High raw material prices affect margins of Alkyl Amines: HDFC Securities

The acetonitrile expansion project is on track and is expected to finish mechanical completion in Sep-21.

HDFC Securities believes that the current valuation of Alkyl Amines already factors in positives from the potential volume growth, post doubling of the acetonitrile plant capacity, and ~40% additional capacities of the aliphatic amines plant. The rising raw material prices are looking as a dampener and can put pressure on the margins in FY22. EBITDA/APAT were 5/1% below our estimates, owing to higher-than-expected raw material costs, offset by lower-than-expected depreciation, higher-than-expected other income, and a lower-than-expected tax outgo.

Financial performance: Sales grew 3/60% QoQ/YoY to INR 3.9bn. Q1 witnessed a volume degrowth of 2-5% sequentially, whereas realisation grew by 5-6%. Gross margin fell significantly to 48.9% (-808/-699bps QoQ/YoY) in Q1 as raw material prices of key inputs such as acetic acid, methanol and ammonia soared in the quarter. EBITDA margin came in at 28.3% (-664/-331bps QoQ/YoY) and witnessed a fall mainly due to the trickle-down effect of a lower gross margin.

Call takeaways: (1) Capex guidance for FY22/23 is INR 2.0/2.5bn. Apart from this, the company is looking for a land parcel of 100-150 acres for its future expansion plans. (2) The acetonitrile expansion project is on track and is expected to finish mechanical completion in Sep-21. The plant will be commissioned in Q3FY22, and will ramp up in Q4FY22. (3) Preliminary work on the aliphatic amines expansion project has been completed. (4) The company is carrying out a brownfield expansion for DMA HCL and is increasing its capacity from 25ktpa to 30ktpa. This capacity should come onstream in Oct'21. (5) There was a planned shutdown of plants in April which also affected sales volumes in Q1FY22.