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MOSL: . ALKYL AMINES: Margin rebound led by lower than expected RM cost

ALKYL AMINES: Margin rebound led by lower than expected RM cost

(AACL IN, Mkt Cap USD2.1b, CMP INR3191, TP INR2968, 7% Downside, Neutral)

• AACL reported an in line revenue. The downward trend in gross margin reversed in 1QFY23, the first time in six quarters, expanding to 50.9%. However, it is still lower from the peak margin of 60.9% in 3QFY21. Higher gross margin also resulted in a beat of 40% on our EBITDA estimate.
• EBITDA margin expanded to 24.5% in 1QFY23. Capacity expansion in Methyl and Ethyl Amines and capacity utilization ramp up of the recently expanded Acetonitrile (ACN) plant should drive better margin in FY23-24 for AACL from 21.2% in FY22.
• The management had already guided at a capex of INR3b for FY23, with a new plant being set up for Ethyl Amines (capacity of 35ktpa), which should be commissioned in 2HFY23. It expects to add additional capacity two-to-three years down the line.
• RoE is estimated to improve to 28% over FY23-24 from 25% in FY22. The stock is trading at 43x FY24E EPS and 29x FY24E EV/EBITDA. We maintain our Neutral rating on the stock, and value it at 40x FY24E EPS to arrive at our TP of INR2,968.

 

Beat on EBITDA; margin expands sequentially

• Revenue grew 21% YoY and 11% QoQ to INR4.7b.
• Gross margin expanded QoQ (for the first time in six quarters) to 50.9%.
• EBITDAM stood at 24.5% (v/s ~17.3% in 4QFY22).
• EBITDA grew 4% YoY and 57% QoQ to INR1.2b (40% higher than our estimate).
• PAT grew 4% YoY and 76% QoQ to INR819m (49% higher than our estimate).
• The company has appointed Mr. Rakesh Goyal as a Whole-time Director of Operations with effect from 1st Jun'22.

 

Valuation and view - maintain Neutral

• Ongoing expansions will boost its aliphatic amines capacity by ~30% (capex: INR3b, with expected completion by FY23-end). Current capacity stands at 90-100ktpa for aliphatic amines.
• We forecast ~20% revenue CAGR over FY22-24, with an EPS CAGR of 30% over the same period. Closure of global capacities and higher-than-expected revenue CAGR pose upside risks to our call, while downward risk stem from an increase in domestic competition.
• We maintain our Neutral rating on the stock, and value it at 40x FY24E EPS to arrive at our TP of INR2,968.