Ami Organics has listed at a very strong premium and seems to have got a strong backing from the Street today. Could you speak about the company, about its origins and the products that you currently have?
Thanks to all our investors and shareholders, we had this bumper listing at BSE. Ami Organics is a pharmaceutical intermediate manufacturing company and a specialty chemicals manufacturer. It started in 2004, mainly focussing on 17 therapeutic areas and whatever we make is in-house. We have developed more than 400 molecules till now and so there is a very strong pipeline which can be supported by very good patents. That is giving a long-term visibility to our business.
As I understand, this is part OFS and part fresh issue. Could you tell us who exited, what is the stake that was sold and also what would the fresh equity be used for? How are you going to expand the business?
In terms of OFS, we have offered 60 lakh shares but it concerned only one promoter out of three, selling very small — 2% pre-IPO shares. All other shares are offered by one of the early stage investors who invested in the company in 2004 and who is largely exiting through the OFS.
Now from the new offering primary proceeds, we have Rs 300 crore as a primary process, out of which we are utilising Rs 140 crore for the purpose of repayment of our existing debt, Rs 90 crore is towards the working capital requirement and balance is for general corporate purpose as well as the issue expenses.
The Company had done a lot of capital expenditure in the last three financial years amounting to more than Rs 140 crore and this was largely done through debt as well as the internal accruals. By this IPO, we are pre-paying all those debt and going forward, we will be utilising working capital funds to fund those working capital needs.
Your capacity utilisation has increased substantially and your margins have expanded. Will you be able to maintain this spurt or even increase the capacity and margin levels?
Our capacity is increasing. In the last four-five years, capacity has increased 10-15% and currently our unit one utilisation is at 65%. In the new acquisitions — unit two and unit three — the capital utilisation is 40%. On an average, we are at around 50% which can go up every year by 10-15% of the capacity as historically. The margin growth of 20-21 is all from the volume growth and because of the new product inclusion as well as the old product performance. This is a combination of the product and every year historically, we are giving the same CAGR of 20%.
Debt has increased quite substantially during FY21. What led to that?
Historically, we have been very conservative about debt but in the last financial year, we got an opportunity to acquire Gujarat Organics at a value of Rs 93 crore. In that, we raised Rs 65 crore from the debt and the rest via internal accrual. This is the reason why the debt increased in the last fiscal.
Raw material prices have gone up. Have you been able to pass those on and also could you take us through what the growth as well as the margins outlook is going to be in the medium to long term?
In the last one decade, Ami Organics has been focussing on self reliance in terms of raw materials. We have reduced our imports from 70% to only 27%. This we achieved because we have a very strong cost monitoring team in Ami Organics. They are continuously focussing on raw materials as well as the margin and in the last one decade, we have developed several raw materials in-house and given to all manufacturers.
Secondly, most of our orders from the exports are long-term contracts including the clause of raw material price escalation and so that can be easily transferred to the customer if there is a price pressure. That is why raw material related scarcity will not impact our margin.
Exports are a significant portion of your sales. Are you facing supply bottlenecks at any stage?
Almost all our export revenue is driven by our long term contracts with the customers and they give us a very good visibility for quarter by quarter for the year and this is how we can plan our shipments in advance. This gives us confidence that we would not lose on any kind of opportunity and all the shipments will get smoother on time.
Your R&D spend has gone up from 1% to nearly 2% of sales over the last three financial years. Is that likely continue?
We have R&D spend of around 2 to 2.5% of the total revenue and even with the increased revenue, going forward also we are expecting R&D expenditure in the range of 2 to 2.5%. In terms of our peers, many of the large API manufacturers have similar kinds of expenditure on R&D. Us being intermediate manufacturers, these are commendable R&D spend we are incurring every year and this is going to continue going forward as well.