Alkyl Amines Q1 Results Review - Volume Growth Remains Strong; Guidance Intact: Motilal Oswal

Motilal Oswal Report

Alkyl Amines Chemicals Ltd.’s Q1 FY24 revenue declined 13% YoY, inline with expectation, primarily due to the current pricing conditions. Volumes grew ~15% YoY/10-12% QoQ.

Gross margin contracted to 44.7% in Q1 FY24. Ebitda was marginally ahead of our forecast at Rs 740 million, driven by lower than-anticipated expenses. This resulted in an Ebitdam of 18.1% (-60 bp QoQ) for the quarter.

After a period of post-Covid slowdown caused by inventory buildup, the pharma industry’s outlook is now moderately optimistic. Alkyl Amines is experiencing a strong demand for its products from the agrochemicals sector. Management's guidance of a 10-15% volume growth remains unchanged.

Significant pricing pressure is observed in acetonitrile due to aggressive product dumping by Chinese competitors. While some dumping activities are also seen in Methylamines and Ethylamines, these are not as severe as in ACN.

Despite these, Alkyl Amines maintains its domestic market share of 60%, considering the overall market contraction in ACN. The current average utilization is at 60% with realizations of Rs 150/kg.

The di-ethyl ketone plant is currently stabilising. With demand being strong (the company is the leading player in domestic market), management is working on expanding capacity to 2.5 kilo tonnes per annum from 1.5 ktpa, which is likely to take three-six months. The second product is scheduled for a launch during January-March 2024, while the fourth product is planned for June-September 2024. The launch of the third product might be cancelled due to weak demand.

We have cut of Ebitda/earnings per share estimate by 9%/ 10% for FY24 while keeping estimates for FY25 broadly unchanged.

The stock is trading at 35 times FY25E EPS and 24 times FY25E enterprise value/Ebitda.

We reiterate our 'Neutral' rating on the stock, and value it at 35 times FY25E earnings per share to arrive at our target price of Rs 2,350.

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