<p>Despite operating in a niche business, Alkyl Amines Chemicals has created a strong moat</p>

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Businesses operating in a niche market with good economics make very good investments. Identifying such niche businesses can be very rewarding for investors. One such company is Alkyl Amines Chemical (AACL), which is into manufacturing and marketing of aliphatic amines, the industry which has typical characteristics of a profitable niche business.

Globally, it has been observed that the alkyl amine industry is oligopolistic with two-three producers catering to the majority of demand in a region. Eastman and BASF are the largest players globally with the top six companies controlling around 50% of the global capacities. As with many chemicals, China is the largest consumer and producer of aliphatic amines accounting for almost 60% of the global production. In India, AACL and Balaji Amines enjoy a combined share of more than 90% with balance being fulfilled by Rashtriya Chemicals & Fertilizers, and imports.

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There are multiple entry barriers because of which the industry is very concentrated. The process of producing aliphatic amines is a complex one and the know-how of the process is closely guarded with a few producers. A new entrant will have to make a significant investment in research and development (R&D) to develop a meaningful product offering. Further, setting up amines facility is a capital-intensive undertaking with fixed asset turns hovering in the range of 1.5-2x. Being a chemical set-up, environmental clearances

This story is from the April 12, 2019 edition of Outlook Business.

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