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Alkyl Amines Chemicals Q2FY18: Buy for an upside of 31%

KRChoksey | 07 Dec, 2017  | Follow Author | Add to my Favourites 
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Result highlights

Net Income for Q2FY18 came in at INR 1381 mn as against INR 1241 mn for Q2FY17 and INR 1474 mn for Q1FY18; which grew by 11.3% y-o-y but de-grew by 6.3% q-o-q. EBIDTA during the quarter stood at INR 241 mn; up by 20.7% y-o-y and 3.8% q-o-q, while EBITDA margins surged to 17.5%. Operating margins increased by 135 bps y-o-y and 170 bps q-o-q assisted by margin lucrative product mix.

Further, PAT for the quarter came in at INR 134 mn up 28% y-o-y and 6.2% q-o-q while PAT margin stood at 9.7% witnessing an increase of 127 bps y-o-y and 114 bps q-o-q.

Robust earnings outlook

Alkyl Amines Chemicals Limited (AACL) is one of the leading manufacturers and global suppliers of various aliphatic amines and amine derivatives accounting for ~84% of its total revenue while the balance is contributed by specialty chemicals. During Q2FY18, net sales came in at INR 1381 mn which was up by 11.3% y-o-y while the same for H1FY18 stood at INR 2976 mn growing by 23% y-o-y aided by highervolume growth (up 18% y-o-y).

Forthcoming capacity addition plans of AACL to set up methylamines plant and acetonitrile plant of ~30,000 Metric Tons Per Annum (MTPA) and ~15,000 MTPA respectively is expected to be operational by end of Q3FY18E and H1FY20E. Post commencement of the same coupled with growing demand from end user segments – pharmaceuticals and agrochemicals, we believe, AACL should clock a volume CAGR of 18.7% over FY17-FY20E from ~42,572 MTPA to ~71,250 MTPA.

Sturdy margins led by favorable product mix

EBIDTA for Q2FY18 stood at INR 241 mn; growing by 20.7% y-o-y and 3.8% q-o-q with operating margins at 17.5%. AACL witnessed enhancement in margins by 135 bps y-o-y and 170 bps q-o-q owing to shift in product mix with higher sales of margin lucrative products. With Balaji Amines Ltd (BAL) coming up with capacity addition of DMA HCL and setting up new capacity for acetonitrile, the company expects margin pressure for the above said products. However, we believe that overall margins should sustain owing to increase in procurement of ethyl alcohol domestically (anticipation of robust sugar-cane production) and higher sales of amine derivatives. Consequently, we estimate EBITDA margins to increase from 18.3% in FY17 to 19.9% in FY20.

Valuation & Outlook

With more than 100 products in its portfolio, AACL has changed its product mix and strategically entered into specialty segments that observed robust revenue CAGR of 38% over FY13-FY17 in the said segment. Going forward, with the company's plan to augment its capacity for methylamines and acetonitrile coupled with anticipation of a turnaround in pharma industry and agrochemical industry, we expect the revenue/EBITDA/PAT to grow at 20.3%/23.7%/26.7% CAGR over FY17-FY20E. Additionally, with management’s constant focus on higher amines derivatives segment and specialty segment, we expect EBITDA/PAT margins to rise steadily touching 19.99% / 11.9% by FY20E.

Further, we expect the total debt for the company to remain steady at INR ~1126 mn by FY20E from INR ~1026 mn in FY17 despite factoring a capex of INR ~1500 mn. Consequently, we estimate total debt/equity ratio to improve to 0.26x by FY20E from 0.40x in FY17. Further, we believe ROE/ROCE for the company should scale to 23.9%/28.2% by FY20E. We maintain our “BUY” rating on the stock with target price of INR 762 assigning a P/E of 15x on FY20E EPS of 50.8 resulting into an upside of 31.5%.

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