BUY on Balaji Amines - Volume and margin surprise positively! - HDFC Securities

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

Our BUY recommendation on Balaji Amines with a price target of INR 785 is premised on (1) robust demand from pharma and agrochemical industry that comprise 77% of its revenue mix, and (2) faster-than-anticipated recovery in plant utilisation. 1Q EBITDA/APAT was 41/71% above our estimates, attributable to (1) 10% higher sales volumes and (2) 28% higher per-kg EBITDA.

Volumes and realisation: Total sales volume was 18.31kt (-9/-17% YoY/QoQ). While volume declined due to lower capacity utilisations, per-unit gross margin improved by 28/10% QoQ to INR 54/kg on the back of a better product mix and stable raw material costs. The tabulated per-kg realisation from the Amines segment comes to INR 115 (+2/10% YoY/QoQ). Back calculated per-kg EBITDA improved by 52/15% YoY/QoQ to INR 28. Utilisation for Apr/May 2020 stood at 70/80% but bounced back to pre-COVID levels from June.

Margins: Gross margin stood at 47.0%, +804/-122bps YoY/QoQ. EBITDA margin jumped by 823/153bps YoY/QoQ to 24.3% (HSIE 21.9%). We believe that the current elevated level of EBITDA margin is not sustainable and expect a correction to 19.6/21.3% in FY21/22E.

Takeaways from the earnings call: Production of Acetonitrile will double from the current 9 ton/day to 18, post a de-bottlenecking drill from Nov-2020. BLA expects Acetonitrile prices to remain elevated as its demand from pharma customers continues unabated, and the synthetic manufacturing process that is employed by the company produces a superior quality product. Greenfield project, INR 800mn of the budgeted INR 1.5bn has been spent; expected commissioning is by 4QFY21. Balaji Specialty Chemicals (BSC) revenue was unaffected by the pandemic as the end-user industry is agrochemicals.

Change in estimates: We raise our FY21/22E EPS estimate by 2.7/3.9% each to INR 36.6/47.8 to factor in the 1Q performance, and in anticipation of (1) faster-than-estimated pick-up in revenue from BLA's subsidiary BSC, (2) sustainable demand for Amines from pharma and agrochemical customers, (3) spike in demand for (high-margin) Acetonitrile from the pharma sector.

DCF-based valuation: Our price target of INR 785 is based on Jun-22E cash flows (WACC 10%, terminal growth 3%). The stock is trading at 14.1/11.6x FY22/23 EPS.

Shares of BALAJI AMINES LTD. was last trading in BSE at Rs.718.35 as compared to the previous close of Rs. 672.3. The total number of shares traded during the day was 90484 in over 4229 trades.

The stock hit an intraday high of Rs. 753.9 and intraday low of 662.1. The net turnover during the day was Rs. 65192939.

Source : Equity Bulls

Keywords