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Alkyl Amines Chemicals Ltd
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Ladies and gentlemen, good day, and welcome to Alkyl Amines Q2 FY '25 Earnings Conference Call hosted by Ambit Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Kumar Saumya from Ambit Capital. Thank you, and over to you, sir.
Thank you, Bill. Good afternoon, everyone. Welcome to the Second Quarter and First Half FY '25 Post-Results Earning Conference Call of Alkyl Amines. From the management, we'll have with us: Mr. Kirat Patel, Executive Director; Mr. Kanchan Shinde, Chief Financial Officials; Mr. Udipt Agarwal, Chief Commercial Officer; and Mr. Chintamani Thatte, General Manager and Company Secretary.
I'll now hand over the call to the management for an opening remark. Post which, we will open the queue for Q&A. Thank you. Over to you, sir.
Thank you, Kumar. Good afternoon, everybody, and thank you for joining us on this half yearly investor call. Belated happy Diwali, and I proposition you a prosperous New Year.
With me are my colleagues, Kanchan and Chintamani. And we are here to respond to any queries you may have about our half yearly performance.
A few opening remarks. The half year has been relatively better than last year's half year, as you must have seen from the results, largely because our volumes have been more than satisfactory. And unfortunately, of course, the prices and margins have been under some pressure. So with those few words, I would throw the floor open for specific questions which you may have. Thank you. Can we proceed with the questions?
[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Research.
So I have a few questions. So first is on the volume growth for first half of 2025. And if you can also share the volume growth for second quarter on a Y-o-Y basis, that would be helpful.
Yes. So half yearly basis, the volume growth is about 8% to 10%. And compared to last year quarter, it is 17%.
So second quarter, we have clocked actually higher volumes of 17%.
Yes. Yes.
But keep in mind, Nirav, that the similar quarter last year was not a very good quarter for us.
Correct. Correct. And sir, any guidance which you can share in terms of volumes for FY '25? I think last year, we clocked something close to around 8% to 10% volume. So what sort of volume growth we are expecting for FY '25?
I think this year also, we hope to cross 10%.
Okay. Sir, second is on acetonitrile. So just wanted to understand something on the technical part. Like whatever are the imported volumes coming to India so far as acetonitrile is concerned, does the quality matches in terms of what we produce? Like because there, the purity level also matters when we sell acetonitrile in the market. So just wanted to understand it from you that when the material comes to India, it's more through that acetonitrile route as a byproduct or it is through the route where we are producing through acetic acid?
So if you can just share your views on that. And in terms of our purity levels, have we improved over a period of time however effluent costs reduced for acetonitrile? If you can share your views.
This is Udipt Agarwal here. Thanks for the question, Nirav. The material which is acetonitrile, which is coming into India, is coming from -- which is produced using both the routes, the acetic acid route and the acetonitrile route. Just remember in mind that before we came into the market, the only acetonitrile which was being used by customers, everything was based on the acetonitrile route. So the customers know what they are using. So -- and so for most part of the applications, both routes are acceptable to the customers.
The second part of your question was that have we improved on our cost structure or -- and/or the quality. So I would say that for sure, on the quality part, there are some specific emerging trends in the market for which there are differentiated quality or higher-grade requirements are there, and we are working on those areas to create some kind of a differentiation for our product.
And sir, so far as the market in India is concerned, it is still 30,000 tonnes. And what sort of utilization levels we have been operating of our plant, let's say, in H1 of FY '25?
I think market remains around that level, Nirav, so your market estimation is pretty good. Congratulations. You are keeping a good track on what is going on, so good number there. So ballpark directionally, market remains around 30,000 tonnes there. And you know what kind of imports are also coming into India, so you can have an estimate of what kind of utilization and there is room for us to grow further. Correct.
Sir, just to add here, like there was an oral hearing in October so far as antidumping duty on acetonitrile is concerned. So have we heard anything ahead of that? Like where the process is currently in terms of anything which can come up on acetone antidumping duty?
