Alkyl amines chemicals ltd.

Business Model:

Alkyl amines manufactures aliphatic amines, amine derivatives and fine chemicals. Alkyl Amines Chemicals is a global supplier of amines and amine–based chemicals to the pharmaceutical, agrochemical, rubber chemical and water treatment industries, among others. The company also has controlling stake in diamines and chemicals which is the only manufacturer of ethylene amines in India. The products mainly cater to pharma (60%) and agribusiness (40%). The revenue division between the 3 main products is as follows:

50% from aliphatic amines like methyl and ethyl amines which are used as intermediaries in pharma products and as raw material for agro-chemicals.

25% from amine derivatives like dimethyl amine hydrochloride which is used in manufacturing of drugs like ranitidine and metformin.

25% from specialty chemicals like acetonitrile used in manufacturing of rubber chemicals

Competitive advantage:

Balaji Amines and Alkyl Amines now account for >90% market share of aliphatic amines and amine-based derivatives in India with Rashtriya Chemicals & Fertilizers, the third largest player, commanding only single digit market share. Also, the industry has significant barriers to entry which will ensure that alkyl amines is able to maintain its advantage over other players.

Financials:

Sales growth:

Annual Sales have increased from 523 Cr in 2016 to 993 Cr in 2020. The growth is generally consistent around 15-20% growth per annum. Overall sales have increased to double in 5 years.

EBITDA/ PAT Growth:

EBITDA has increased nearly 2.5 times from 2016 (91 Cr) to 2020 (257 Cr). PAT has increased in similar lines (slightly higher than EBITDA increase rate mainly driven by lesser depreciation/ interest as a percentage of EBITDA). Interest costs have been constant around 10Cr per annum.

Margin:

The EBITDA margin increased from 18% to 27% between 2016 and 2020. PAT margin increased from 10% to 20% in the same period.

ROE: Increased from 26% to 43%  from FY16 to FY20. FY20 ROE is 43%. ROE has been constantly above 20% over the past 5 years.

ROCE: Increased from 25% to 43%  from FY16 to FY20. FY20 ROCE is 43%. ROCE has been constantly above 24% over the past 5 years.

Debt and coverage:

Debt to equity ratio has reduced from 0.53 (2016) to 0.16 (2020). Interest coverage ratio has increased 2.5 times from 10 to 25 in the same period. Also, current ratio has increased from 1.4 to 1.9. The reduction in debt equity ratio is mainly driven by increase in equity value rather than reduction in debt. However both the long term and short term borrowings are not a significant component compared to overall share holder funds.

Shareholding:

Promoters hold 74.2% stake and institutions hold 3% stake. Promoter stake has been constant. FII and DII stake have been slightly increasing.

Expensiveness: PE ratios:

Earning per share: Rs. 123, Share price : 5768; PE ratio = 48; Price to book ratio = 17;

Industry average PE ratio is 26; Also historically the PE ratio has been between 15 and 25, hence the current PE ratio is much higher than historical averages. The company has strong fundamentals and is a very good investment though is currently expensive.

Dividend Yield : 0.3%

EV/ EBITDA is 9

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