Balaji Amines - Robust performance - HDFC Securities

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

Our ADD recommendation on Balaji Amines (BLA) with a price target of INR 3,805 is premised on (1) robust demand from pharma and agrochemical industry that comprises 77% of its revenue mix; (2) ramp-up in BSCL's production; (3) doubling of methylamines by FY24; (4) capacity addition of acetonitrile and taking up the capacity to 25.5ktpa by FY23; and (5) production linked incentive scheme that provides the right tailwinds for long-term volume growth. Q1 EBITDA/APAT were 17/22% above our estimates, owing to lower-than- anticipated raw material cost, lower-than-expected other expenses, lower-than- expected finance cost, and lower-than-expected tax outgo.

Volumes, realisations and margins: Total sales volume was 22kt (+20/-12% YoY/QoQ). The tabulated per-kg realisation from the amines segment comes to INR 177 (+54/20% YoY/QoQ). Back calculated per-kg EBITDA improved by 86/18% YoY/QoQ to INR 52. EBITDA margin remained healthy at 29.2% (+493/-17bps YoY/QoQ) on the back of a better product mix, higher price realisations across most of the products, and increase in operating leverage due to surge in volume offtake.

Con call takeaways: (1) The new plant of ethylamines at Solapur has achieved capacity utilisation of over 90% in Q1FY22 itself. This plant has led to a lower cost of production due to a new technology adopted by the company. (2) The construction of a di-methyl carbonate (DMC) plant is ongoing, and BLA expects it to commence operations by the end of FY22. (3) Capex of INR ~0.7- 0.8bn has been planned to set up an additional acetonitrile plant having capacity of 50 tonnes per day at the 90-acre greenfield project (Unit IV). This plant will get commissioned in FY23. (4) BSCL recorded 1,500 tons of average production per month in Q1. Non-agrochemical clients constituted about 40% of total sales of ethylenediamine (EDA) in Q1, up from about 10% in earlier quarters.

Change in estimates: We raise our FY22/23E EPS estimates by 13.3/12.7% each to INR 90.5/103.3, to factor in a higher realisation for DMF, offset by an increase in the key raw material prices such as methanol and ammonia.

DCF-based valuation: Our price target is of INR 3,805 (WACC 11%, terminal growth 5%). The stock is trading at 33.3x FY23 EPS.

Shares of Balaji Amines Ltd. was last trading in BSE at Rs. 3410.15 as compared to the previous close of Rs. 3403.7. The total number of shares traded during the day was 6886 in over 1075 trades.

The stock hit an intraday high of Rs. 3450 and intraday low of 3332.65. The net turnover during the day was Rs. 23443848.

Source : Equity Bulls

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