Yes. So after oral nearing, now they will come for investigation of our plant and as well as costing records, and then MOC will issue their findings. After that, [ MOS ] generally takes 3 to 4 months. Next 4 to 5 months, we should expect something.
Got it. One more question, sir. Sir, in one of the earlier calls, you mentioned that like 80% of our power cost is towards generating steam for boilers and which generally runs on coal. So if you can share like what was our average coal cost in FY '24 and how it is currently looking in H1 of FY '25? Or possibly, if you can share the figures for second quarter of FY '25?
Okay. So Nirav, first thing is 80% of the power water fuel cost is due to steam, which is largely produced in all 3 plants from coal. So the coal prices have been more or less stable across the 2 years. We are plus/minus 10% on that, so there is not much of a price difference between the 2. You see -- whatever changes you see in the numbers are due to volume increases in production.
Correct. So safe to believe that the coal cost for us is close to around INR 9, INR 10 currently?
Sorry, for what? Please repeat.
Coal cost for us is currently around INR 9 to INR 10 a kg?
Correct.
Yes. The coal is INR 9, INR 10 a kg. We, of course, look at metric tonnes, so INR 9,000 to INR 10,000 a metric tonne.
[Operator Instructions] The next question is from the line of Kumar Saumya from Ambit Capital.
So my first question, if you could please throw some light on the underlying demand trends that you're seeing in the industry, especially from agrochemicals and pharma side.
See, you -- we all know about the macros, which is there in the pharmaceutical industry. In pharmaceutical also, if we dig a little deeper, we talk about 2 segments. One is the API manufacturing and the other is the formulation segment. And within that, we also talk about domestic consumption and exports.
You all know that India is a big exporter of the generic APIs from India. I would like to say at a macro level, the issues which we had a couple of years back in terms of the so much of inventory in the pipeline and things like this within pharma sector, we see that it seems to be easing a little bit.
But the other part of the life science, which is the agrochemicals segment still continue to remain under pressure. Both from the inventory point of view and also from the cost pressure, which is coming in from China, both at the intermediate level and also at the finished agrotechnical. So this is where the strain is coming in the industry from China, particularly in the agrochemical. So that continues to remain a little bit subdued.
Okay. Sir, secondly, on the margin side. So we have seen some Q-on-Q dip in the gross margin. How much of it was led by raw material, specifically ammonia prices and how much was due to product mix?
So these finished good prices have dropped a little more than the raw material prices over the period, half year to half year. And therefore, the margins there got squeezed by about 2 percentage points. So the -- say the finished good prices have dropped by an average of 5%, 6%, but the raw material prices have dropped 3% to 4%.
Half year to half year, we have increased margins.
Okay. Half year to half year, the margin is up.
Margins have increased.
Quarter-to-quarter...
Quarter-to-quarter, there is a little bit [ leaning ].
So one lastly, what is the outlook for the second half for the margin side of it?
Sorry, come again? Please repeat the question.
Yes. What would be the outlook for the second half? And do we plan to maintain the current run rate? Or we are looking at some improvement in profitability side?
It's difficult to say at this point in time whether we will be able to -- we are always optimistic that we'll try to improve the margin, but we don't want to sacrifice volume because of it. So our focus will be more volume than margins. But of course, at the same time, we try to expand the margins. But it's difficult to say where will this, in the end, land up. Hopefully, better margins and better volumes.
And lastly, sir, on the CapEx side, the CapEx that you have announced, if you could throw some light in what are the products that you are [ running ] and what are the markets that you are targeting.
Yes. You must be aware that we are -- we do not talk about the products which we are going to launch until they are actually commercially in the field. That's our policy. But I can broadly say, it's in the same region of markets that we now supply, the same kind of customers.
The next question is from the line of Nirav Jimudia from Anvil Research.
