Balaji Amines Opportunity

Borrowings are up from 140crs to 190 crs inspite of capital work in progress increasing from 123 to 270. Thus most of the capex is being funded by internal accruals.

Results are flat.

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https://www.bseindia.com/xml-data/corpfiling/AttachLive/bd78215d-5da1-4305-8764-2974e7fe14f3.PDF

Management Commentary:

Main highlights:

  • They are yet to receive consent to operate confirmation for BSCL (specifically for BSCL only). Expect to start BSCL in month of June.
  • Downwards guidance of BSCL’s revenue contribution from 300 cr to 100-150 cr.
  • Started diversifying the Methanol supply away from Iran. 50% of methanol supply now from non-Iran sources. Will continue the trend to mitigate the risk from Iran.
  • Clients delaying order placements due to uncertainty of supplies and RM price volatility
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Is that the reason Alkyl Amines near 52 week high while Balaji Amines languishing?

Global alkyl amines market is expected to grow at a rapid pace over the next seven years. Increasing solvent consumption from end-use industries such as infrastructure and automotive is expected to drive the overall market from 2015 to 2022. Diversified product line used across numerous applications is expected to benefit the alkyl amines consumption.

Major product includes methylamines, ethylamine, propylamine, butylamines and cyclohexylamines. Methylamines dominated the global product in terms in demand over the past few years and are expected to continue its dominance over the forecast period. Propylamines are expected to witness higher growth over the forecast period. Surge in demand for propylamines from applications including agrochemicals, water treatment, and pharmaceuticals is expected to benefit the market growth.

Solvents are an extensive end-use alkyl amine industry. Major alkyl amine based solvents include dimethylformamide (DMF), N-methylpyrrolidone (NMP) and dimethylacetamide (DMAC). DMF is a widely used solvent in industrial applications.

Besides solvents, increasing demand for agrochemicals in the form of pesticides is expected to have positive impact on the global market over the forecast period. Other applications include rubber processing, water treatment, feed additives, paper chemicals and pharmaceuticals.

Stringent government regulations regarding overexposure of methylamines which result in harmful effects on human skin may cause major hindrance to the overall market growth. Transporting alkyl amines is hazardous and involves high maintenance charges. Volatile raw material prices and foreign exchange fluctuations may have direct impact on the overall market growth. Major raw materials include ethyl alcohol, ammonia and industrial gases.

Increasing manufacturing capacities coupled with innovation in pharmaceutical application is expected to provide new opportunities for market participants. Recent report by U.S. researchers revealed that alkyl amines exhibit insulin-releasing properties in in-vivo and in-vitro. This characteristic is expected to be employed to manufacture improved anti diabetic drugs in place of mafenide. Such innovations are expected to widen alkyl amines market scope and also yield new opportunities for industry participants. Supply agreements of major market participants are expected to maintain the supply demand imbalance.

Asia pacific alkyl amines market accounted for over 50% of the overall revenue in 2014. China held over 75% of the total regional revenue in 2014. Emergence of high end-use applications in countries such as China, Vietnam, Indonesia, Malaysia, South Korea and India are expected to witness significant growth over the next seven years. It is also expected to witness fastest growth over the forecast period.

Increasing infrastructure spending in counties such as Brazil, Saudi Arabia, Russia and Mexico is expected to complement the respective regional market growth from 2015 to 2022. North America alkyl amines market is characterized by product development and its increasing application scope in pharmaceuticals. U.S. promises rapid growth over the forecast period.

Increasing infrastructure spending in countries such as Brazil, Saudi Arabia, Russia and Mexico is expected to complement the respective regional market growth from 2015 to 2022. North America alkyl amines market is characterized by product development and its increasing application scope in pharmaceuticals. U.S. promises rapid growth over the forecast period.

