Balaji Amines Opportunity


(vinay.navdhare) #81

During the last 3 years, the growth in pharma sector might have also aided the growth since it contributes close to 50-55% of the revenues.
Going forward, with pharma sector facing headwinds, it might also affect BALs earnings in near future. I could not find the contribution to its revenues from specific pharma companies to come to a particular conclusion.
At the same time, debt reduction and continuously improving margins make it interesting.

Disc: Invested at much lower levels and thinking about adding more.


(swapmane) #82

Any idea why one of the promoters has pledged 340000 shares???


(cool_gaurav) #83

Last Year -2016 pledge/total shares % was 38.20 and 2017- 1.05 % only. May be they are in process of getting released. I checked the AR-2017 and there is no mention of pledge shares under loan etc.


(swapmane) #84

I checked the information sent by the company to the BSE dated 15th march 2017, It says the promoter G.Reddy has pledged shares for personal reasons to SBI.


(KODURI APPA RAO) #85

NIce analysis. http://www.drvijaymalik.com/2017/10/balaji-amines-limited-equity-research-report-analysis.html#more


(django) #86

More or less good results.
Debt has further come down. Receivable days have increased a bit though.

http://www.bseindia.com/xml-data/corpfiling/AttachLive/662d230f-203f-4ad2-a3f9-2fc0328baf1e.pdf


([email protected]) #87

Hi Can you please let me know where did you find the receivable days have increased as I couldnt find that details in the pdf.


(django) #88

Rec. Days = Trade Receivables / Revenue x 365

You can search online for more info.


(django) #90

Good results from Balaji Amines
http://www.bseindia.com/xml-data/corpfiling/AttachLive/c3232463-f8b3-47f0-a4d0-62df9a90829b.pdf

However, I am not able to understand why the stock is down ~10% in last 2 sessions.
Any views?


(blueeyedinvestor) #91

Results not good…It improved only on last year basis because of low base effect…but on sequential basis which will be a good indicator the growth is muted…


(shunz) #92

Maybe because fii are selling . I see that pabrai also sold in previous quarter. No idea why


(django) #93

May be.
Pabrai has increased stake in Kolte Patil and decreased/exited from Balaji amines.


(shunz) #94

Yes. Though Am not worried pabrai sold. Just trying to understand why. Fundemantals havent deteriorated. They r adding capacity. Then why sell? Is there any corporate governance issue?


(rbhutoria) #95

Their competitor Alkyl has done a big expansion. This could put pressure on the margins for a couple of quarters. Also balaji is at optimal capacity utilization levels. Dont see big jump in volumes till new capacity comes on stream.


(JKS) #96

wanted to quote Vivek Mahajan’s (AB Money) read on Balaji, post his visit to plant (don’t conclude on the basis of web page title that it has nothing to do with Balaji)


""The other one is Balaji Amines. Again they understand the space in which they operate very well and the plant is in Sholapur. We recently went to Sholapur for the plant visit and meeting the management. They focused on Amines and derivatives. Rs 60 crore worth of capex has already gone on this and should take the turnover from something like Rs 670 crore last year to Rs 1100 crore next year.

Last week there were some positive developments. They have got 90 acre of land in Maharashtra and they have also got a mega project status award by the government. Without taking that into account, the top line should go up from Rs 670 crore to Rs 1100 crore while the EPS should be going up from Rs 26 to close to Rs 50. Again, this has a potential to go up by 30% to 40%""


(narenarora) #97

Did any body attend the concall on 14th Feb. Would be great if summary can be put up.

regards


(narendra) #98

Updates from management meet:
Overall sales has been good . Demand is bit slow presently but still good. Our expectation was much higher. Volume guidance for 20% growth with 20 % margins remains.

Selecting new product: First preference while selecting product is considering import substitute potential in India, as certain chemicals predominantly imported from outside. we can produce and supply it domestically. Other important thing is based on availability of raw materials. We should be able to source raw material adequately and easily.

Limited competition /single competitor in products: Mainly it’s because of technical difficulties associated with manufacturing these chemicals. It’s not easy to scale up this business unless you have good technical team backup and R&D to integrate the products either backwards or forward.

China factor: almost 30% of china capacity is closed due to pollution issue. This has helped us to improve sales/margins. Don’t think new players will enter due changes happened in China. Chinese will come back in one or two months with rebuilt capacity but at increased cost of production. They had lot of advantages in exporting India with licence and few other things which are difficult now.

