Alkyl Amines shares shed multibagger tag; time to buy, sell or hold?

Shares of Alkyl Amines have taken a downward trajectory since August 2021, leaving investors guessing on how long they should hold on to the stock. Alkyl Amines stock, which closed at Rs 4,386.45 on July 30, 2021, has lost 1,586 points or 36% value till date. The stock was trading at Rs 2,800 in the afternoon session today. Once a multibagger, Alkyl Amines investors are now staring at a lot of uncertainty.  

The manufacturer of amines amine derivatives and other specialty chemicals and market leader in its segment saw its stock zoom 1,096% in the last five years. The mid cap stock has risen 590% in three years. Financial services firm Motilal Oswal has included the stock in its Top 10 most consistent wealth creators (2017-22) list. The share has logged a price CAGR of 74% and bagged second rank with Adani Enterprises topping the list.

In the current scenario, Alkyl Amines has a one-year beta of 0.89, signaling low volatility in the stock. The stock has been rising for the last two sessions.  However, the share has lost 13% in one year and fallen 21.13% since the beginning of this year.

In the afternoon session, Alkyl Amines stock was trading at Rs 2,797, rising 0.18% on BSE. The stock opened lower at Rs 2,781 on BSE. Alkyl Amines shares are trading higher than the 5-day moving averages but lower than 20-day, 50-day, 100-day and 200-day moving averages.

In terms of valuations, the stock is overvalued. The share has a price to book value ratio of 14.42. The ideal ratio is less than 1. In terms of PE ratio too, the share is overvalued compared to the industry. It has a PE of 63 against the industry PE of 12.55.

The performance of the firm has not been encouraging in terms of financials, which is also among the key factors for the stock to decline in the last 1.5 years. The firm reported a 36% fall in its net profit to Rs 52.44 crore in Q2 against Rs 81.88 crore in the June quarter of the current fiscal. 

Sales too slipped 13.65% to Rs 408.87 crore in the last quarter against Rs 473 crore in the June quarter.

On an annual basis too, the firm has logged a 23.85% fall in profit to Rs 224.89 crore for fiscal ended March 2022 against a profit of Rs 295.34 crore in the fiscal ended March 2021. Net profit had jumped 37.18% from Rs 215.28 crore in for the fiscal ended March 2020.

Financial services firm Motilal Oswal is neutral on the stock with a target price of Rs 3,025.

Motilal Oswal said that the ongoing expansions (Rs 400 crore capex) at Alkyl Amines will boost the capacity of Aliphatic Amines by 30 per cent from 90-100Ktpa at present. Entry into newer specialty products can aid margin as the management sees strong demand for these products. The brokerage has forecast a 20 per cent revenue CAGR over FY22-24, with a 31 per cent EPS CAGR over the same period. The downside risks could be an increased competition, wherein the market price is determined by the competitor, with little pricing power left for Alkyl Amines to command.

Motilal Oswal said the stock trades at 37 times FY24E EPS and 26 times EV/Ebitda.

 “We value the company at 40 times FY24E EPS of Rs 76 to arrive at our target of Rs 3,025. We maintain our Neutral rating with a potential upside of 7 per cent,” it said.

Manoj Dalmia, founder and director, Proficient Equities said, “The stock has moved about 300% since October 2020 and has entered a resting phase or a consolidation phase. Investors can wait and accumulate at about Rs 2469, there it can take support. Currently, the margins have been hit and it might take some time to recover from the increased raw material prices. A long-term target of Rs 4780 can be achieved.”

Ravi Singh, Vice President and head of research, Share India said, “Alkyl Amines rally had been affected due to its weak financial growth contributed by higher raw material costs weighing on the performance. The company’s EBITDA and operating margins has sharply contracted from previous years. The weakness in the stock of the company may remain intact till some improvements in the financial performance. The counter may go further down for the target of 2500 levels in medium term.”

Abhijeet from Tips2trade said, “A drop in profit growth with higher valuations in terms of PE ratio as well has led to Alkyl Amines stock price remaining subdued this year.  Rs 2900 is massive resistance and investors should buy only if daily close is above this resistance for targets of  Rs 3064-3174.”