Neutral Alkyl Amines Chemicals Ltd for the Target Rs. 2,110 by Motilal Oswal Financial Services Ltd
Building a resilient and scalable growth engine
* AACL’s management remains cautiously optimistic, leveraging strong domestic leadership and expanded capacities (DEK, DMA) to drive scalable growth. While short-term challenges persist from low-cost imports, anti-dumping duties are expected to aid margin recovery and market share in 2HFY26.
* AACL increased its R&D spend to INR89m in FY25 (~0.6% of sales), focusing on new product development, process efficiency, and sustainability. It has developed three new products, one set for launch in FY26, with a growing emphasis on value-added innovation and environmental impact reduction.
* AACL expanded aliphatic amines capacity by ~30% in FY24 and is entering highermargin specialty products. We estimate a revenue/EPS CAGR of 11%/14% over FY25- 27. However, pricing pressure from imports and certain commoditized products pose risks; we remain Neutral on the stock with a TP of INR2,110.
Preparing for the next wave of growth amid volatility
* Management maintains a cautiously optimistic outlook, backed by strong domestic leadership in amines and derivatives across the pharma, agrochemicals, and water treatment sectors. While exports, including ~5% to the US, form a smaller share, the company is steadily expanding its international footprint amid external headwinds and global market volatility.
* AACL has been pursuing disciplined expansion focused on building long-term value through scale, innovation, and operational efficiency. The company has undertaken significant capacity additions across its plants to meet rising domestic and export demand. Key milestones include the expansion of the DiEthyl Ketone (DEK) capacity at Kurkumbh and the debottlenecking of Di-Methyl Amine (DMA) production at Dahej in FY25, reinforcing its commitment to proactive supply readiness and growth scalability.
* AACL has been facing pricing pressure from cheap Acetonitrile imports, mainly from China. The company responded by filing an anti-dumping application, leading to provisional ADD on imports from China, Russia, and Taiwan in Mar’25 (final approval received in Jun’25). Near-term domestic demand has remained muted since then due to inventory front-loading. The real impact on pricing and market balance is anticipated in 2HFY26, offering AACL a chance to regain market share and improve margins.
Driving innovation through chemistry
* Total R&D expenditure in FY25 was ~INR89m, with capex of INR2m (~INR2m in FY20) and revenue expenditure of ~INR87m (~INR41m in FY20). It increased its R&D investments at a 15% CAGR during FY20-25. As a % of sales, total R&D expenses accounted for ~0.6% (~0.4% in FY20).
* In terms of innovation, the R&D team has successfully developed three new products, with one slated for commercialization in FY26. Additionally, two performance specialty products have been developed and are under market evaluation before being scaled up. These efforts aim to transition the company from primarily volume-driven to a value-added innovation-led model.
* On the process side, AACL has been achieving notable improvements in yield and effluent reduction, particularly by developing techniques for recycling process streams. This has contributed to operational efficiency while also strengthening the company’s environmental footprint. In FY25, the company spent 0.36% of its total R&D expenses on reducing the environmental and social impact of the products it manufactures.
Valuation and view
* AACL boosted its aliphatic amines capacity by ~30% in FY24. The total capacity stands at ~200ktpa (including derivatives and specialty chemicals). Additionally, the company is venturing into new specialty products that are likely to improve its margins amid robust demand (near-term headwinds persist) for amine derivatives and specialties.
* Over FY25-27, we estimate ~11% revenue CAGR and a 14% EPS CAGR. The key risk to our outlook is high competition (domestic and imports, mainly from China), leading to limited pricing power. The commodity nature of some products could also make AACL susceptible to raw material price fluctuations. Upside risks are likely to stem from the benefits of the implementation of ADD in ACN.
* The stock is trading at 46x FY27E EPS of INR46.9 and ~29x FY27E EV/EBITDA. We reiterate our Neutral rating on AACL with a TP of INR2,110, based on 45x FY27E EPS.
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