Alkyl Amines Chemicals: Steady profits expected in the next 2 years

SPA Securities | Oct. 27, 2016, midnight

Alkyl Amines Chemicals Ltd (AACL) is a Maharashtra based supplier of amine products and speciality chemicals to high growth industries like pharmaceuticals, agrochemicals, paint and dyes, water treatment and others. Company has 100+ products, most of which are developed in house. It has two manufacturing sites with 9 production plants and an R&D centre in Maharashtra. AACL is global player in Ethyl Amine market and one of the leading producers of amine derivatives such as DMA HCL and DEHA. In our recent interaction, management sounded optimistic about the road ahead owing to their strong focus on speciality chemicals, leadership in amines and upcoming plant at Dahej.

  • Product basket includes amines, amine derivatives and speciality chemicals
  • Pharma and agrochemical segments major contributors to revenue
  • Dahej plant capex to be completed by FY18
  • Steady revenue growth expected till Dahej plant commissioning

Outlook and Valuation  

AACL witnessed healthy ~15% revenue CAGR in last 5 years and expects a steady 10-12% growth till FY18 on account of increase in volume. Once Dahej plant is operational in FY18, revenues would get a boost. Owing to steady raw material prices (except in case of Ethyl alcohol which may witness significant increase), company expects steady EBITDA margin in the range of 18-20%. Annual saving of ~INR 20 mn on electricity bill due to Solar plant would be partially nullified by increase in employee cost at upcoming Dahej plant and increase in raw material prices of ethyl alcohol. As opposed to PAT CAGR of 29% in last 5 years, company expects steady profits in the range of INR 550-600 mn for next 2 years due to expected increase in interest burden of INR 800 mn for Dahej plant. It will also increase company's D/E from current 0.5x levels to ~0.9x. AACL is currently trading at TTM P/E of 13.5x.

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