One question on the different amines which we produce, like methyl, ethyl, monoisopropylamine. So last time, you mentioned that monoisopropylamine didn't do well in FY '24 and because of which, our volumes got impacted. So if you can share your views on that, A; and B, how has been our new ethylamine plant operating at? So has the utilization levels improved over FY '24 in H1 of FY '25? If you can share your views.
Okay. First question about the monoisopropylamine, yes, the issues which we pointed out in the 6 months ago still continue. We haven't yet received any protection from the government against the Chinese imports. We have applied very recently for protection. And we hope over the next maybe 9 to 12 months, we will get some protection. But until then, the pressure on monoisopropylamine will continue.
On the second question about ethylamines, yes, the new plant is performing very well, well above our expectations. And in terms of ethylamines also, the market seems to have improved compared to '24.
So if you can share at what level of utilization rates we are currently operating at? Because I think the older plant, we have closed and possibly could be used as a swing plant for at a later date, possibly for methylamine. So A, what was the utilization rate currently? And if you can also share about the market size in India about for ethylamines.
I mean market size in India, a bit difficult to say because there's exports and our competitor is always there. But I would say it would be about 30,000 tonnes, in that region, maybe 25,000 to 30,000 tonnes. And utilization has been -- as you know, that the new plant is a very large plant. Getting to -- we have plenty of headroom in that plant still for the next, I don't know, 3 to 4 years. We don't see any pressure on capacities at all.
And sir, on the monoisopropylamine, you mentioned that the volumes have stayed under pressure. So in terms of application wise, which of the industries it generally goes into?
Yes, major use of monoisopropylamine is in the field of agrochemicals and a little bit into pharma. But large chunk is into agrochemicals.
Got it. And sir, you mentioned that like we have clocked something close to around 17% volume growth. So this was predominantly from the domestic market or had the export volumes grown for us substantially? Because of which, we have seen some sort of volume growth?
I think we see growth across both in domestic market also and in exports as well, so it's a combination of both.
Sir, last 2 from my side. One on the scenario for raw material prices, predominantly for ammonia as well as for ethanol. I think because of the current ongoing prices in the Middle East and everywhere, we have seen some strengthening in the prices for ammonia. So how we are placed here for ammonia as well as how do you see the scenario emerging out of for ethanol also?
Ammonia, you're right. There's been a little bit of pressure, but -- and ammonia is something which we cannot store. So we are not able to cover for a longer period. So we do expect a little pressure on ammonia because of whatever reason. But these crises come and go, so you may expect a slight bump in the price and then they may also drop. So we -- as far as ammonia is concerned, we play it almost month-to-month.
While ethanol is concerned, currently, the imports are cheaper than the domestic prices. And we have been covering them steadily as we go along, covering our requirements. And we are well covered for the next maybe 6 months or 5 months. So that is the situation on ethanol. Of course, the prices may change.
All right. Correct. Sir, lastly, on the cost side, in terms of efficiency-wise, are we -- have we improved anywhere? Let's say on the process side or let's say on the operating cost wise, have we improved at any point of time, which could be permanent to us and could leave us a permanent savings to our cost?
So anywhere, if you can share your views or any initiatives which you are currently taking on in terms of controlling our operating cost by -- both by way of product innovation as well as by process innovation?
This is a very complicated and long question because as you know, we have separate team, what we call the process engineering group, which just focuses on improving yields and specific consumptions for existing products. And this is little, little projects, which go over a long period of time in saving small amounts of benefits in every product that we make. And this gradually comes into -- becomes permanent baseline for the next year.
So every year, we have been improving our yields and specific consumptions across products regularly. So though they may not be very dramatic, there is every attempt to make both through the process engineering group and the R&D group, trying to improve our cost structures from point of view of consumptions regularly. It's a very constant practice. And in fact, we pride ourselves that improving our yields on a year-to-year basis in all products.