The alkyl amines industry is moderately fragmented in nature. Presence of numerous industry participants makes the market highly competitive. Hence frequent price wars, M&As and various strategic decisions are witnessed. Entry barriers are high for the new entrants. Low switching costs creates room for buyers and increases competition among the business players. Major industry participants invest to create improved products to gain competitive advantage over fellow participants.

Some major companies operating in global alkyl amines market include E.I. Du Pont DE Nemours, BASF SE, Akzo Nobel Chemicals AB, and Arkema Group held over 30% of the overall market in 2014. Other major manufacturers include Shandong Huala Hengsheng Chemical Co., Ltd., Feicheng Acid Chemicals Co., Ltd., Air Products and Chemicals Inc., Huntsman International LLC, Dow Amines, Mitsubishi Gas Chemical Company, LCY Chemical Corp., Luxi Chemical Co., Ltd., Koei Chemical Company Limited, Taminco, Daicel Chemical Industries Ltd., BorsodChem MCHZ and Alkyl Amines Chemicals Ltd.

Research on alkyl amines by Viral Mehta

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Don’t think borrowing increasing a bit is the reason price is down. There is uncertainty in the business currently, for raw material price and availability and pollution NOC for specialty chemical plant. This is causing problems currently. I think this is a temporary problem.

Conference call updates

  1. Environment clearance for acetonitrile, morpholine and DMAHCL received. Expect 6000 tons @120rs in acetonitrile this year. Expect 6500 tons in morpholine @145. DMAHCL we will not produce as current capacity is not fully utilized.

  2. Balaji Specialty - Environment clearance not received. Capex done is 240cr. 2 out of 3 customers have already approved the product. We have taken Reach certificate in this product. We may do 100-150crs on a conservative basis this year. Next year should do 400cr.

  3. Mega Project - will start investing for mega project in Q2. Capex of 150-200cr. Will produce ethylamine, IPA and MIPA in first phase. Expect close to 300cr revenue after optimum utilization. Will take 15 months to commercialze plant.

  4. DMF- will be appealing for anti dumping duty. Utilization at 45%.

5 .Debt- Have borrowed 120cr for Specialty Chemical. Will borrow another 120cr in Mega Project. Cost of debt is 8.2%

  1. IPA - 150000 tons demand in india. Somebody is producing 80000 tons. Rest is imported. We will produce using different technology where cost is lower.

  2. Sales 90000tons compared to 81000 last year.

  3. Methylamines - India is lowest cost producer. Industry growing at 10%. We will expand capacity in 2nd phase of Mega Project.

  4. Guidance 1100 to 1200cr sales next year.
    Disclosure: Invested

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Thanks for the summary.
Did the management inform about when environmental clearance for speciality chemicals is expected.

Disc. Invested

they said in 2 weeks. But they have been saying that for a long time. I would take it with a pinch of salt.

Thank you for the update.

Balaji-Amines_04062019.pdf (394.9 KB)

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Related party transaction disclosed by Balaji Amines to exchanges -


Any red flags??

Got the environment clearance today…
Clearance given by Maharastra pollution board for
i) Ethylenediamine (EDA)
ii) Piperazine (PIP)
iii) Diethylenetriamine (DETA)
iv) Aninoethylpiperazine (AEP)
v) Other mixes
With the date of launch for this product set as 13 Jun
This is a very good update

Disc : Invested

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The new annual report is a treasure trove of information.

The most important takeaway though is:

“Once both, Greenfield project and Balaji Speciality Chemicals
Private Limited are fully operaonal, your company will have
incremental revenue inflow of about Rs. 700 crore per annum.”

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The stock has taken quite a beating due to this revision in guidance.

Disc. Invested.

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though Balaji’s margins are better over a longer period,Alkyl Amines is getting better valuation from the markets because of the hotel business of the former.

In the last concall, Ram Reddy himself admits that even the company’s directors are exasperated with the hotel business pulling down valuations. However, according to him, the hotel helps the company get loans at more attractive rates of interest. Also company has benefited from accelerated depreciation from the hotel in the earlier years.

