HDFC Securities is bullish on Balaji Amines has recommended buy rating on the stock with a target price of Rs 525 in its research report dated May 21, 2019.
HDFC Securities' research report on Balaji Amines
Reported sales were Rs 2.35bn, down 8.6% YoY. EBITDA grew 1.0% YoY to Rs. 473mn (against our estimated figure of Rs. 509mn). Revenue was affected owing to single digit volume growth but there was definite improvement on the margins front. Volumes: With most (barring DMF) plants already running at full capacities, further volume growth can only come from capacity expansion. The future looks bleak as expansion projects in major products like Ethyl Amines, Mono Iso-propyl Amine and Iso Propyl Alcohol (Phase: I) will begin in Q2FY20, and be commissioned towards Q4FY21. Although moderate volume growth is expected in Morpholine and Acetonitrile in FY20. Commencement of the Methyl Amines capacity
expansion project (Phase: II) has 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) and can expect the subsidiary to add to the topline from FY20E. BLA owns 55% stake in the subsidiary. Consol Debt: BLA raised further debt of Rs 225mn in FY19 (Rs 575mn in FY18) for their subsidiary as well as the mega project. This led to a 44.1% YoY jump in the interest expense to Rs 130mn. Long-Term debt is expected to go up further in
FY20/21E. Near-term outlook: Moderate volume uptake expected from Morpholine and Acetonitrile. Margin pressure likely to continue owing to high Methanol prices.
Owing to a disappointing performance in Q4FY19, we cut our valuation multiple from 17x to 13x (Mar-21E consolidated EPS) and arrive at the target price of Rs 525/sh. This is on account of (1) Consistently poor volume growth, (2) Vagueness on imposition of Anti-dumping duty on Di-methyl Formamide (DMF), resulting in significantly low capacity utilizations (currently at ~45%), (3) Deferment of capacity augmentation projects to FY21.
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