Got it. Got it. Sir, last thing, if you can share the revenue mix for the first quarter. Like how much -- in terms of sector wise, how much from pharma, agrochemicals, rubber chemicals, foundry chemicals? If you can give some overview in terms of our revenue mix for H1 of FY '25?
They haven't changed at all from our regular life sciences accounting for 65%, 70% of our turnover, and the rest all -- as you can see from our website or whatever, it doesn't change dramatically. Even the domestic export sectors are more or less the same, 80/20.
Because you mentioned that agrochemicals was a bit under pressure. So I think that mix was being taken over by pharma in that life science division.
Yes, that's on a longer-term basis. It's happening over a period of time. But it is, again, year to year. But [ H2 ], they are still about 65%, 70%.
Got it. And sir, any update on the DEK plant? I think last year, we operated at just 20%. So -- and because it also finds application at agro level, have we seen some improvement there or the utilization rates improving there for DEK?
The utilization rate has improved not as much as we expected to. But going forward, we think it will improve even further. And hopefully, the worst period is over, and we are a lot more optimistic on the product now than we were before.
[Operator Instructions] The next question is from the line of Rohit Nagraj from Centrum Broking.
My first question is on the CapEx front. So just to get a perspective, obviously, we will not be able to delve into more details in terms of products. But are these overlapping products with our current set of products? Or are these new products? And just to get a perspective that whether these products, these are import substitutes and will not face competition as what has been faced by some of the other products because of the China issues? So just to get a broader understanding about this thing.
The first question, it's not part of our existing portfolio. It's a new product. It is going to be manufactured in Dahej as has been stated in the SEBI notice. And what is the other part? Yes, it is an import substituted product.
That's fair enough. Sir, during first half, what has been the overall capacity utilization? And given that for this new facility, it will be taking anywhere between 15 to 16 months, so would it -- in that time, we will not have any challenges in terms of the existing capacities to grow partially beyond say 10% plus over the next say 2 to 3 years?
Okay. There are 2 parts to this. The existing capacities, on an average, would be 65% to 70% utilization, but it varies from product to product. Some, we are very tight where we will be de-bottlenecking and there is some CapEx involved with that. But of the major products, as you have known the ethylamines, last year, we commissioned a huge plant so there is plenty of headroom in ethyl. And similarly, the other products, we have some headroom. So that is not -- the investment which we talked about earlier is in a completely new product, so it will not detract from the existing line.
Right. So I just wanted to make sure that for the next 2 to 3 years from the existing capacity, we will be able to achieve the normalized volume growth?
Yes, barring some small amount in de-bottlenecking of a couple of products.
And on this new facility, will it be coming in phases given that you have given a time line of 15 to 16 months?
Yes. The first phase will be in about 15 months. And we are hoping that if the product does well, within the next 3 to 4 years, we may have to de-bottleneck and expand the capacity.
And the technology is completely indigenous or is it a transfer?
Developed in our own R&D. As you -- we have mentioned earlier that barring the initial technologies which we imported from America, we -- all the products we have launched in the last 35, 40 years has been with our own R&D and engineering efforts.
Next question is from the line of Aman Chowdhary from Motilal Oswal Financial Services.
So with respect to the previous participant's question on this new CapEx, you had also announced a CapEx of around INR 250 crores to INR 300 crores in September '22, if I'm not wrong. So this is a completely fresh CapEx or it is a part of that INR 250 crores to INR 300 crores CapEx that you had announced a couple of years back?
No, this is a part of that INR 225 crores project. The other part, we are still on the R&D stage. This is one of the 2 lines of products which we were looking at, at that time. And in the meantime, of course, cost of plant and machinery has gone up, so I think that INR 225 crores was an underestimate. So it will -- whenever it comes up, it will be probably more than that. But of course, it's been delayed a bit.
Sure. So out of the 5 announced molecules or products in specialty chemicals or allied chemistries that you had announced a couple of years back, this is the second molecule after DEK that you will be commercializing in the next 15 months?