We have to see if there is a demerger of sale of the hotel business which can easily fetch around Rs 200 crores.

Another factor is about sales of DMF picking up. Capacities of DMF is under utilized. I understand that the quality is still not at the same level as BASF/BAYER. If there is a positive development in this chemical, then there can be a major upward revision in the stock price.

disclosure: holding in core portfolio and adding in small lots

shiv kumar

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In my view the hotel business is not pulling down valuations of chemical business…but at the same time it isn’t factored by Mr market in valuing balaji amines as a company.

The problem with balaji seems to be substantial amount of capital deployed not earning incremental returns. ( balaji speciality, morpholine and acetonitrile expansion).

So there has been capital allocation over last 3 years but no commensurate growth. Balaji needs to achieve top line of 1200-1300 cr with margins of 18-20%…to come closer to its past glory…until such time it’s a painful wait.

Disc…invested.

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30.6.19 Vs 31.3.19 shareholding pattern

  1. Two MFs were holding 307884 shares (1.46%) on 31.3.19. One MF completely exited selling 232884 shares (0.72%). Only one MF remains on 30.6.19 holding 75000 shares

  2. Promoters added 24606 shares (.08%) during the quarter.

Rest changes are insignificant.

Looks like the one MF also cashed out in July causing huge price drop. (This is just a guess…could be verified only after 30.9.19 pattern in out)

Assuming no MF selling pressure now the price should stabilise or atleast move with market and not outperform😉

Disc. Invested. Wondering whether to add more

I had a general question. Does the number of MF’s holding a particular stock points to a stock being more stable or cleaner in most of the cases? I mean is there any studies or analyzing done of this sort?

The reason I ask is I wonder why are so few MF’s invested in Balaji Amines? From where I stand, it looks a positive bet, is priced attractively at current price and I could not find any damaging content against the management.

Disc: I am holding Balaji Amines in my portfolio and my two cents are not a buy/sell recommendation.

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Q1 FY20 Results declared:

Press Release:
https://www.bseindia.com/xml-data/corpfiling/AttachLive/0fabacab-ff1d-4b0f-a20c-83b12c538339.pdf

Total volumes stood at 20,149 MT for Q1FY20 as against 21,679 MT in Q1FY19

  • Amines volumes stood at 4,779.94 MT for Q1FY20
  • Amines Derivatives volumes stood at 7,853.11 MT for Q1FY20
  • Specialty Chemicals volumes stood at 7,516.36 MT for Q1FY20

There seems to be both volume degrowth as well as reduction in realizations.

EBITDA was impacted by volatility in prices of raw materials and slow down witnessed in end-product industries such as Pharmaceuticals and Agro-Chemicals.
During the quarter, the company received the clearance for manufacturing additional capacity of 7,000 tons of Morpholine - leading to total capacity of 10,000 tons per annum. The company also received clearance for manufacturing of fungible products - Acetonitrile and THF, for which the company has installed capacity of 9,000 tons per annum.
Balaji Speciality Chemicals Private Limited, a subsidiary of the Company has received consent to operate by Maharashtra Pollution Control Board in June 2019. The subsidiary commenced production of niche products like Ethylenediamine (EDA), Piperazine (PIP) and Diethylenetriamine (DETA).
On the performance Mr. D. Ram Reddy, Managing Director commented, “Amines growth was subdued on account of notable headwinds from macro-trends in the end-user industry of pharmaceuticals and agrochemicals sector. Margins came under pressure due to excess volatility in raw material prices. We expect the market for our products to stabilize in H2FY20.
I am pleased to inform that, post the clearance from Maharashtra Pollution Control Board (MPCB), production of specialty chemicals has commenced in our subsidiary company. We have also commenced production of Acetonitrile & THF in Balaji Amines Limited. We are working towards getting environmental clearance for our 90-acre Greenfield project and expect construction work to begin H2FY20

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