Balaji Amines Opportunity


(TCX) #21

Hi Satnam,

Perhaps you have not done enough diligence on the stock story.

  • Thefocus on in-house R&D and proven success is in the market for the specialty chemicals developed (NMP, GBL, Morpholine, P2, PVK-30) -5 key products in last 4 years - is a key differentiating factor for BAL.
  • Strategic backward integration for NMP (GBL) and forward integration for PVP (2P) should help augment Balaji Amine’s quest for cost leadership.
  • Globally only 2 manufacturers for NMP GBL -BASF & Huntsman

(Excel Monkey) #22

Hi TCX,

as I understand that theChinesehave destroyed the heavy /specialty chemto API industry across the world

Chineseare masters of reverse engineering as well as innovation

to give you an example Chinese were unknown to windturbinetech just a few years back. todays they are the leading producer of wind turbine

and yes our own local star Suzlon looks like a minnowin-frontofChinese

Regards,

Excel

Thefocus


(TCX) #23

Yes, the Chinese threat can be overwhelming. However the Chinese have not been able to do much where the technology is closely guarded or the quality requirement is stringent.

Medical Sensors - the Chinese are the largest players in the unorganised sector, but they have not been able to break into it after trying for last 15 years or more. Only an Opto Circuits has made the grade there after the biggies

NMP, GBL, Morpholine and now PVP-30 are speciality chemicals where the Chinese have not been able to breakthrough. Same can be said for ATBS of Vinati.

But the threat is there and the tables can be turned, which we should always keep watch out for. At the moment though that threat is far from real, in my opinion.


(Ravenrage) #24

Chinese goods are of low quality . They won’t be able to fool people time and again . Also China will be forced to increase the workers’ wages over time , which will be a big pressure on the Chinese .


(Excel Monkey) #25

Today I checked the Methanol prices (akeyrawmaterialfor Balaji) has run up since Oct from 290 levels at 390 levels andstabilizingat 350 levels.

I think Oct-Dec and Jan -Mar quarters would be relatively bad

this is because methanol was the only petchem which did not recovered after 2008 crisis now it seems to catching up with other petchems

Chinese have already starting dumping Balaji’s products

http://www.livemint.com/2010/12/13185348/Govt-starts-chemical-dumping-p.html

Govt starts chemical dumping probe from China, EU, US

New Delhi: The Government has initiated a probe into alleged dumping of morpholine - a chemical used in crop protection and rubber industry - by exporters from the EU, US and China in the Indian markets.

The Directorate General of Anti-Dumping and Allied Duties in the Ministry of Commerce and Industries started the investigations on a complaint by Maharashtra-based Balaji Amines Ltd last week.

The DGAD said it has âsufficient evidenceâ of dumping of the chemical from the EU, US and China.

âThe Authority (DGAD) hereby initiates an investigation into the alleged dumping, and consequent injury to the domestic industry…,â it said.

Morpholine is an extremely versatile chemical and is used by rubber industry and drugs industries. It is also used in crop protection agents, dyes and optical brighteners. Besides, it is also an important chemical for the toiletry and cosmetic products manufactures.

The probe would look into the imports between July 2009 and June 2010.

On the recommendation of the DGAD, the Revenue Department imposes anti-dumping duty.

India has slapped the restrictive duty on several items such as yarn, fabrics, certain stainless steel products, auto parts and chemicals imported from various countries.

A country initiates anti-dumping probe to see whether its domestic industry has been hurt due to a surge in below-cost imports. As a counter-measure, it imposes duties under the multilateral regime of the WTO.

Such duties ensure fair trading practices and create level-playing field for domestic producers vis-a-vis foreign players resorting to dumping.


(Ayush Mittal) #26

Hi Satnam,

Thanks for raising the concern. I had also come across the anti-dumping duty article on morpholine but as morpholine is not their main product, I didn’t look much into it.

Will keep a tab.

Regards,

Ayush


(Hitesh Patel) #27

Balaji has come out with very good numbers for q3 fy 11.

Sales up from 63 to 96 crores y-on-y

Net profit up from 4.2 to 8.7 crores y-on-y

9M data:

Sales up from 187 to 266 crores

Net profit up from 16.8 to 25 crores.

9M eps (not annualised is 7.7 — abhishek seems to be bang on target)

At a market cap of 137 crores, this looks very attractive based on valuation perspective.


(Donald Francis) #28

Thanks Hitesh.

These are good results. OPM has been gradually trending up. Q3 is ~19%. If you normalise it seeing previous qrs, FY11 OPM will be 18% plus. Similarly NPM has been trending up, Q3 is ~9.2% . Q2 was higher at 10.95% but they seem to have paid lower taxes at 17% tax rate, which will have to be paid higher in Q4.

Balaji sales is closely linked to capacity. Sales generally keep pace with capacity and FY11 this trend has continued. So Q4 should see Net Sales at similar levels as Q3 ~96 Cr.

If debt has not gone higher (Q3 results didnt declare BS portion), assuming similar depreciation & interest costs as Q3 and higher tax outgo, NPM will still be ~8.75% or so.

