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Last Updated : Nov 16, 2018 12:56 PM IST | Source: Moneycontrol.com

Weekly Tactical Pick | Balaji Amines to benefit from import substitution strategy; stock attractively valued

Balaji Amines is the market leader in the manufacture of methyl amine, which is the building block of the aliphatic amine value chain

 
 
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Moneycontrol Research Team

Balaji Amines and Alkyl Amines dominate the almost duopolistic market of aliphatic amines in India.

Forward integration in the aliphatic amines value chain, improved exports due to lower production in China, and commissioning of newer facilities are the key positives for amine companies.

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Also, the industry has some significant entry barriers due to the need for high research and development acumen, the ability to handle hazardous chemicals and the need for a wide product portfolio range.

Balaji Amines' strategy of focusing on opportunities to substitute imports is expected to help it achieve a higher trajectory of earnings growth, in our view.

Foray into derivative products

Balaji Amines is the market leader in the manufacture of methyl amine, which is the building block of the aliphatic amine value chain.

Capitalising on that, the company has recently forayed into derivative products (morpholine, acetonitrile and di methyl amine hydrochloride) that have applications in the production of rubber chemicals and pharmaceuticals.

Subsidiary Balaji Specialty Chemicals to start operating soon

The company's subsidiary Balaji Specialty Chemicals, in which it owns 55 percent stake, is expected to start operations in 3-4 weeks. It plans to manufacture chemical ingredients for the agriculture end-market, fuel additives, rubber additives and for the pharmaceutical industry.

The company expects revenue of around Rs 300-400 crore from the business in FY20.

Greenfield mega project

Construction work for the company's mega greenfield project (Capex: Rs 300 crore for phase 1) in Solapur is expected to start by the end of the current quarter.

The company will make products catering to the agriculture and pharmaceutical end-markets at the new plant. The plant is expected to contribute to its revenue from FY21 onward and is expected to reach its peak revenue potential of around Rs 350-450 crore by FY23.

Anti-dumping duty protection for few products aids pricing scenario

The company will benefit from anti-dumping duty imposed earlier this year on key products like mono iso-propyl amine (which it will start making at the new plant) and di-methyl acetamide.

Stock attractively valued for entry

On account of recent turmoil in the market, Balaji Amines' is trading at 38 percent below its 52-week high and at a reasonable multiple of 11 times its expected earnings for FY20.

Going forward, we expect the company to benefit from new product capacities, improving product-pricing scenario, its import substitution strategy and strong technical execution capabilities.
First Published on Nov 16, 2018 11:10 am
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