Fortune Scrip

Published: Aug 31, 2022
Updated: Aug 31, 2022

Smorgasbord of speciality chem - Balaji Amines

This fortnight we have picked a unique and fast-growing speciality chemicals company, Balaji Amines, as the Fortune Scrip. Balaji is the largest manufacturer of methyl amines in the country. It also manufactures ethyl amines, derivatives of specaility chemicals and pharma excipients. Besides, it has manufacturing facilities for derivatives which are downstream products for varous pharma/pesticides industries, apart from user-specific requirements.

Promoted by the KPR group of industries in 1988, BAL is also one of the leading manufacturers of aliphatic amines in India. In 1989, it commenced the manufacture of methyl amines and subsequently added facilities for ethyl amines and other derivatives of methyl and ethyl amines.

At present, the company’s customers include blue chip companies like IDI, Hoechst, Rallis, Ion Exchange, Chemnor Drugs and TTK Phama. The company has three plants, at Tuljapur and Chincholi in Maharashtra and at Medak in Telangana. It also owns a five-star hotel in Solapur and a CFL (lamps) facility at Medak. As such, BAL operates in three segments — speciality chemicals and amines, hospitality and CFL (lamps). A new facility to manufacture speciality chemicals is under construction at Chincholi. Besides, the company has set up a modern R&D centre at Hyderabad.

BAL is continuously on the move with rising demand for its products. It embarked upon an expansion programme for value-added products like choline chloride, DMAE-HCL and other intermediates at a cost of Rs 50 million. Later, it started power generation with a 1.5 MW windmill unit at Satara in Maharashtra. This was followed by a 2.5 MW co-generation power plant at Tamalwadi in Solapur. Subsequently, BAL was awarded 90 acres of land at MIDC, Chincholi by the Maharashtra government for a mega project to take up the manufacture of morpholine and acetonitrile. The company also set up a new plant under its subsidiary, Balaji Speciality Chemicals.

TOP CERTIFICATION

Besides good demand for its products at home, the company started attracting overseas demand. Leading global customers are happy with the company’s products as it is one of the few companies in India that can match the stringent international quality standards. In fact, BAL has been awarded an ISO 9001-2015 certification apart from appreciation and continuous orders from global majors for its product range. The company is now striving to leverage the ‘China+1’ policy of global MNCs in order to take advantage of the new international trend.

Needless to say, BAL is going from strength to strength on the financial front. During the last 12 years, sales turnover has expanded almost seven times from Rs 347 crore in fiscal 2011 to Rs 2,319 crore in fiscal 2022, with operating profit spurting by over 11 times from Rs 63 crore to Rs 699 crore. During the same perod, the profit at net level has zoomed over 13 times from Rs 27 crore to Rs 368 crore. During the last five years, the company’s consolidated sales have grown at a rate of 28 per cent and consolidated profit at 36 per cent!

SOLID FINANCES

The company’s financial position is very strong, with reserves at the end of March 2022 standing at Rs 1,186 crore – over 183 times its equity capital of Rs. 6.48 crore, and that after issuing bonus shares in the ratio of 1:1 in fiscal 2006.

However, we have not picked up Balaji for its past laurels. We strongly feel that future prospects for the company are all the more promising. Consider:

Balaji Amines is the undisputed largest manufacturer of aliphatic amines in India, enjoying a 50 percent marketshare. It has successfully created a niche for itself in a highly capital-intensive oligopolistic industry with huge entry barriers through a constant focus on import substitution, intensive R&D and a calibrated approach to capacity expansion. The company has successfully developed indigenous technologies for manufacturing amines for the first time in India. Little wonder that today over 60 per cent of the company's product portfolio comprises import substitutes that are only manufactured by BAL and whose quality is highly appreciated globally.

There are remarkable growth prospects for amines. According to New York-based research agency, the amines market in the APAC region is expected to grow by $4.69 billion during the five-year period from 2022 to 2026, progressing at a CAGR of 9.58 percent. As far as Balaji Amines is concerned, HDFC Securities notes that demand for the company's products is on the rise and its earnings growth momentum will sustain, driven by a rich product mix, improvement in utilisation of its new capacities and sustainable demand for amines from end-user industries like pharma and agro-chemicals which comprise around three-fourths of its overall revenues. Balaji's revenues and PAT are likely to record a CAGR of 13 per cent and 25 per cent in 2023, along with consistent FCF generation, debt-free status and superior ROIC (25%+).

The company has been consistently adding capacities to provide quality products at the lowest cost to customers. The world over, amine technology is a closely guarded process, and BAL for the first time in India has developed indigenous technology for the same.

The company's state-of-the-art manufacturing facility is located at Tamalwade village near Solapur, and is equipped with the latest technology like digital computerised control systems. In addition, BAL possesses excellent R&D facilities for basic research and fine-tuning the production process.

The company has planned to invest Rs 300-350 crore in phase II in greenfield projects in fiscal 2023-2024 for the manufacture of N-butylamine and to add capacity to acetonitrile, methyl amine and DMF production. These four projects are expected to go on stream by the end of fiscal 2025. The new n-butylamine plant will have a capacity of 15,000 tonnes. Considering that last year the country imported 8,000 tonnes of this product, BAL will be able to sell its entire production without any difficulty. All the four projects will give a big boost to the company's topline as well as bottomline from fiscal 2026 onwards.

Strong demand for methyl amines from the pharmaceutical industry both in India and abroad will drive the growth of the company in 2023. The management expects the sales turnover to reach Rs 2,200-2,300 crore and operating margins in the range of 24-26 per cent for the year. The stock should prove to be a multibagger for long-term investors.

— Savyasachi