Recommendation From Specialty Chemicals Sector
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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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GOOD CHEMISTRY TO GROW YOUR PORTFOLIO
Alkali Metals
HERE IS WHY
Positive outlook of chemical industry
Strong R&D capabilities
Strong customer base
Alkali Metals Limited (AML), incorporated in 1968, is a well-known name in chemical industry. The company manufactures products ranging from alkali metal derivatives, amino pyridines, tetrazoles, cyclic compounds and fine chemicals. Its products are sold to pharmaceutical and chemical companies for further processing and conversion into bulk drugs or any other form of end use. The company has three manufacturing units: Uppal (Unit I), Dommara Pochampally (Unit II) and JNPC, Visakhapatnam (Unit III). The company converted its Unit-1 into R&D facility and it is approved as an "in-house R&D facility" by the Ministry of Science & Technology, Government of India.
Industry Overview: The Indian chemical industry is the third largest in Asia and sixth largest in the world. Indian chemical industry is expected to double its share in the global chemical industry to 5-6 per cent by 2021. Also, the Indian specialty chemical industry is expected to reach USD 70 billion by 2020. A number of MNCs are focusing on India for their manufacturing hub due to lower cost of labour, availability of key raw materials and large consumer markets. The Indian government is planning to incentivize the chemical units set up with new technology catering to export markets to give boost to exports and, in turn, reducing the current account deficit.
Well-Established Customer Base: AML caters to the product requirements of both the domestic as well as international markets. Its major domestic customers are Rallis India, Granules India, Porus Drugs & Intermediates, Dr. Reddy’s Lab, Punjab Chemicals, TEVA API India, and Allied Chemicals. AML’s international clients include Allwin Asia Limited, Nihon Siberhegner K.K, Novasep Syntheasis, Euticals S.P.A and Teva Pantex Chemicals.
The company sold 1443 MT of finished products during 2016-17 as against 1610 MT in the previous financial year. AML is planning to expand and diversify the range of products in the coming years which will in turn increase the turnover and margins.
On the financial front, Alkali Metals Limited posted a 5.70 per cent rise in its revenue to Rs15.53 crore in the first quarter of FY18 from Rs14.69 crore in the same quarter of the previous year. The company’s PBIDT slumped by a marginal 0.65 per cent to Rs1.67 crore in Q1FY18. The company recorded a net profit of Rs0.26 crore in Q1FY18, up by 16.30 per cent on a yearly basis.
On an annual basis, the company posted a 20.77 per cent drop in its revenue to Rs58.06 crore in FY17 as against the revenue in previous fiscal. The PBIDT of the company declined 30.82 per cent to Rs6.87 crore in FY17 compared to FY16.
Future demand for specialty and fine chemicals is expected to grow at a good pace. AML has well-established infrastructure, in-house R&D capabilities and reputed customer base. The company expects to commercialize some R&D products and further implement various marketing strategies to counter the competition and increase its topline and bottomline. Considering all these, we recommend our reader-investors to BUY this stock.
