Balaji Amines Ltd: Research Report By Edelweiss

Phenomenal show – outlook robust with strong capex pipeline

Balaji Amines (BAL) posted record high results in Q3FY21 – consolidated revenue grew 72% YoY/39% QoQ to INR392cr (v/s est. 37% growth). Due to robust demand from pharma and agro-chemical sectors, both its standalone business and agrochemical manufacturing subsidiary, Balaji Specialty Chemicals (BSC), reported splendid numbers. In particular, Dimethyl Formamide (DMF) saw strong demand and price surge owing to the short-supply situation in countries (China and Saudi Arabia) that export to India. This, along with sustained price of Acetonitrile and improving profitability at BSC, helped BAL’s consolidated gross margin, which improved by ~600bps YoY/111bps QoQ to 52%. Consolidated EBITDA was up 174% YoY/59% QoQ to INR117cr, while EBITDA margin was up 1,110bps YoY/383bps QoQ to 30%. Consolidated PAT surged 220% YoY/64% QoQ to INR75cr (after minorities). We expect BAL’s strong performance to continue due to robust demand from pharma/agro sectors and capex pipeline. Maintain ‘BUY’ rating.

Record volumes in Base Amines business

BAL’s Q3FY21 volumes were up 34% YoY/22% QoQ to 28,353MT on standalone basis, primarily driven by Specialty Chemicals (up 60% YoY/55% QoQ). While volume growth for Amines was flattish, Amines Derivatives grew 27% YoY/9% QoQ. Higher volumes of DMF and DMAC were the key drivers, which resulted in Base Amines recording 67% YoY/29% QoQ growth in revenue to INR362cr. Blended realizations were up 25% YoY/6% QoQ to INR128/kg, while blended EBIT was up 87% YoY/14% QoQ to INR36/kg. With increase in acetonitrile capacity to 18-20TPD from Q1FY22 and ramp-up in available DMF capacity, we expect volume growth to continue.

BSC seeing consistent growth and improving profitability

Subsidiary BSC contributed INR57cr to BAL’s consolidated top line (up 78% higher QoQ). BSC recorded strong profitability, with EBIT at INR16cr, its best-ever contribution. EBITDA/EBIT margins stood at 34.1%/28.1% during the quarter along with higher prices of finished goods. BSC is seeing improved sales run-rate of INR12.5cr/month on the back of domestic and export demand (of EDA and DETA from China).

Confluence of strong demand and capex pipeline; Maintain BUY

We remain positive on BAL due to (a) continuous capex ramp-up, and (b) further announced capex plans that extend the company’s growth trajectory in a duopoly market. Accounting for these factors and higher-than-expected profitability in 9MFY21, we have revised our FY22/23E EPS estimates (post model roll-forward) upwards to INR80/INR96. We maintain ‘BUY’ with a revised target price of INR1,678/share, valuing BAL at 17.5x FY23E EPS.