“I am quite confident that the new products which we are planning are likely to be positive for the company, and in future this will contribute a large amount to the company.”
– Mr. Yogesh Kothari, Chairman & Managing Director (In Q3FY23 Concall)
| Stock Data | |
| Ticker | ALKYLAMINE |
| Exchange | NSE & BSE |
| Industry | CHEMICALS |
| Price Performance | |
| Last 5 Days | -4.22% |
| YTD | -13.06% |
| Last 12 Months | -20.17% |
*As of 21.03.2023
Company Description:
Alkyl Amines (Alkyl) is one of India’s primary producers of aliphatic amines. Over the years, Alkyl has successfully diversified into value-added products such as amine derivatives and specialty chemicals in addition to producing fundamental aliphatic amines like methylamines and ethylamines. All of these compounds are mostly used as solvents and intermediates in end-user industries including pharmaceuticals and chemical industries such as agriculture, dyes, foundries, water treatment, and speciality chemicals.
Critical Success Factors:
Having leverage over new entrants by being proactive in utilising new product opportunities:
Aliphatic amines operate in a niche industry, making up less than 1% of the overall global chemicals market. Additionally, both Alkyl and Balaji have taken the initiative to set up amine capabilities (sometimes surpassing the demand and thus suffering negative effects in the interim) and to benefit from the rising end-user industry and utilise the opportunities in the value-added products. This has made it difficult for a new player to establish a reliable scale in an already niche market.
Advantageous nature of operating in such a niche industry thus having merit over new entrants:
New entrants face severe obstacles due to the sizable initial capital outlays and lengthy lead times in acquiring environmental certifications from the government and product approvals from customers. This provides a disadvantageous position to competitors compared to long-standing market leaders like Alky and Balaji who have accomplished scalability and solid client connections over time. This is reflected in the consistent revenues of the company despite rising input costs:
Additionally, it appears that this industry has four significant entrance barriers. They are as follows:
- Customer Approval Delay: Customers take their time to become comfortable with the product and the manufacturing process because the products are used in end-user sectors like the pharmaceutical industry as raw ingredients or intermediaries. Also, for a consumer to switch from an existing vendor, there must be a considerable difference in costs or product characteristics, which increases the need for a new entrant.
- Significant efficiencies from scale: Operating at meaningful capacity utilisation is essential to generate reasonable levels of profitability because of the high capital investments required. Furthermore, running as a continuous process has many advantages over operating as a batch process, which is reliant on having a sufficient volume base.
- Necessity to secure environmental clearances: Governmental clearances are needed to construct a new facility or even a brownfield extension beyond the authorised capacity of the existing plant due to the hazardous nature of the industry. Environmental permissions typically take 1.5 to 2 years to secure, and any delays in doing so (which generally take place very frequently) drive up the project costs even more.
- Operating in a Capital intensive industry: Ammonia is a dangerous raw material that is used in the production of amines, hence the process is complicated and needs a lot of expensive technical knowledge to begin. At maximum capacity utilisation, the industry average for fixed asset turnover is 1.5 to 2 times, but in the beginning of the ramp-up, it is substantially lower.
Alkyl’s advantageous position in regard to R&D:
The procedure for developing new Alkyl Amines products is institutionalised. The business compiles a list of almost 20 new products each year. A considerably smaller group of products are selected for commercialization from this list. The following variables are taken into account:
- Whether Alkyl enjoys or can enjoy a technical edge in the product or its manufacturing process.
- The potential market size of the product currently or in the future.
- Whether the products can expand into a diversified customer base rather than being overly dependent on 1-2 customers.
- Whether the product can achieve global scalability.
- Whether the product can be manufactured in the same facility in instances where the demand for the product drops.
Key Challenges:
Erratic Prices of Raw Material:
The key raw materials that the company requires are:
- Ethanol – procured from local sugar industries and ever increasingly imported from United States of America
- Ammonia – largely sourced domestically owing to its volatility.
- Methanol – primarily imported from the Middle East
Taking into consideration the volatility of these chemicals, sourcing them can prove to be a challenge for the company. The volatility in prices are evident after the conflict in Ukraine coupled with rising inflation around the world.
Notwithstanding the fact that there is a lag impact, the industry does have a considerable amount of price power. As a result, even if the prices of methanol (crude-based) and ammonia have fluctuated considerably over time, Alkyl’s Margin has remained largely consistent for a significant amount of time, suggesting the presence of strong pricing power in the business.