For as long as cars have been around, they have been defined by two things - someone driving them, and them running on a fuel-burning engine. But both these norms are changing, fast, and in a way that no one questions - making this an exciting space to invest in.
But the unfortunate bit of being in India is the limited number of listed plays available. The EV market is still nascent, there are no pure-play companies listed to invest in, and ancillary companies are also either less in number or EVs are too small in their overall pie to make a difference.
That said, several companies are trying their hand in this market, and keeping promising ones in the radar is only going to increase your chances of finding that gem!
One such company has fallen in our watchlist recently - and it is a pharma intermediaries and chemical manufacturer that has just made a promising move - Ami Organics. But will it make for a good investment?
Ami Organics and EVs
Ami Organics is a chemical manufacturer that has found a play in the EV battery market. It has made moves in products, which have applications in lithium-ion batteries, which are widely used in Electric Vehicles, through two new divisions:
Electrolyte Additives Ami Organics has recently successfully developed a core electrolyte additive for cells used in energy storage devices. In fact, it claims to be the first Indian and global company outside of China to have developed this product. What’s the big deal? Ami Organics has managed to get samples approved at plant-scale from 6 customers, and has a robust product pipeline with 7 new products at various stages of qualification. In short, it is pacing towards commercial progress quite fast. It expects the business to start making money in FY25, and for it to further scale in FY26. In fact, of the Rs. 250 crore capex that Ami Organics is incurring in the year, about Rs. 100 crore is related to the electrolyte additive business. In essence, that’s 40% of the total capex going into a business that’s 0 in revenue at the moment.
Electrolyte Solutions In addition to this, it is also building an electrolyte solution business, which is still in the nascent stage. It has tied up with one of the world’s largest manufacturers, for which it will be developing and manufacturing (CDMO) electrolyte solutions. While it hasn’t disclosed numbers here yet, it seems like a big contract going by the structure and partner.
The company expects these two newly formed segments to meaningfully contribute to its guidance of 25% revenue growth for FY25. However, a meaningful contribution to growth can be expected from a slightly longer 3-5 year time horizon.
25% Revenue Growth?
EV batteries or not, 25% revenue growth is an eye-popping number anyway! For Ami Organics though, it seems more like maintaining its high-growth trajectory. Over the last 4 years, Ami Organics has clocked a revenue CAGR of 26% and EBITDA CAGR of 30%.
It had a little bit of a blip last year though, like most chemical companies, with revenue growth slowing down to 16%, and EBITDA margins dipping to 18% from the highs of 24%. This dip can be attributed to pricing pressure from Chinese competitors. Despite this, it has maintained its volume growth, thanks to its market leadership.
However, going forward, the 25% growth guidance signals a coming-back of the company to its erstwhile track record, contributed by:
Recovery in pricing of key products
Ramp-up of recently added capacity in specialty chemicals
Revenue from the newly established electrolyte additives business
CDMO contracts expected to commence in the second half of FY25
What Are the Other Businesses?
While we’ve spoken a lot about a business which hasn’t yet started making any money, Ami Organics is in fact a chemical manufacturer, with presence in two key markets:
A. Pharma Intermediaries (85% of revenue) Ami Organics operates in this business by:
Supplying intermediaries to generic API manufacturers
Supplying NCE molecules to pharma innovator companies
CDMO for big pharma companies
It has been able to maintain high growth in the business by growing the innovator business, focusing on more CDMO opportunities, focusing on chronic therapy medicines, getting a first-mover advantage by commercialising products ahead of drugs going off-patent, and developing multiple products to diversify and expand its market.
B. Specialty Chemicals (15% of revenue) Ami Organics has been able to scale up its specialty chemicals business rapidly mthrough acquisitions:
In 2021, the company acquired Gujarat Organics Limited’s facilities for Rs. 94 crores, adding preservatives, parabens, and salicylic acid to its portfolio, used in cosmetics, dyes, polymers, agrochemicals, and animal foods
Additionally, Ami Organics has entered the semiconductor market by acquiring a 55% stake in Baba Fine Chemicals, known for high-barrier photo-resistant chemicals
It has also been able to exhibit its capabilities in organically setting this up, like in the electrolytes businesses in this year.
Its strategy is to develop new applications and enter markets with strong entry barriers, enter niche markets and command leadership, and make an entry into high-growth markets. On a small base, the Specialty Chemicals business can demonstrate high growth, and contribute meaningfully to maintaining the trajectory the company has delivered in the past.
To Sum it Up!
Ami Organics seems to have a strong proposition, even if the EV play is not contributing to anything in revenue at the moment. While this is a 3-5 year play and can find interest as a nascent investment, the company has other drivers to keep the interest going, in the form of:
A proven track record of being able to successfully scale up the pharma intermediaries business, within which, it has been moving from generics to more specialised applications and CDMO contracts, thereby increasing both revenue and profitability
The speciality chemicals business, which gives it an additional kicker, where strategic acquisitions have laid out a high-growth path over the medium term
EV batteries or not, 25% revenue growth and an even higher profit growth, after a disappointing year and on subdued valuations definitely sounds like a promising prospect.
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