Alkyl Amines Chemicals Limited (ALKYLAMINE.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Alkyl Amines Alkali Amines Chemicals Limited Q2 FY '26 Earnings Conference Call.[Operator Instructions] Please note that this conference is being recorded. I now like to hand over the conference to Mr. Kumar Saumya. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. Welcome to Second Quarter and First Half FY '26 Post Results Conference Call of Alkyl Amines. From the management, we have with us Mr. Kirat Patel, Executive Director; and Ms. Kanchan Shinde, Chief Financial Officer. I'll now hand over the call to management for opening remarks, post which we'll open the floor for Q&A. Over to you, sir.

Thank you, Kumar. Good afternoon, everyone. This is Kirat Patel from Alkyl Amines Chemicals, and welcome to our half yearly investor call. I'll just begin by giving you a little overall view of the half year, and then we will open the thing for questions, okay? So this first half year has been a little subdued because of demand pressures. And though our volumes have been marginally up, the top line has been flat because prices have been subdued. However, we have been able to manage the margins to retain our profitability. This is, of course, partly due to the pressures, geopolitical pressures because of the actions that the U.S. government has taken over the last 6 months. These have impacted us in various ways. One, our direct exports to U.S., then the -- our customers having been affected by their demand being affected because of U.S. exports. The impact on the Chinese who have become more aggressive as our competitors and are affecting our domestic market. And finally, the sanctions on some of our distributors in India, who supplier -- are part of our supply chain. So we have been affected in 4 ways by these actions of the U.S. government. And to some extent, this is the cause of the demand slackness. So with that, these opening remarks, I will open the floor for questions. Please, Kumar, can you start the question-and-answer session.

Sure, sir.

[Operator Instructions] The first question is from the line of Nirav from Anvil Wealth.

I have a few questions to ask. Sir, last year, FY '25, we had seen a volume growth of close to around 13%. Just wanted to understand from you, like what was the volume growth in this first half? And any indication of volume growth, which you can share for FY '26?

Yes. Nirav, the first half volume growth has been just marginally up from last year compared to H1 of both the years, slightly higher than last year. But looking forward also, we feel that it's not going to be what we had expected at the beginning of the year, which is our normal 7% to 10% growth, 10% to 15% growth, which we normally expect every year. So I think this year, the volume growth will be subdued because of the various factors I had mentioned a little earlier.

Perfect. So sir, is the impact predominantly coming from the methylamines part or even the ethylamine chain is also impacted.

No. The impact on the methylamines is there more than the ethylamine. Ethylamine is not that much impacted because ethylamine is largely focused domestically and the competition here is domestic. So whatever impact it has on the domestic competition is marginal. Yes, it is impacted to the extent that our customers, our pharma customers and other customers do have some impact on their demand globally. So there is some impact on volume sales of ethyl, but it's not as much as the methyl.

And sir, in terms of both these categories, where was the contribution margin per kg was majorly impacted? Was it more on the methylamine side? Or was it more on the ethylamine side? And because of which possibly even on a Y-o-Y basis, there is a dip in our operating profit.

It was more on ethylamine because ethylamines market, the prices -- selling prices have gone down. But methyl, we have lost volumes. Contribution per kg, yes, it is methyl -- ethyl.

But on the whole, I think our contribution has been fairly protected.

Yes. Overall contribution is protected. Gross margins are almost stable.

And sir, if you can also walk us through in terms of the current market size for methylamines and ethylamines in India?

See, the methylamine market -- merchant market and there is -- as you know, all of these 3 people manufacturing are also self-consumers to the extent of between 20% to 40% of their own production they self-consume. And now we have a fourth player coming into the market, Aarti Drugs had just commissioned their plant, and they will be soon in the market. So there is certainly an overhang in capacity. All of us, Balaji, RCF, us and Aarti will have an overhang of capacity. So methylamine is going to be a long item for some time to come yet. And the guess -- I mean, it's very difficult to predict how much is self-consumption and how much is the market. But I would say that the total market between all 4 of us would be about 80,000 tonnes to 90,000 tonnes, and there is a capacity of more than 150,000 tonnes in the market, which can all come on stream. Balaji has one plant, which is kind of standby. We have a plant standby. Similarly, RCF has one. And Aarti is just starting on.

And for ethylamine, it is close to 30,000 tonnes, 35,000 tonnes is a correct assumption?

Sorry, the market, yes, possibly in that region.

