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Recommendation From Commodity Chemicals Sector

January 26
23:35 2018


This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

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THE RIGHT CHEMISTRY FOR GROWTH 

HERE IS WHY
Improved crude prices
Traction in exports
Strong R&D capability 

Amines and Plasticizers 

BSE Code: 506248
CMP: Rs 68 FV: Rs 2
BSE Volume: 22269
Date: 03/01/2018

Amines and Plasticizers Limited (APL), incorporated in the year 1973, manufactures over 50 different varieties of organic chemicals, amines, solvents and fertilisers. The main products manufactured by the company are methyl di-ethonalamine (MDEA) and N methyl morpholine oxide (NMMO). MDEA is consumed in refineries and gas plants, whereas NMMO is used in textiles, cosmetics, paints, agrochemicals and pharmaceutical intermediaries.

INDUSTRIAL OVERVIEW 

The chemical industry in India is a key constituent of Indian economy, accounting for about 2.11 per cent of the GDP. In terms of value and production volume, Indian chemical industry is the third largest producer of chemicals in Asia and sixth largest by output in the world. Favourable demographics and strong economic growth are demand drivers for the chemical sector. External demand and specialty chemicals have also contributed strongly to the growth of the industry. Last year, due to fall in the crude prices, several oil rich nations had reduced production, which slowed down the petrochemical industry. However, the oil prices have stabilised since. In fact, on Jan. 2, 2018, oil prices recorded their strongest start to a calendar year since 2014. This augurs well for the company. 

Recently, with strong R&D capabilities, the company forayed into oil field chemicals. Among these chemicals, drilling fluids corrosion inhibitors led to remarkable increase in the sales of domestic and foreign market. In FY17, APL reported growth of over 28.5 per cent in its export earnings at Rs119.8 crore, as compared to Rs93.13 crore in the previous year. The company has over a period of time updated its pipe leak detection software and added various features in synergy with the latest trend and current market situation. The company is in the process of carrying out trials for various prospective customers based on their requirements. 

FINANCIALS 

The net sales of the company marginally declined by 0.61 per cent to Rs79.89 crore in the second quarter of FY18, as against Rs80.38 crore in the same quarter of the previous year. The company’s PBDT increased 7.98 per cent to Rs7.88 crore in the second quarter of FY18 on a yearly basis. The company’s net profit also increased 18.81 per cent to Rs4.61 crore in Q2 of FY18, as against a net profit of Rs3.88 crore in the Q2 of the previous year. On an annual basis, the company’s net sales increased 13.53 per cent to Rs295.16 crore in FY2017 on a year-on-year basis. The company’s PBDT increased 47.55 per cent to Rs24.78 crore in FY17 as compared with Rs16.32 crore in the previous fiscal. The net profit of the company increased 58.12 per cent to Rs15.48 crore in FY17, as against Rs9.79 crore in the previous fiscal.

On the valuation front, the company has a PE ratio of 23.64x. The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 29.56 per cent and 23.64 per cent, respectively. The company has a debt-to-equity ratio of 0.89x. It had good consistent profit growth of 40.3 per cent over the last 5 years.With the company’s foray into oil field chemicals and improving crude prices, the company’s margins are expected to improve. We recommend our reader-investors to BUY the stock. 

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