Yes. After DEK, this will be the second one after.
Sure. So has the market improved in terms of demand, supply, margin realization? Or what is it that now we have taken this decision after 2 years? Because previously, in all our interactions, you have said that the market has declined, and that is why we are not going forward with the other 4 molecules as of now. So just wanted to understand that thought process that now, it has been finalized. And the CapEx is also quite big.
Yes. So as you mentioned earlier, we had said that 2 to 3 products, one was DEK, which we had launched already and are stabilizing it and looking forward to it doing well. The second product, which we are going to do in the next 15 months, which we've been talking about, yes, the market has been strong. So we feel that there is a good return to be made out of that product. And the other 2, we are just holding our breath to see how the market goes before we take the plunge.
Sure. And those 2 products -- are those 2 products the one that we had talked about in our fourth quarter con call for FY '24? That an FID would be taken with a CapEx of around INR 75 crores to INR 200 crores?
Yes, I think that is the one we are talking about. Yes. So we are holding back on some investments in that -- the next 2 products.
Okay. So there is still some time before we go and announce those 2 products?
Yes. It depends on the market. Perhaps, in the next 6 months. Perhaps, a little later.
Sure. And with respect to acetonitrile, again, is our market share similar to what it was previously, 50% to 55%? And secondly, again on the utilization levels as well, is that also at 55%, 60% it used to be in the past 3, 4 quarters?
You are talking about acetonitrile, right?
Yes.
So I think the market share remains in that region. As earlier stated by I think Nirav, that the market is in the region of 30,000, and you can see that the imports are coming in from the Chinese. So we are in that region.
And the utilization levels?
Well, I think we have 2 plants, one in Kurkumbh and one in Dahej. And we use them at maybe, I think, overall 60%, I think. Capacities would be in that region.
Okay, sure. And just on the export versus domestic mix, obviously, it remains similar 80/20. But again, in second quarter and in the first half of '25 also, was it on a similar level?
Yes, I think it is on similar levels. What happens is quarter-to-quarter, sometimes we are fulfilling one commitment to the exports. So sometimes, it goes to 21%, 22%. And sometimes, it drops to 18%. But it's overall about 20% annually, 20%, 21%. So between quarters, there is not much -- it's not a significant change. Yes, we would like to push exports. But given the global situation, we don't want to push it too much.
Sure. And with respect to CapEx, any guidance on -- for FY '27?
FY '27?
Yes.
No guidance. That's so far off.
The next question is from the line of Dhruv from HDFC Mutual Fund.
So the first question is the pricing pressure that we see across some of our products, say ethyl or acetyl ethyl or some of the other products, how much of that would you attribute to the general weakness in the market, say for agchem or for say some of the pharma molecules?
And how much of that could be attributed to the overcapacities probably that could have come up? I'm just trying to dissect what are the key variables one should look for. I mean, is it the industry recovery? Or is it an oversupplied market? And until that becomes utilized, probably that pricing pressure continues?
Thanks for the question. I think it is more the later that the capacities in China are at a very, very high level, and their own consumption is also not so high. And we also see the global agrochemical situation or global agriculture situation, which also has an impact on the overall demand. But I think it is more of a capacity issue right now. And a little bit of inventory effect is still hanging over -- is carrying on.
Got it. So this capacity issue is because they have set up new capacities, which is -- say that they were at 100 earlier, and they have increased it to 150? Or is it because the demand itself is -- agchem in demand is weak, so hence, they are not operating it?
Yes. I think it's more of a capacity expansion issue. There is capacity -- there are overcapacities. They have put on more capacities in the last few years, and the demand has really not picked up to -- so that all those capacities are utilized. And we see such an immense pressure across the value chain. It's not only the -- our kind of products. The other products also and our customers' products also, we see this kind of pressure.