Sir, 2 more questions. So one on the newer product, which we spoke last time in terms of expected to be launched by this December. So if you can share your thoughts here like in terms of the total CapEx for that product and whether it is an import substitute product B and C, let's say, what sort of sales could be expected out of this newer product when the ramp-up would start happening on?

Okay. So this capital expenditure is going on in Kurkumbh, and we expect the mechanical completion to be somewhere between February, March of 2026, with commissioning, I mean, in the market commercialization in the first quarter of '26, '27. The capital expenditure, as we had earlier stated is in the region of about INR 120 crores. And we hope that it's a very profitable market, I mean, a profitable product. And at the moment, it looks quite good. Of course, given the fact that the market is changing so rapidly with the Chinese and all, but we feel that our technology will be superior to that, and we will be able to maintain this. This product goes largely into dyes and pigments and electronics and others.

And sir, what sort of assets are...

Yes, it is import substitutive. There's nobody in the country making this.

And sir, what sort of asset turnover we can assume out of this capacity?

About 1.5 turnover it is -- turnover to asset ratio.

Sir, last question from my side would be on acetonitrile, like since the antidumping duties have now been imposed on. And given the kind of Indian market of 30,000 tonnes, 35,000 tonnes, where imports were close to around 40% as per our discussions in the earlier calls. Just wanted to have your thoughts here in terms of how we are in terms of, a, the improvement in capacity utilization and b, have the prices slightly improved in terms of the duty benefits accruing to us?

So Nirav, this antidumping duty came into effect at the end of June. And just before that, there was a lot of imports coming into the country in anticipation. So if you see the quarter before that, the imports were almost 1.5x to 2x what they were normally there. Now all that inventory is going through the system. So in this quarter of July to September, we have had to wait a bit. Yes, prices have improved marginally. But at the same time, the market is also reacting with the Chinese dropping the prices further. So at the moment, we have not got the full benefit of what we -- antidumping duty. But going forward, we expect to get the -- both in terms of price and in terms of market share, we hope to do better.

And can this run rate start improving from fourth quarter onwards? Or should we take next year as a good assumption in terms of improvement in volumes for acetonitrile.

Well, it's a bit difficult, but I think fourth quarter is a good estimate to start with that fourth quarter onwards, we will see real benefit coming in. Mainly most in volume. Prices, of course, right now, the Chinese are very aggressive all over the place for all chemicals. So it's a bit difficult to predict. But yes, volumes, I think fourth quarter onwards, we may see some impact.

[Operator Instructions] The next question is from the line of Rajeev Rupani, an Individual Investor.

My question was on ethylamines. So what is the current capacity utilization for us in ethylamines?

You're talking about ethylamines?

Yes. Ethyl.

Right. so if you recollect, we had commissioned 1.5 years ago a plant for about 30,000 tonnes and anticipating that this would give us enough capacity for the next few years because these are plants, which you set up once in a decade kind of thing. And we are -- we expect that we should be at about 60%, 70% utilization in that plant with plenty of headroom to go further.

And my next question was on methylamine. Since you just mentioned that the capacity is huge and the demand is low. So can our methylamine be used further for derivative products?

Yes, that we have already the derivatives each of us, whether it's RCF, Balaji or Alkyl Amines or even Aarti for that matter, are all having some derivatives which we are doing. But even that has some limits. And those also have their own economics working against it. We have, I think, 3 or 4 derivatives based on methylamine, Balaji has 3 or 4, RCF has 2, Aarti has 2, which are all part of this thing. So the derivatives themselves comprise for us, for example, all including the [indiscernible] derivatives and isopropyl and methyl derivatives about 30% of our mine output.

So I have a follow-up question. Do we have the technology to produce DMF because I think methylamines can be used for making DMF. And do we plan to make DMF.

RCF and Balaji are both making DMF from amines. We have the technology, but we are not making it.

Any particular reason?

It's not a viable situation at the current moment because the imports are much...

The next question is from the line of Nilesh Ghuge from HDFC Securities.

A couple of questions from my side. Firstly, on the GMP drug for diabetes. So in our earlier conservations what we assume that rather what we discussed about this acetonitrile demand may pick up because of this GMP drug coming in. So have you seen any pickup because of this GMP drug on this pharma industry? And if in future, how do you see the growth of acetonitrile coming for the GMP? Any comments on this?

So you are referring to these peptide-based diabetic weight loss drugs, are you?

Yes, sir.