That implies a FY11E EPs of 9.8 to 10, implying a PE of 4x. This for a company growing sales at 40% and earnings at over 50%.

FY12 should be better? Ayush, Gaurav, Nagabrahma please comment.

For me this looks very attractive, a Valuation grade of 9.


(Excel Monkey) #29

any chemicals expert

should one classify this one as a commodity chemicals company or aspecialtychemicals company?

if it graduates into aspecialtychemicalscompany it could command least half the multiple ofthat of BASF

but I suspect this one is aspecialtychemicals company


(Ayush Mittal) #30

Yes, results are good and valuations are attractive.

Only negative - increasing debt.

Regards,

Ayush


(Donald Francis) #31

That and the fact that Promoter shares pledged is more than 36% of total promoter shareholding. There has been no attempt at bringing that down.

Rgds

Donald


(Donald Francis) #32

_Thanks for bringing this up repeatedly, Satnam:).__Its a key question …I did some digging… Have a look._perhaps may help us separate the odds better!

The specialty chemicals are NMP, Morpholine, GBL, 2P and PVP-K30. GBL is a key ingredient for NMP and 2P for PVP-K30, so they find only captive use currently. All others are Amines & their derivatives.

In FY10 revenue mix for NMP was ~83 Cr and Morpholine ~15 Cr . That’s 98 Cr of 262 cr or ~37% of Sales.NMP capacity is being ramped up to 22000 tpa by Mar 2011 and Methyl Amine capacity is also set to double to 40000 tpa by June 2011. However about 70% of methylamine produced today is consumed inhouse for captive use. (NMP needs Methyl amine).NMP and Morpholine realisation/kg is 2x Amines.

Given all above, it looks pretty certain that share of specialty chemicals is going to outstrip Amines & derivatives in FY12. Realisations & therefore margins should stabilise at higher levels.

(Not considering PVP-K30 which is reportedly 3x NMP realisations and a game changer should that happen in 2-3 years; Management would be working hard at some tie-ups to ensure FDA/EU approvals come in faster, as the capacity is lying idle)

aspecialtychemicals aspecialtychemicalscompany ofthat aspecialtychemicals company


(Siddharth Shukla) #33

Haven’t really looked at detail at this company(is in my too hard to understand basket or out of COC) but what is with the pathetic dividend payout?? That kind of spoils the valuation for me coupled with the fact that it is about 4 times above its lows in Nov 2008. i guess one could wait for more correction.


(G.V. NAGA BRAHMA) #34

Results are absolutely good.

See the interview of Mr. Pratap Reddy to moneycontrol.com. He says they should do around 350-360Cr topline and 40Cr of NP. Even if they do around 35Cr of Net Profit, EPS would be more than Rs.10/-.

NMP new capacity is already on stream

From his interview it seems that they could able to sell some quantity of PVP K-30


(Hitesh Patel) #35

Anyone with any idea about the status of regulatory approvals for PVP K-30?

And can they supply this product in India without the regulatory approvals? I guess approvals might be easy to get in India than in foreign companies.

Any contribution of PVP K 30 in the dec qtr topline? That should give us some idea about the progress of the product.

In my view, current market price of 42-43 does not factor in any significant development on the PVP K 30 front.

Technically the stock seems to be standing tall – (till now-- touch wood) well above its 200 day exponential moving average, which is currently at 39.62 levels. I have seen very few stocks which have managed to stay well above their 200 dema in the current carnage-- few that come to mind are some surprising names like gsfc (which has given excellent results), mirza international (red tape shoes fame) and balaji amines and others like titan, zydus, page etc. These are among the ones I looked at recently. There may be others which I may not have seen.


(Donald Francis) #36

Balaji Amines is becoming more attractive by the day. With FY11 EPS between 9-10-11, this is available at 4x or less at 36-37.

Have bought some more today…and will be more than happy to accummulate more at lower levels…


(Abhishek Basumallick) #37

Again, I bought this yesterday as well :slight_smile: And planning to add more on dips.


(Hitesh Patel) #38

:))

Bought yesterday at avg price of around 37. I posted the chart of balaji amines on TED and there was a very low risk entry point with bottoms around 35.50 and 36 suggesting some sort of double bottom formation.

Today there seemed some buying interest in the stock and went well above 38.50. I think if markets dont fall too much from here. this could rise some more because people follow the herd mentality, buying once the stock has moved around 10-15% and showing momentum and not when it is available at bottom levels.

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link to chart:

http://www.theequitydesk.com/forum/forum_posts.asp?TID=2980&KW=balaji Link: http://www.theequitydesk.com/forum/forum_posts.asp?TID=2980&KW=balaji


(Abhishek Basumallick) #39

Not really sure why it tanked more than 10% today after the results. Annual results were reasonable. Quarterly was not that good, mainly on account of higher taxes.

Added some more today at 44.


(Ayush Mittal) #40

Hi Abhishek,

The reaction must be due to high expectations. Every analyst used to come on CNBC over the last few months and recommend Balaji for a target of 75-80 :slight_smile: While a weaker qtr was coming :slight_smile:

Interestingly the provision for tax seems to be on a much higher side than the regulatory needs.

Regards,

Ayush