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MOSL: ALKYL AMINES (Neutral)-Margins continue to tumble; volumes also impacted

ALKYL AMINES: Margins continue to tumble; volumes also impacted

(AACL IN, Mkt Cap USD2.3b, CMP INR3332, TP INR3250, 2% Downside, Neutral)

 

• Alkyl Amines (AACL) reported a miss on our revenue estimate (-11% QoQ) on account of a dip in volumes by 10% QoQ. This was largely attributable to lower demand from the Pharma and Agro spaces during the quarter. Alternate raw materials purchased by the aforementioned customers (primarily from China) were impacted, due to which overall production remained low.
• Raw material prices further increased (~30%) on a QoQ basis, although the management expects them to have peaked. It also guided that logistical issues may get resolved over the next six months – some relief is already observed with regard to container availability, although freight rates continue to be high.
• We build in EBITDA margin normalization from 21% (the lowest ever) in the current quarter to 24.5% in 2HFY22 – accounting for the aforementioned guidance. We further normalize our EBITDA margin forecast by -150bps to 28.0–28.5% over FY23–24E, resulting in an estimate cut of 6%/5% at the EBITDA level for FY23E/FY24E.
• Our downward margin revision further factors in capacity additions by domestic peers over the next 12–18M, impacting margins for Acetonitrile (CAN).
• AACL is in the process of commissioning its ACN plant at Dahej. Trial runs are in progress, and the plant is expected to commence commercial production shortly. The management has guided that exports would play a major role in revenue growth going forward (v/s in the past) post the commissioning.