Ami Organics‘ strength in R&D and manufacturing large-scale pharma intermediates will help it increase the contract revenue share in its pharma intermediates business and provide long-term sales visibility.
Indian brokerage house JM Financials has initiated small-cap pharma company coverage on a positive note. The brokerage firm is positive on Ami Organics’ volume growth over the next two to three years and increased profitability. As a result, it has assigned ‘buy’ rating to the stock, targeting ₹1,975 per share against its current CMP of ₹1,625.55. The brokerage firm expects the revenue of Ami Organics to grow at the compound rate of 31 per cent from FY24 to FY27 when it could take total revenues to around ₹16 billion in FY27.
Ami Organics is a pharmaceutical intermediate and specialty chemicals company that was building its position mainly through new product offerings and strategic contracts. Thus, the company was viewed to be gaining in substantial magnitude from its focus on CDMO sales, largely due to the successful execution of its contract for the supply of the intermediates for the prostate cancer drug Nubeqa or Darolutamide. Besides this, the growth in electrolytes production for lithium-ion (Li-ion) battery is likely to drive growth going forward beyond FY27.
Table of Contents
Robust R&D and Manufacturing Capabilities
JM Financials has identified robust R&D capabilities and its capability to manufacture large-scale pharmaceutical intermediates of Ami Organics as the major strengths. These strengths would confer long-term visibility into the sales of the company, especially in the pharma intermediates segment wherein Ami Organics has already dominated a considerable market share of fastgrowing chronic therapies. It currently holds between 50% and 90% market share in these therapies.
Important Growth Drivers for Ami Organics
JM Financials has specified several very important growth drivers for Ami Organics, based on which it has a positive outlook on the stock.
1. Contract of Nubeqa (Darolutamide)
Significant growth driver for Ami Organics is the contract for supplying intermediates for prostate cancer drug Nubeqa, a drug jointly developed by Bayer in partnership with Fermion. With this contract, Ami Organics is positioning as a major supplier of intermediates globally for this life-saving medication.
Intermediates market size for Nubeqa, in the ₹ 10 billion to ₹ 12 billion range. The same market share may come with Ami Organics, which may garner a 50-60% share, translating into a maximum of ₹ 5 billion to ₹ 7.2 billion. The above contract will be the highest revenue contributor to the company in the next three years.
2. Semiconductor Chemicals Space:
Ami Organics recently announced the acquisition of Baba Fine Chemicals, expanding its business portfolio. Such acquisition will keep the company in an advantageous position with entry into the semiconductor chemicals market, which is considered to grow and see more demand in the coming years.
The current development is strategically significant for Ami Organics as it would diversify the company’s offerings and thereby place it in a growth market. Semiconductor chemicals are critical raw materials for the manufacturing of semiconductors, which are used to make wide ranges of electronic devices from high-end mobile phones to electric vehicles.
3. Electrolyte Manufacturing for Li-ion Batteries
Ami Organics is making quite headway in the energy storage space, as well, in the production of additives used in electrolytes for Li-ion batteries. The company has established production capacity for two of its key electrolyte additives-Vinylene Carbonate (VC) and Fluoroethylene Carbonate (FEC)-each with a capacity of 2,000 metric tons (MT).
These additives are critical in the formulation of the electrolytes for Li-ion batteries that are designed for use in electric vehicles (EV) and in energy storage systems. Being the first outside of China to develop such additives will give it a unique competitive advantage in this growing market for Ami Organics.
JM Financials believes that the revenues which would be coming in from these electrolyte additives would increase at a steady clip over the next couple of years and estimates revenues to come at ₹400 million for FY25, ₹1 billion for FY26, and ₹1.5 billion for FY27. In another development, Ami Organics announced that it has executed a memorandum of understanding (MoU) with an international major electrolyte manufacturer to manufacture electrolyte solutions for battery cells. This initiative is likely to come into the company’s revenues books from FY28.
4. Robust Revenue Growth Prospects
JM Financials would expect Ami Organics to report revenue growth with a CAGR of 31 per cent at ₹16 billion in FY27 over the FY24-FY27 period. This would be primarily driven by the company’s CDMO products, including the sales of Nubeqa intermediates and expected revenues through electrolyte additives in the second half of FY25.
Besides the CDMO products, Ami Organics would see steady growth in its advanced pharma intermediates business and other specialty chemicals segments. Other specialty chemicals segments shall form a stable base of recurring revenues for the company.
5. Expected Growth in Profit
Ami Organics is expected to report high expansion in EPS going forward over the next couple of years. JM Financial estimates that this company’s EPS would grow at a CAGR of 75% between FY24 and FY27. The growth rate has been quite high because the base in FY24 was low, mainly on account of a one-off provision related to Ami Organics’ U.S. entity.
Other improvement expected over the next several years for the company are return on equity (RoE) and return on capital employed (RoCE). RoE is expected to increase to 17% by FY27, and RoCE is expected to rise to 29% in the same period.
Outlook and Valuation
Based on its assessment, JM Financials has placed an estimate of ₹1,965 per share for Ami Organics by March 2026 based on 30x the estimate of EPS for March 2027. While pointing out, the stock is quoting at a price-to-earnings multiple of around 32x for FY26E and 24x FY27E.
Even though the stock is trading at relatively high valuations, as the case may be, the take from JM Financials has been that Ami Organics has much more growth runway ahead, and this may work well for investors during the next two to three years. The brokerage on its part feels that the stock can compound returns to around 19% over the two-to-three-year period, even assuming a compression of forward PE multiples to around 30x from the current levels of around 40x.
The estimates made by JM Financials of FY28 have also not taken into account the sales revenue generated by the electrolyte manufactured by the company. If that were to be taken into consideration, the CAGR potential would be as high as 19% or even more.
Key Risks
JM Financials is optimistic about the future prospects of Ami Organics but identifies some key risks for the company’s performance.
1. Delays in Pharma Intermediate Sales
Major growth prospects for Ami Organics depend entirely on the performance of its business pharmaceutical intermediates. In case new products are either delayed in their launch or the optimum price for the already known products is not realized, the revenues generated by the company in this business segment shall suffer.
2. Sales of Nubeqa Intermediate Below Expectation
The 10-year intermediate supply contract that Ami Organics has signed with Fermion for Nubeqa products relies heavily on sales performance downstream from the drug product itself. It follows that if Nubeqa sales do not perform as hoped for, demand for intermediates may also be lower than forecast, slowing Ami Organics’ sales growth.
3. Delayed Electrolyte Production
It is here that revenues over and above FY27 from its business of electrolyte additives are going to upscale. However, if the company is unable to step up production, or there is some unforeseen downtime at the plants, then this again will compromise the expected capacity utilization at the facilities, and thus lower the revenues from this segment.
Conclusion
Ami Organics is likely to be on the growth trajectory over the next few years. The associated key drivers are contract it has for Nubeqa intermediates, an expansion in semiconductor chemicals, and its electrolyte additives business building up. While judging the company’s prospects of growth, JM Financials expects its revenue and profitability to grow significantly between FY24 and FY27 as demand for its products in the pharmaceutical and energy storage sectors will continue to be strong.
While there are risks to the growth prospects for the company, JM Financials believes there is a long growth runway ahead for Ami Organics and the stock could deliver strong returns to investors over the next two to three years. The brokerage’s call to buy the stock with a target price of ₹1,965 is based on its confidence in the company’s ability to take advantage of its growth opportunities and deliver value to shareholders.