Alkyl Amines: Changing dynamics in pharma API creates multiple growth triggers

Alkyl Amines manufactures several products catering to the pharma API industry, making it a beneficiary of the improving trends in its user industries.

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Alkyl Amines is a leader in the production of chemicals like aliphatic amines, acetonitrile, and dimethylamine hydrochloride (DMA HCL), key components for multiple pharmaceutical products. Place the company's positioning in the universe of changing dynamics in the API (Active Pharmaceutical Ingredients) industry and voila! you get a strong growth trajectory.

The pharma API industry is moving towards prosperous times as Western drugmakers shift towards Indian companies as alternatives to suppliers from China. Due to the dynamic unfolding within the API sector, chemicals manufactured by firms such as Alkyl Amines will progressively gain greater significance for India.

Besides, the chemicals company also enjoys a position of cost leadership which just adds more jewels to its crown.

How Alkyl Amines is multiplying its prospects

Gearing up to cater to the growing demand thanks to the shift in the pharma API industry, Alkyl Amines is focusing on a slew of capital expenditure (capex) plans.

Capacity expansion of ethyl amines in Kurkumbh (100 tpd capacity) is on track and is expected to be commissioned soon. The company has also earmarked a capex of Rs 400 crore for the same. Besides, the company has also commissioned a plant for di-ethyl ketone in February while plants for four other products are likely to be commissioned in the next 24 months.

Brokerage firm Motilal Oswal Financial Services (MOFSL) believes the ongoing expansions will boost aliphatic amines capacity by around 30 percent, from the existing 90-100 ktpa (Kilo-Tonnes Per Annum). Moreover, the firm also feels Alkyl Amines' entry into new speciality products will boost its margins as the management sees strong demand for these products.

Moreover, the Indian government's push towards lifting manufacturing of chemicals used by pharma API companies, in efforts to reduce India's import dependence on China is another trigger helping Alkyl Amines.

What do growth projections look like?

Banking on the company's robust growth prospects, Alkyl Amines is expected to deliver a 14 percent revenue CAGR (Compounded Annual Growth Rate) over FY23-25, with an earnings-per-stock (EPS) CAGR of 15 percent over the same period, according to MOFSL.

Moreover, the management has also guided for a long-term volume growth of 15-20 percent.

Previously, the company has reported a compounded profit growth of 29 percent for the last five years while its return on equity grew at a CAGR of 30 percent during the same tenure.

As for valuations, the stock is currently trading at 35 times its FY25E EPS estimates and 24 times its FY25E EV/EBITDA estimates. Though the current valuations may restrict near-term gains in the counters, the stock remains a strong play around India's prospects in the backdrop of the emerging China+1 sentiment.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.