Pharma companies are major customers: More than 50% revenue from them. Not witnessed any drop in demand due to pharma headwinds. All our products are used in manufacturing of essential drugs like metformin which will be manufactured by pharma companies despite pricing pressure/price control. Overall witnessing good demand. All major pharma companies are our customers.

Agrochemicals: we have become preferred first/second partner for them after china problem. Govt plan of imposing ban on import of agro intermediates has not happened . don’t think it will happen as well as situation has changed with reduced china capacity. Other customers like Thermex for water treatment chemicals and venky/suguna for choline chloride which is used as animal feed.

NOC status/environmental clearance: it may take another month. File is still with state govt soon it should reach central govt and then we will get clearance certificate to operate on new additional capacities. Total six companies are facing this problem in industrial area which is expected to clear soon.
Meeting revenue target without NOC/additional capacities: trying to debottleneck certain existing capacities and improve production. We have been doing it since last two quarters to bring operating efficiency . Certain products like DMAHCL using existing capacity production has been increased from 18KT to 22KT. DMA capacity has been increased from 5tons/day to 20 tons/day.

DMF: we are using 30% capacity only. Witnessing good demand here. Utilisation will go high. Antidumping duty will be likely in another few weeks. This should help to achieve our sales target.
Morpholine and Acetonitrile: capacity is ready. Waiting for NOC.

PVPK-30: we are selling more of technical grade. Domestic price increased. Exports we are getting still high price. We are ready to supply at less price to Indian pharma companies. But they are not ready to accept but importing at higher price.They did not want undertake lot of paper work required to source material from new supplier for existing product. For new products they are accepting Balaji as supplier and sourcing from BAL.

Methylamines: No pressure on prices. Don’t think that competitor(alkyl amines) has started full production. Methylamines as such in short supply in India
Ethylamine’s: same price has been maintained…no shut down for catalyst change as done three years back.
Choline chloride: 500 tons/month…18 to 20 tons/day…raw material is corn flake which is easily available. Supplying to poultry players like Venky.

New R&D: We have done research on few products on crispovidine/steriods. These are products which comes under pharma regulation/compliance. The working culture with these regulated products is different. It’s not easy to change /adopt to regulatory product work culture.

REACH registration: Reach registration is for export to EU. Morpholine reach registration is done. we have done some work on acetonitrale,EPA and DMAC for reach registration and waiting to further proceed. Cost of reach registration varies per each product. Even if our customers registers for REACH we can export through them.

Balaji speciality chemicals: 55% stake.3 products will be launched. Will start operations by Oct end. EDA 39000 tons is imported. Piperazine 8kt is imported…we are going to produce 3 to 4ooo tons. DETA domestic demand is small but outside demand is very good… for all three products we are the only producers in India. Present year will do around 100 Cr sales. At present prices we should be able to do more than 400Cr by next year. Going ahead we will merge both in few years.

MEGA project: basically if you are going it invest for more than 250 Cr in a project it qualifies as Mega project. The advantages is that govt will refund 80% of excise duty amount over period of few years. Now with GST he explained something how this refund will work out which I couldn’t understand . Mega project will also come in the same area where environmental clearance issue is going on but all these clearances will be done in another six months for upcoming mega project.

**Raw material:**Methanol is around same level (Rs30). Cost of raw material in china will be higher by 25$ per ton compared to India. Methanol prices contract have changed to 50% based on spot prices remaining 50% long term contract. Average cost of spot price lower compared to yearly contract. Mainly imported from Saudi. It’s been imported indirectly from Iran through Saudi. No impact on raw material due to trade restriction imposed on Iran. Ammonia price slightly reduced recently. Ethanol has been procured have adequate stock?5000 tons…around Rs.30 /lit. It is imported also.

Debt: Has been reducing and will be zero soon. working capital loan remains with interest of around 8.5%. long term loan interest is around 10%.Debt may increase again with mega project to around 150Cr by Fy20.

Hotel: Icould discuss with manager about hotel as I stayed theere. Total 129 rooms including suits with one large banquet hall of 8000 sq feet and 3 conference rooms. Being in chemical industry with depreciating assets it’s important to have an asset like hotel. Initially invested in 110 Cr which is valued higher now. Many financial institute are ready to offer credit at reduced rate of interest based on hotel property. Hotel interest will be nil by year end. Certain measures have taken to save power cost. Its in cash profit. Net level is not positive due to depreciation. Only 5 star hotel in Solapur. Being in tier 3 city room rent cannot be high. Average room rent is around 3500/day.Tie up with local banks/lic/other corporates to increase our occupancy. Jan /Feb is peak season. Solapur is known for pilgrims. Don’t expect them to be my customers. Only few will come and stay . Initially we use to run just 20 to 30 rooms. Gradually occupancy increased to more than 50%.Tie up with all online players like make my trip/bookings.com. Sometimes we have to reduce room rent to increase occupancy to cover the fixed costs.