So sir, if you have to take a very rough view in terms of how long will it take, assuming we have seen how the agchem market grows globally, 3%, 5%, and pharma also grows at a similar rate, so if you have to take a view, when does these capacity utilizations come to a very normalized level so that the industry is able to enjoy reasonable margins?
Also assuming probably, some capacities could close in some of the regions, probably U.S., Europe, I'm not sure, so how -- what's your sense in terms of some broad sense? I understand this would be very rough, but some sense of how long this could take?
As you already mentioned in your question, I mean it's very hard to say how long it will take to get some kind of normalization to happen. But it also depends on quite a bit of other factors. You know on the chemical industry what is going on in some parts of the world.
Europe, for example, is having their own issues with respect to the large energy cost for agrochemical and chemicals production, in general, as well. As far as -- and also on the same way, we -- on the user side, they are pushing for more of the so-called green chemistry-related products, ecofriendly products. So that are -- both these factors are putting immense pressure on the industry in terms of coming out with the new technology products, which meet the new requirements on the greener side.
But at the same time, the existing capacities remain underutilized because there is subdued demand. It's very hard to say, but I don't know. I mean I would be very happy to see if it happens sooner than later. But I think all our customers also, our major agrochemical customers, are also trying to answer the same question, how long it will take.
Got it. Sir, last question. I think in the last few calls, I have understood that your ethylamine plant has seen a reasonable expansion and is not operating at the fullest optimum level for now, and it will grow in 3, 4 years. But sir, how should we think of -- as the utilization improves, is there a meaningful efficiency gain that happens, say for example, if you're operating at 50%, 60% versus you operate at 80%? I'm asking on a gross margin level. Probably to -- at EBITDA level, of course, it will improve. But at the contribution level also, does it see a meaningful improvement?
No, no. You have to understand how our plants operate. Our plants are campaign based. So when they run, they run at 100% capacity and then we shut down and start. So there is no question of improvement in efficiencies and such.
Got it. And this will start...
The utilization occupancy keeps going up.
So the stop and start is quick? It is not a meaningful driver?
Yes, it's quite -- it's not a meaningful number as long as the gap is long enough.
[Operator Instructions] The next question is from the line of Kumar Saumya from Ambit Capital.
Just one bookkeeping question. What is the CapEx outlook for this year and next year, sir?
This year, it will be around INR 80 crores to INR 100 crores. And next year, maybe slightly larger, about INR 100 crores to INR 120 crores maybe.
And then we have seen some improvement on the working capital side. So should one expect this to remain here in the first half year, at least? The behavior that we are seeing?
Sorry. Can you repeat that, Kumar?
Yes. So we have seen some improvement in the working capital side. So should one expect working capital requirements to remain here? Or is it just the first half of the business, and we should wait for the full year?
I think the working capital cycle, the number of days of debtors, number of days of creditors and all have, I think, more or less stabilized. Maybe an improvement marginally but -- as volumes grow, but nothing significant. I don't think there's been any change in working capital.
[Operator Instructions] The next question is from the line of Rohit Nagraj from Centrum Broking.
Sir, after this new CapEx at Dahej, how much of our land will remain unutilized for our future CapEx requirements?
We have land available in Dahej and in Kurkumbh. For at least another 2 to 3 years, we -- I don't think we expect there to be any major issues. After that, perhaps, we may have to look for new land. But that depends, of course, on our CapEx programs as we go along. But I don't think in the next 2 to 3 years, we will require any more land. We have enough both in Kurkumbh and in Dahej.
So including this new specialty chemical project?
Even after this new project which comes up, we will still have land available.
[Operator Instructions]
Kumar, it looks like I think we are done with the questions. It seems to be -- we have answered most of the relevant questions that people have come up with. So should we wind up the call now?
Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you, everybody, for listening into our investor call. And as we have mentioned earlier, we look forward to the future with cautious optimism and, hopefully, to get better volumes and better margins when we meet next. Thank you. Thank you for listening in.
Thank you. On behalf of Ambit Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.