BUY on Balaji Amines - Well-rounded performance! - 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 1,000 is premised on (1) robust demand from pharma and agrochemical industry that comprise 77% of its revenue mix, (2) ramp up in BSCL's production, (3) doubling of methylamines by FY24, and (4) production linked incentive scheme that provides the right tailwinds for long term volume growth. 2Q EBITDA/APAT was 25/44% above our estimates, mainly attributable to a higher-than-anticipated realisation and better product mix.

Volumes and realisation: Total sales volume was 23.15kt (+8/26% YoY/QoQ). Along with the spike in volumes, per-unit gross margin also improved by 27/6% YoY/QoQ to INR 57/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 121 (+15/5% YoY/QoQ) as against our expectation of INR 112. Back calculated per-kg EBITDA improved by 41/8% YoY/QoQ to INR 30.

Margins: Gross margin stood at 47.5%, +314/58bps YoY/QoQ. EBITDA margin jumped by 503/60bps YoY/QoQ to 24.9% (HSIE 21.5%). We believe that the current elevated level of EBITDA margin is not sustainable and expect a correction to 23.1/23.2% in FY21/22E.

Takeaways from the earnings call: Production of Acetonitrile will double from the current 9tpd to 18, post a de-bottlenecking drill from Nov-2020. On the Greenfield project, INR 1.05bn of the budgeted INR 1.5bn has been spent; expected commissioning is by 4QFY21. Board has approved to set up a separate plant for Methylamines/DMF with a capacity of 40- 50kTPA/30kTPA under Greenfield phase-II project with an estimated investment of more than INR 2bn. Balaji Specialty Chemicals should clock in a net profit from 3QFY21; current monthly revenue run rate is INR 100- 120mn.

Change in estimates: We raise our FY21/22E EPS estimate by 15.9/8.7% each to INR 42.5/52.5 to factor in the 2QFY21 performance, in anticipation of (1) better product mix of high-margin speciality products, and (2) continuation of high realisations for Acetonitrile and DMF.

DCF-based valuation: Our price target of INR 1,000 is based on Sep-22E cash flows (WACC 10%, terminal growth 3%). The stock is trading at 15.7x FY22 EPS.

Shares of BALAJI AMINES LTD. was last trading in BSE at Rs.807.05 as compared to the previous close of Rs. 822.6. The total number of shares traded during the day was 4477 in over 754 trades.

The stock hit an intraday high of Rs. 859.75 and intraday low of 800.2. The net turnover during the day was Rs. 3663391.

Source : Equity Bulls

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