Reduce Alkyl Amines Ltd for Target Rs. 1,838 by Elara Capitals
Margin pressure persists
Alkyl Amines (AACL IN) stock has run up 16% in the past three months and performed in line with benchmark Nifty Small cap Index, up 15%, due to YoY volume recovery during Q4FY25 but offset by weaker ethyl amines and acetonitrile prices. During Q4, the company has benefitted from 80% YoY improvement in methyl amines products realization, which led to overall improvement in its average product realization by 10% YoY and revenue by 8% YoY, but weakness in ethyl amines, down 7% YoY, and specialty chemicals, including acetonitrile prices, down 26% YoY negatively affected margin and thereby EBITDA by 2%. We expect it to continue to face margin pressure, due to overcapacity in ethyl amines and its specialty chemicals products. Therefore, we decrease our EPS of FY26E by 3% and FY27E by 9%. We cut our DCF-based TP to INR 1,838. We reiterate Reduce on rich valuation. It is trading at 36.9x FY27E P/E after factoring in a 10% revenue CAGR and a 16% EBITDA CAGR during FY25-28E.
Revenue recovery YoY but EBITDA declines due to margin pressure: AACL reported an EBITDA of INR 678mn vs our estimates of INR 671mn. EBITDA fell 2% YoY & 5% QoQ, and EBITDA margin softened to 17.6% in Q4FY25 vs our estimates of 17.3%, and from 19.3% in Q4FY24 and 19.2% in Q3FY25, due to weakness in acetonitrile, di-ethylamine (DEA) and dimethylamine (DMA) gross margin. However, strong other income of INR 93mn, up 257% YoY, led to a better-than-expected PAT of INR 460mn vs our estimates of INR 406mn, up 20% YoY and 5% QoQ.
Pricing pressure restricts growth: Volume growth in Q4 was 15% YoY and 4-5% QoQ while FY25 volume growth was 13% YoY. Pricing pressure continues while raw material (RM) prices were softening. On a QoQ basis, prices were stable but declined YoY. Average capacity utilization was 60-70%.
Realization to remain muted: Management is hopeful of 10-15% volume growth in FY26 but indicates pricing pressure may sustain, due to overcapacity in the base amines segment. AACL has set an INR 1.5bn FY26 capex target and expects new products facility to be completed by December 2025-January 2026. Regarding anti-dumping duties on acetonitrile, management expects a favorable decision from the Ministry of Finance by late Q2FY26.
Reiterate Reduce with a lower TP of INR 1,838: We cut our FY26E EPS by 3% and our FY27E EPS by 9% on margin pressure due to overcapacity in ethyl amines and its specialty chemicals products. We introduce FY28E EPS at INR 59.8, ascribing 17% YoY growth due to gradual demand recovery in agrochemicals and ramp-up of recently concluded capex of ethyl amines capacity (added 15,000-20,000ton net capacity). We lower our DCF-based TP to INR 1,838 from INR 1,978. We reiterate Reduce on rich valuation. It is trading at 36.9x FY27E P/E assuming a PAT CAGR of 18% during FY25-28E subject to demand recovery in China and the EU. Our revised TP assumes 5% (unchanged) terminal growth, a 10% (unchanged) cost of capital and an EBITDA CAGR of 14% (from 16%) during FY25-33E.
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SEBI Registration number is INH000000933
