Motilal Oswal has given Neutral recommendation for Alkyl Amines with a target price of Rs. 3180 in its research report issued on May 20, 2022

Motilal Oswal’s research report on Alkyl Amines

Alkyl Amines (AACL) reported a beat in revenue v/s our estimate, with EBITDA being 15% above our estimate. Gross margin contracted in line with our estimate at 44% in 4QFY22 – the lowest in the last 11 quarters. Hence, the downward trend in margin continues. Raw material prices continue to rise along with an increase in other expenses that pose a challenge for AACL to resurrect its margins. Energy costs shot up sharply, especially in 2HFY22, with coal and ammonia being the major drivers of this price rise. However, the company did manage to pass on some costs to the end-customers. EBITDA margin was the lowest in the past 12 quarters at 17.3% in 4QFY22. That being said, capacity expansion in Methyl and Ethyl Amines and capacity utilization ramp up of the recently expanded Acetonitrile (ACN) plant should drive better margins in FY23-24E for AACL. The management has guided for a capex of INR3b for FY23E with a new plant of Ethyl Amines (capacity of 35ktpa) being set up that should be commissioned in 2HFY23E. It expects to set up another capacity in the next 2-3 years. The ACN plant, before expansion, was fully utilized. The total capacity for ACN stood at 30ktpa currently.

Outlook

AACL’s ROE is estimated to improve to 29% for FY23-24. The stock is trading at 35x FY24E EPS and 24x FY24E EV/EBITDA. We maintain our Neutral rating on the stock, and value it at 40x FY24E EPS to arrive at our TP of INR3,180.

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