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.