Yes. So acetonitrile is used for manufacture of some of these. And there is potentially a demand for that. How much is that demand is a bit of a question mark because the drugs have just been launched. And it's in the early stages. We have got some approvals from some of these manufacturers for our acetonitrile because they have -- but it will take a little time to establish how much the market is going to grow. It's a bit of a question. It is an additional view. That's very clear.

Because we are the only manufacturer of pharma-grade acetonitriles, is my understanding correct?

In India?

In India, yes, sir.

Yes. But there are people who also process.

But you see some potential coming from the acetonitrile may not be in a couple of years, but down the line?

Yes. I mean the acetonitrile market as such is growing, and this is one of the new uses. Now how -- everybody is talking of it being a very big product, but one doesn't know. These things take time.

And secondly, in your opening remarks, you mentioned that volumes impacted -- the prices impacted because of this sanction from U.S. government. So can you just help me out in expose as a percentage to years, rather say, last year or maybe last couple of years and in which [ H1 FY '26 ], how much as a direct export to year, as a percentage of your…

So it's a little complicated here because what has happened, we have got exposure to U.S. is about of 4%.

4% of total export.

…of total exports, which means maybe 1% of our total sales. And within that also, there are some products, which are exempt; some products, which have the 20%, 25% and some which are at that 50% [ Russian ] additional. So the mix is odd. But I would say the worst-case scenario, it would be about 1% of the top line, the direct exports to the U.S.

And maybe if I add indirect exposure to various products going to pharm typically, it will be less than 5%, 6% or it's more than that? Because I just want to understand the impact of this U.S. tariff on overall top line.

No, I know where you're coming from. But from our position, it is very difficult to know what each of our -- we have maybe about 200 customers in the pharma business. How much each of them is affected by the U.S. is a bit of an unknown. But it is definitely certain that their U.S. exports because the generics are exempt. So that portion is not only branded are. And so there's a mix involved. So it's very difficult to guess how much of our customers' business is affected. There are a couple of customers in other businesses, who we directly know have got impacted in their whole export part, which was a substantial part of their business has got impacted, but they're not in pharma, but in other end use. So we can clearly put a 1:1 ratio there, but not -- in pharma, it's a bit more difficult to guess. But generally, the demand is not only because of the U.S. export, but because the Chinese have become more aggressive because they've got impacted also by the U.S. So they have started putting the material elsewhere. So there's a combination of both these. How much is directly to U.S. and how much is indirect from the Chinese.

You mean that Chinese are dumping in ex U.S. market...

Yes, because what they were probably directing towards the U.S. is now not available to them, so they are pushing it towards Asia or wherever else they can.

[Operator Instructions] The next question is from the line of Mehul from 40 Cents.

Sir, I have a very industry dynamic kind of a question. So post COVID, we were in a very sweet spot kind of a situation for our products, the entire industry was because there was a huge upsurge in demand. And we had a very good time for initial part of the COVID period. And then it was followed by a lull period. So my question is that because we are in a recovery mode right now, I mean, please correct me if I'm wrong on whatever I'm quoting, but this is my very low observation. So my question is, is it possible to see that kind of a sweet spot regime for this industry in the near future or in the next few years?

It's very difficult to predict whether we're going to have another situation like the COVID time. I hope not because COVID is not a great period for the world. Yes, it helps the pharma industry generally and those who are supplying to pharma. But now the situation is what you would call normal circumstances. All business has settled to its normal cycles up and down. Perhaps it's at a slightly lower this thing, but there are new challenges. As you can see every day in the papers, you read something more different about trade. And so it's a different kind of challenge. So once this phase is over, we will revert to normal. And whether that kind of sweet spot is reached, I don't think that is something that can be predicted.

Yes. So I was not alluding to having a COVID kind of a crisis, but I was more asking you about the favorable industry dynamics. And with my little knowledge, I understand that it was because of pharma uptick during those phase. But so right now, can we say that we are a little below average right now in terms of demand?

Yes, I would say that, yes, right now in this first half because of all the ups and downs of the U.S. government, people are a bit nervous and demand is a little constrained. But that could change. When these FTAs and all get settled.

So sir, let me restate my question. Are we expected to -- when are we expected to reach 2019 kind of a scenario for the industry?

You mean 2021?

Yes, '21 -- I mean...

'21-'22 I think that was the year, that COVID year, I think,

No, no. I was saying a normal kind of scenario, where there was nothing like COVID 2019 kind of scenario.

So that's kind of the normality is already there today, the 2019, the pre-COVID period you mean.

Yes, yes.

In fact we are already at higher volumes and higher profitability than those years.