Alkyl Amines Chemicals LTD: (March 2017)

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Alkyl Amines Chemicals Ltd

Proxy play on pharma growth…
[March 2017]
www.RaghuStockAdvisors.com
Snapshot
Price 371
Market Capital 757 crores
Yearly Profits [2017 Projected] 55 crores
Price to Earnings 13.75
Total Debt [Short + Long Term] 111 crores
Current Price 370
52 Week High/Low 408/280
ROE 26%
Products
 The company is in the business of manufacturing and marketing various aliphatic amines,
amine derivatives, and other specialty chemicals for the last 30 years.
 The company produces three categories of products [amines, amine derivatives and
specialty chemicals]. Their production volumes in terms of percentages is given below:
Production Segmentation
15%
Amines
Amine Derivatives
25% 55%
Specialty Chemicals
User Industries
 The company supplies its products to the following industries:
o Pharmaceuticals
o Agro Chemicals
o Dyes
o Water Treatment
o Oil & Gas
 About 85% of the products manufactured by the company are sold to the pharma and agro
chemical companies.
 Pharma companies uses these chemicals for producing medicines like:

o Antibacterial
o Antiulcer
o Anesthetic
o Antimalarial
o Antibiotics
o Disinfectant
o Cardiac Drugs
o Antidiabetic
 Agro Chemical companies uses these for manufacturing: Insecticide, Weedicide, Herbicide,
Fungicide, Plant Growth Regulators, Insect Repellants, etc.
Competitive Advantage
 Importing these products from other countries is not possible as the products are hazardous
and hence transporting them is risky.
 The manufacturing plants of Alkyl Amines are located close to various pharma
manufacturing plants and hence pharma companies tend to source these chemicals easily.
 The pharma companies does not want to store these chemicals in large quantities and they
give orders in short notice. Alkyl amines is adapt at delivering the orders in short notice.
 The company is 2nd or 3rd largest producer of a chemical called Acetonitrile which is a
specialty chemical used in pharma companies. Being a major producer of this chemical, the
company will enjoy the cost benefits. The volume is growing at the rate of 20-25% for this
chemical.
 Alkyl Amines Chemicals Ltd. has a large and reputed client base of over 600 clients. Some of
the top customers of the Company include names like Aurobindo Pharma, Dr. Reddy’s
Laboratories, Ipca Laboratories, Biocon Limited, Divi’s Laboratories, and many more.
Scalability
 As 80% of the products are sold to pharma and agrochemical industries, the fortunes of this
company are closely linked to the pharma and agrochemical industries.
 The Indian pharma industry, is expected to grow over 15 per cent per annum between 2017
and 2020. By 2020, India is likely to be among the top three pharmaceutical markets by
incremental growth and sixth largest market globally in absolute size.
 A lot of new drugs are going off patent and Indian pharmaceutical industry to whom the
company supplies its products is suitably placed to take advantage of this situation and
have good growth potential, especially because of its cost advantage compared to
international players.
 Indian agrochemical industry, is expected to grow at 7.5 percent annually to reach $6.3
billion by FY 2020, with domestic demand growing at 6.5 percent per annum and export
demand at 9 percent per annum.
Numbers - Sales, Profits, OPM
 The sales have consistently increased over the past 10 years at the rate of 15% CAGR.
 Profits too increased at the rate of 22% over this period.
 The operating profit margin has been steadily increasing over the last few years which can
be attributed to the general decline in the energy price and also some of the raw material
prices.
 The tax rate is healthy 30%+ rate on profit before tax level.
 Overall the numbers tell a nice story about the operations of the business.
Numbers - Dividend
 The dividend payout has always been above 20% of the net profits which is quite good.
 During FY 2016, company has given Rupees 10/- as dividend which translates into dividend
yield of 2.70% at the current market price.
 During FY 2016 dividend payout ratio was 40% which was on the higher side. We can safely
expect a much reasonable 20% payout ratio going forwards.
Numbers – Balance Sheet
 The management has been very prudent with the debt levels. As can be seen during
financial years 2009, 2013 and 2014, debt levels went up but the company quickly reduced
the debt over the subsequent years.
 Over the years the company’s turnover and profits have increased but the debt levels have
been kept at a very reasonable level. The company seems to be funding its capital
expenditure with internal accruals.
 The fact that the company has managed its capital well can be seen from the fact that the
return on equity is cool 26%.
Management - Salary
 The owners take home salary is 7.0 crores which is reasonable considering the size and scale
of operations.
Management – Promoter Holding

 The promoter holding is at 74.19% which is almost at the maximum permissible limit. The high
promoter holding shows that the interests of the promoters are aligned with the minority
shareholders.
Shareholding Pattern
Promoters
21.86 Private Corporate

Bodies
0.02
0.72
2.37 NRIs/OCBs
Clearing members
74.19
Indian Public
Valuations
 The company currently trades at a valuation of 757 crores.
 The total profit projected to be earned during FY 2017 is 55 crores which gives the price to
earnings multiple [P/E] of 13.75. We arrived at the P/E by dividing the market capitalization
by the net profit for whole year.
 The P/E is reasonable considering that the return on equity is 26% and the long term growth
has been consistent at 22% on the net profit side.
Risks & Concerns
 The commodity nature of some of the products makes them susceptible to fluctuations in
raw material prices and exchange rates.
 The company is vulnerable to alcohol price volatility. Domestic alcohol prices are
dependent on the cyclicality of the sugar industry and Government policy for its use in oil
sector. Other petroleum based raw materials are subject to international gas/crude oil price
fluctuation.
 Being a global player, the company is exposed to competition not only from domestic
players but also large international players.
Check List
Sustainability of Products 
Competitive Advantage 
Scalability 
Numbers - Sales, Profits, OPM 
Dividend 
Numbers - Balance Sheet 
Management – Promoter Holding 
Valuations 
 The company gets tick mark on all parameters.

Alkyl Amines Chemicals LTD: (March 2017)

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www.RaghuStockAdvisors.

Alkyl Amines Chemicals Ltd

 Pharma companies uses these chemicals for producing medicines like:

Numbers - Sales, Profits, OPM

 Profits too increased at the rate of 22% over this period.

Numbers – Balance Sheet

Management – Promoter Holding

21.86 Private Corporate

Risks & Concerns

 The company gets tick mark on all parameters.

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