A case study of Alkyl Amines

Reading Time: 3 minutes

Source link | LinkedIn Profile | Twitter Profile

This note is to stress the importance of reading concall transcripts of companies whose fundamentals you wish to study.

Alkyl Amines declared its Apr-June 2021 quarter result yesterday.

As you may notice below (or click to view the original), the net profit (last row) in Apr-June 2021 reduced from Rs 92.59 crore in the previous quarter to Rs 78.54 crore this quarter.

This was a decline of 15 per cent, primarily on account of the rise in the raw material costs as highlighted below.

While revenue from operations increased by only 2.3 per cent (from Rs 382 crore in March 2021 to Rs 391.8 crore, the cost of materials consumed increased by a staggering 19.6 per cent.

The increase in raw material expenses in turn ate into its operating profit margins (operating profit margins as shown below:

The question is: Was this unexpected?

To an analyst closely tracking this company, the answer is no. Take a look at the conference call transcript from June 2021, in which the management had already guided the rise in raw material costs — mainly crude and acetic acid prices.

Note that acetic acid is used as an input to produce acetonitrile, a key product of the company. Acetonitrile in turn is used as a solvent in the pharma industry.

Crude oil & its derivatives are used as an input in producing methanol, which in turn used in methyl amine.

Here’s management’s view on on crude prices impacting gross margins (for those who may not know, gross margin is gross profit divided by revenues. Gross profit is simply revenues minus raw material costs):

On acetic acid prices:

The acetic acid price rose by more than 100 per cent in a past few months, as mentioned by the management below:

And lastly, here’s management’s view on operating margins going forward.

On account of operating leverage benefits (costs remaining the same but revenues led by volumes increasing), however, the management does not expect the operating margins to fall to 18 per cent levels that the company witnessed earlier.

Source link | LinkedIn Profile | Twitter Profile

Also Read on FinMedium:  CESC Ltd DCF Valuation Excel Model and Intrinsic Value of Shares

Disclaimer: The opinions expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of the FinMedium or its members. The presentation of material therein does not imply the expression of any opinion whatsoever on the part of the FinMedium concerning the legal status of any company, country, area, or territory or of its authorities. For more info. please read our ToU & Privacy Policy here. If you have any concerns regarding this post, please reach out to our grievance officer Ghanisht Nagpal and drop a mail to editor@finmedium.com

Every Wednesday and Saturday, we send Info-Graphic and FinMedium Weekly Digest newsletters to our 25000+ Subscribers.

Join Them Now!

Harsh Vora

Harsh Vora

Harsh Vora is a proprietary investor & day trader with more than 10 years of experience in financial markets. He is a finance graduate from the Marriott School of Management, BYU and a public policy graduate from The Takshashila Institution, Bangalore, where he won the best academic performance award. Occasionally, he teaches economics to its students.
Please Share Now :)

Leave a Reply

Your email address will not be published. Required fields are marked *