BUY on Balaji Amines - Higher margins drive profitability - HDFC Securities

Mr. Nilesh Ghuge and Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities.

Balaji Amines (Q4FY20 Results Review): Higher margins drive profitability. BUY
(TP Rs 560, CMP Rs 460, MCap Rs 15 bn)

Our BUY recommendation on Balaji Amines with a TP of INR 560 owing to (1) Robust demand from pharma and agrochemical industry that comprise ~70% of its revenue mix, and (2) Faster than anticipated recovery in plant utilisation as demand bounces back post the Covid-19 pandemic.

View on the result: Both EBITDA and APAT were 40% above our estimates largely due to better sales mix. Higher sales volumes of high margin amines derivatives and specialty products has resulted in better gross margin of 48.2% (est. 44.4%). Besides, sales volumes were 4.7% more than expected.

Volumes and realisations: Amines sales volume was 22.15kt (+3/5% YoY/QoQ). Tabulated per kg realisation from the Amines segment come to INR 104.3, (-2/+2% YoY/QoQ). However, back calculated per kg EBIT improved by 9/15% YoY/QoQ to INR 22.3 (-4.1/-3.4% YoY/QoQ).

Margins: Gross margins stood at 48.2% (vs. our estimate of 44.4%), -256/212bps YoY/QoQ. EBITDAM jumped by 255/310bps YoY/QoQ to 22.7% (est. 18.1%). For FY20, GM/EBITDAM stood at 44.4/19.6%, down 67/79bps YoY. Improvement in sequential EBITDAM was on account of increase in volume offtake and higher price realizations largely across all products, increase in operating leverage and benign raw material prices.

Outlook on consolidated EBITDA: We expect consol EBITDA to improve by 6/24% in FY21/22 led by (1) Gradual rise in utilization of BAL's subsidiary, Balaji Specialty chemicals (stake 55%), post its commissioning in 2HFY20 (2) Sustainable demand for Amines from Pharma and Agrochemical customers (70% of customer mix), albeit lower demand from other customers in 1HFY21 owing to Covid-19 (3) Anticipation of sustainability of the current elevated prices of Acetonitrile that will continue to push EBITDA upwards.

Outlook on margins: Current levels of Gross/EBITDA margins seem sustainable in FY21/22 led by subdued RMC and superior margins for Acetonitrile. We expect gross margins of 43.5% in FY21/22 vs. 45.1% in FY20 and EBITDA margins of 18.6/20.2% vs. 19.3% in FY20.

View on the consolidated balance sheet: BAL's cash jumped 2.7x YoY to INR 206mn, in turn leading to a 10% YoY dip in Net debt to INR 1,851mn. Consequently, Net Debt/Equity and Net Debt/EBITDA reduced marginally to 0.3x and 1.0x vs. 0.4x/1.1x in FY19.

Change in estimates: We raise our FY21/22 EPS estimate by 8% each to INR 35.7/46.0 in anticipation of (1) Better realisation, and (2) Subdued RMC.

DCF based valuation: Our TP is INR 560 based on Sep-21E cash flows (WACC 10%, Terminal growth rate 3.0%). The stock is trading at 12.9/10.0x FY21/22 EPS.

Shares of BALAJI AMINES LTD. was last trading in BSE at Rs.450.25 as compared to the previous close of Rs. 459.4. The total number of shares traded during the day was 15144 in over 1018 trades.

The stock hit an intraday high of Rs. 478 and intraday low of 447. The net turnover during the day was Rs. 7035830.

Source : Equity Bulls

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