Plant visit: I could visit only unit1 due to time constrains. They produce ethylamaines/methylamaines and derivates like DMU/DMAE/DMAHCL/DEAE/choline chloride at unit1. Single unit has been divided into 10 plants for various products. Unit head explained various plants with product capacities in unit1. Storage areas of raw material/process /end product storage…etc. One product DMAE he explained the whole process starting from raw materials/various stages /end products/automated continuous process of their plant. It will be beneficial if plant runs continuously, otherwise shutting down/restarting itself will take two shifts. Because of continues /automated process their manpower requirement is also. Only 3 persons /shift will run the entire DMAE plant. Raw materials required for ten days of plant operation is stored.

I have missed asking few important questions with management due to limited time. Hope to get one more opportunity.
Discl:2%of portfolio.


(Shiv Kumar) #99

very informative. management’s interaction gives a lot of confidence especially since they have walked the talk for many years.

disclosure:holding


(narenarora) #100

Hi,

Thanks for the update. When did you visit the company.

The environmental approval is delayed since more than a year. Could you gauge the real issue why it is delayed.

regards

narendra


(narendra) #101

Q1FY19 concall highlights:
Revenue increased by 30% to 260Cr v/s 200Cr in q1fy18. Revenue target for FY19 is 1100 Cr(without considering subsidiary)
Total volume sold in Q1: 21,700 MT growth of 18%. Target is to reach 1lac MT for the year compared to 80,000MT in fy18.
EBITDA up by 44% to 41 cr…ebitda margins at 22.8% aided by low cost inventory of methanol.
Net profit is 39 Cr up by 48% V/S 22.7 Cr Q1FY18.

Exports: Up by 91% to 55.8 Cr v/s 29 Cr yoy contributed by all products. China problem with environmental issue is contributing to export growth. Exports may contribute to 25 to 30%(275 Cr) of overall sales in fy19.

DMF: current price is around Rs.90. We have benefited for two month due to short supply from China. They have restarted production and quoting the price at Rs 81. At current raw material price to make meaningful margins price has to around Rs:90 to 94. Last year we have sold 9k MT of DMF at avg price of 90.Rs . Antidumping duty on DMF is expected in two weeks. Final hearing from Govt authorities is over. How much % antidumping duty Govt going to impose is important,as govt is considering methanol as raw material against our claim of considering DMA as raw material.

Raw material: Methanol is presently at Rs 31.Its been stable from last few months. We have passed on price hike to customers. Methanol price may go up or down by 3 to 4 Rs depending on Iron issue. If the Govt signs agreement regarding payments to Iran for crude along with methanol price will come down. Balaji imports around 5k to 6k tons per month, most of it(4k tons) from Saudi for which we have annual contract. Rest 1 or 2k tons is through a local trader importing from Iran. Qatar and Malaysia are other courtiers supplying methanol at higher price. Payments to the raw materials imported from Iran is problematic now. Govt should make some arrangement by August end. If it doesn’t happen margins may impacted for short time till customers accepts price hike. Passing on these price hike is not difficult as our products cost is not much for end users like pharma.

NOC/capacity expansion: still to receive NOC. Expected in three weeks. Concerned file is till with state govt which will taken up and forwarded to Central govt for final clearance. But this is not impacting us. We already started the production of Morpholine from expanded capacity of existing plant. Will produce additional 7k tons this year. Present price around 160. We have done trail production of Acetonitrile around 3 tons. while NOC is pending we are trying to get lab grade of acetonitrile by installing new equipments. With lab grade acetonitrile margins will be better. Acetonitrile present price around 140.

China methylamines factories which are closed due to environmental issue may recommission in 6 months. Their prices will at par with Indian due to additional investment made for environmental compliance.

Subsidy: Balalji speciality: will start production from Oct. Expect 100 Cr revenue this year from BSL. Margins may be less in the beginning which will improve by next year.

Mega project: papers have been submitted. Will start work after NOC. may be from December…first product will be MIPA…methylamines and IPA next. Around 300 to 400 Cr of capex is expected in first phase which will take two years. Maintenance capex is around 4cr/year for company .
Debt: term loan should be nil by December. Around 6 cr of loan pending on Hotel. We have to barrow around 150 Cr for mega project.