Balaji Amines Limited (BAL), set up in 1988, is a leading manufacturer of Aliphatic Amines. It specialized in manufacturing Methylamines, Ethylamines and derivatives of them. It also operates a 5 start hotel in Solapur – Balaji Sarovar, the only 5 star property in the city. The company posted decent sales growth of 16% for the quarter at Rs 193.1 cr despite high methanol prices (which impacts the volume) and Ethylamine plant shut down (for 20-25 days, was shut down after 3-4 years). Volume growth for FY17 was around 10-12% against our expectation of 20%. Methanol prices have remained on highed end throughout the year (and especially in Q4) which we believe has deferred the volume. However methanol prices have corrected since April and hence we expect some of the volumes to come back during the year. EBITDA margins improved to 21.3% in FY17 from 20.3% in FY16. Higher EBITDA and lower interest cost led to 40% jump in PAT to Rs 85.6 cr.
The company has recently undertaken expansion for Morphaline and increased capacity from 3000 MT to 10000 MT with capex of Rs 25-30 cr, funded by internal accurals. The company is awaiting the environmental clearance soon for it before commencing the operations. Morphaline is mainly used in water and rubber treatment plants. Currently, there are only 3 players worldwide, including BAL, excluding Chinese players. India’s local demand is 600 ton/month out of which BAL is supplying Rs 200 ton/month. With the increased capacity the company would be able to substitute imports. Till now, imports of Morphaline used to enjoy anti-dumping duty however recently being removed, still management believes that without anti-dumping also, BAL would be competitive enough to garner market share from other players including Chinese manufacturers.
Greentech – its loss making subsidiary has been merged with the company and all the operations have been stopped in it. This would help the parent company in claiming the tax benefits on Greentech’s acuumulated losses.
The DMF has shown increased traction and the company said the product has started contributing marginally to the bottomline. The management remains confident of getting anti-dumping on it soon. As and when it happens, it will boost the company’s volumes and margins further as the company continues to incur fixed costs on it.
The company is expecting environmental approval for Acetonenitrile by month end.
Hotel business is continue to remain steady
Valuation & Recommendation
For FY17-19E we expect the company’s sales to grow by 16% and PAT by 24% (as interest cost is likely to come down and with no major capex lined up depreciation is likely to be stable at current levels). BAL is leading amine player and enjoys handsome market share in its basket of products. It is consistent dividend paying company. We maintain our positive outlook given the improvement in ROCE and ROE with positive free cash flow. We recommend BUY on the stock for price target of Rs 485 (12x FY19E)
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