Alkyl Amines 4QFY21 Results Review - Pricing in positives - HDFC Securities

Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities and Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities

We downgrade Alkyl Amines from ADD to SELL with the revised target price of INR 2,655. The downgrade is largely on the back of ~85% increase in the stock price in the past three months. The stock is currently trading at 49.1x FY23E EPS (EPS CAGR of 15% over FY21-24E, RoE will be 34.7/32.4/28.5% in FY22/23/24) while Balaji Amines is trading at 31.5x FY23E EPS (EPS CAGR of 12.4% over FY21-24E, RoE will be 22.1/20.3/19.1% in FY22/23/24). We like Alkyl Amines owing to (1) robust demand from pharma and agrochemical industry that comprise more than 75% of its revenue mix; (2) doubling of Acetonitrile capacity to ~26ktpa in FY22; (3) 30-40% additional capacities (of the current 80-90 ktpa) of Aliphatic amines by FY23; and (4) production linked incentive scheme that provides the right tailwinds for long-term volume growth. However, we believe the current stock price is pricing in these positives.

Financial performance: Sales grew 18/63% QoQ/YoY to INR 3.8bn. Sales grew in FY21, mainly due to value with better realisations and not volumes. Two-thirds of the revenue growth is attributable to higher realisation, and the remaining to volume growth. Gross margins corrected to 57.0% (-390/+294bps QoQ/YoY) in 4Q as the benefit of benign raw material prices wore off in the quarter. EBITDA margin came in at 34.9% (-310/+611bps QoQ/YoY) and witnessed a fall sequentially mainly due to the trickle-down effect of lower gross margins in 4Q. However, the current EBITDA margin does not seem sustainable and should cool off to 31.6/32.0% in FY22/23E.

Call takeaways: (1) Capex spent in FY21 was INR 1.5bn. Capex guidance for FY22/23 is INR 2.0/2.0bn. (2) AACL completed the subdivision of its equity shares of face value of INR 5 each fully paid up into equity shares of face value of INR 2 each fully paid up in May'21. (3) The Board has declared a final dividend at 300% i.e., INR 6/sh for FY21. (4) AACL holds 40% market share domestically in acetonitrile and the remaining share is mainly imported. The expansion of the acetonitrile plant is to be completed in 2HFY22 and the company sees a big opportunity in this product. (5) Even with the hit of the second wave of COVID-19, the company's production remains on track to meet the normal levels. (6) Specialty products are gaining a lot of traction and are performing well which is the reason for higher margins in FY21. (7) Volume growth guidance for a medium term is 10-15% YoY.

Change in estimates: We raise our FY22/FY23E EPS estimates by 13.1/23.6% to INR 62.6/77.1 per share to factor in overall performance in FY21 and the positive guidance of the management, going forward.

DCF-based valuation: Our price target is INR 2,655 (WACC 10%, terminal growth 4%). The stock is trading at 49.1x FY23E EPS.

Shares of ALKYL AMINES CHEMICALS LTD. was last trading in BSE at Rs.3664.65 as compared to the previous close of Rs. 3796.3. The total number of shares traded during the day was 21400 in over 6149 trades.

The stock hit an intraday high of Rs. 3825 and intraday low of 3645. The net turnover during the day was Rs. 79074664.

Source : Equity Bulls

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