

Grey market chatter

In the grey market, the premium for Ami Organic shares has double to Rs 122 per share compared to yesterday’s premium of Rs 60. “If we see the recent scenario, all recently listed IPOs are now buzzing. The sentiments which were almost nil due to fiasco in last couple of days have charged up,” explained Abhay Doshi founder of Unlisted Arena who tracks and deals in unlisted shares.

Also, listed chemical stocks are performing well. Thus, we can see a rub-off effect here. On valuation front, Ami Organics is moderately priced, Doshi added.

Brokerage view

Most brokerages are of the opinion that the issue is aggressively priced. This is what they have to say:

Angel Broking | Rating: Neutral

Based on FY2021 numbers, the IPO is priced at a Price to Earnings of 35.6 times and EV/EBITDA (enterprise value to earnings before interest tax depreciation and amortization) of 25.7 times at the upper price band of the IPO, which is on the higher side compared to the listed peer group. Company already has a higher market share of 70%-90% in key API’s (active pharmaceutical ingredients) which will limit growth in near future.

Marwadi Shares & Finance | Rating: Subscribe

Considering the FY-21 adjusted EPS (earning per share) of Rs.14.82 on post-issue basis, the company is going to list at a P/E (price to earnings) of 41.16 with a market cap of Rs 2,222.7 crore while its peers namely Aarti Industries and Hikal are trading at a P/E of 54.20 and 46.13 respectively. The brokerage firm is of the opinion that the company has a strong and diversified product portfolio supported by strong R&D and process chemistry skills and is available at a reasonable valuation as compared to its peers.

Dilip Davda – Primary Market Expert | Rating: May apply

Based on super financial performance for FY21, the issue is fully priced. The sustainability of such higher margins going forward is a major concern. Many options at cheaper valuations are available in secondary markets. On financial parameters, Ami Organics is no way near to its listed peers. Greedy pricing is perhaps on account of the current fancy for chemical counters. Hence risk seeker/cash surplus investors may take a call of investment with a long term perspective.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)