Tushar's Stock Tips: Balaji Amines Limited – A small company that manufactures great import substitute chemical products !

Saturday, November 26, 2011

Balaji Amines Limited – A small company that manufactures great import substitute chemical products !

Balaji Amines Limited having a Marketcap of around Rs.116 crores is a leading manufacturer of aliphatic amine and derivatives and speciality and fine chemicals. These amines and their derivatives find application in pharmaceuticals, agri-chemicals, paints, rubber chemicals, water treatment and lube extraction. In FY10, the company diversified into hospitality.

The company also manufactures speciality chemicals such as N-methyl-2pyrrolidone (NMP) and morpholine. It is the sole manufacturer of these products in India. The company also has a presence in the ethyl amines segment. BAL has a global footprint — the company exports to more than 90 clients spread across 40 countries.

The company has 3 manufacturing facilities :

· at Tuljapur (Maharashtra)

· at Bollaram (Andhra Pradesh)

· a third unit for R&D set up sometime back at Solapur (Maharashtra)

The following aspects about Balaji Amines reflects the greatness of small companies in our country that are destined to go places in the years to come :

Balaji Amines is a distinguished and internationally recognized manufacturer of amines and speciality chemicals
Manufacture of amines is a closely guarded secret the world over and Balaji Amines manufactures all its products independently without any domestic/foreign technical collaboration
The company is the lowest cost producer of methylamines in the world
Company manufactures import substitutes like morpholine, hydroxylamine, N-Methyl Pyrrolidone [ NMP ] etc thus helping our country to conserve precious forex.

In FY10, BAL diversified into the hospitality sector, by leasing out land for development of a hotel on a profit-sharing basis. The company has finalised a deal with the Sarovar group for managing the hotel, which is being set up on 1.5 acres in Solapur (Maharashtra). This hotel will have 100 rooms and banquet facilities. BAL's contribution towards the project is approx Rs 4 mn. The hotel is expected to be completed by FY12.

Some of the major risks that company is exposed to are :

volatility in price of raw materials such as methanol, ethanol, ammonia etc
foreign exchange fluctuations — exports contributed ~25% to total revenues in FY10

On the financial front the company is doing pretty well:

Five year topline CARG was 15.32 pc – total revenues which were Rs.176 crs in FY07 shot up to Rs.359 crs in FY2011.Five year Profit CARG stood at 20.88 pc – PAT which was Rs.10.31 crs in FY07 zoomed to Rs.26.61 crs despite the ongoing global turbulence

On the quarterly front, Balaji Amines has done exceedingly well :

Q1FY12 total revenues increased by 56.76 pc at 115.47 crores compared to Rs.73.66 crores in Q1FY10

Q1FY12 PAT increased by 86.71 pc at Rs.7.17 crores compared to Rs.3.84 crores in Q1FY10

The company has strong ROE and ROCE in the range of around 5 pc but company is leveraged at 1.46 but none the less the Interest cover stands at an impressive 4.17 times. Balji Amines has cash and cash equivalents close to Rs.17 crores compared to its Equity base of Rs.6.4 crores. The promotor's stake stands at 53.97 pc and Institutions have yet not taken any position in this stock as yet.

At a PE of around 4 and EPS of about Rs.8.5, Balaji Amines appears to be an interesting stock.

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