Buy Balaji Amines; target of Rs 452: HDFC Securities

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HDFC Securities' research report on Balaji Amines

Reported sales were Rs 2.31bn, down 11.1% YoY and 1.4% QoQ. Revenue was affected owing to 7.1% YoY and 6.5% QoQ fall in sales volumes to 20.15kt. Volumes were impacted owing to lower demand from the agrochemical industry. We expect ~3.5% YoY volume growth in FY20 owing to lower than anticipated volumes in 1Q. EBITDA was Rs 371mn down 36.8% YoY and 21.7% QoQ on account of higher raw material prices. APAT was down 41.0% YoY and 26.1% QoQ to Rs 200mn attributable to a higher tax rate of 37.1% as compared to 30.5%, average for FY19. All plants are already running at close to full capacity, in absence of any capacity augmentation, we do not see significant volume uptake in the standalone business in the near term. The expansion projects in primary products like Ethyl Amines, Mono Iso-propyl Amine and Iso Propyl Alcohol will begin in Q2FY20, and be commissioned towards the fag end of FY21. Commencement of the Methyl Amines capacity expansion project has already been pushed forward (perhaps, beyond FY21). We believe this is considering Alkyl Amines’ recent expansion in Methyl Amines and the volatility in Methanol prices consequential to US sanctions on Iran. BLA’s subsidiary, Balaji Specialty Chemicals, has started building capacity for Ethylene Diamine and Piperazine (agro-chemical intermediates). We can expect the subsidiary to meaningfully add to the topline from Q4FY20E. BLA owns 55% stake in the said subsidiary.

Outlook

BAL reported muted performance in Q1FY20 consequential to (1) Soft volume off-take by the agrochemical industry, (2) High raw material prices, predominantly Methanol. Hence, we cut our EPS estimates for FY20/21 and arrive at a TP of Rs 452/share based on 13x Sep-21E EPS.

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