Sunday, September 12, 2010

Balaji Amines - An Interesting Play on Specialty Chemicals

I am in the process of studying Balaji Amines in greater details. Here are some of my thoughts.

  • From the AR - "Some of your company's new products are 100% import substitutes and other products are commanding 100% market share in India and are being exported to major customers worldwide" .... could not ascertain which specific products they are talking about.
  • Some of company's new products are 100% import substitutes and other products are commanding 100% market share
    in India and are being exported to major customers worldwide. Di-methyl amino ethanol (DMAE) plant with a capacity of 10 MT/day was commissioned during the year. This process was developed through in house R & D Team of the company. This is a forward integration project for methyl amines plant and the product has good demand in the domestic and international markets.

  • To meet the increasing domestic and international demand, new plant for manufacture of GBL and NMP with a capacity of 50 MT/day is under construction. The plant is likely to be commissioned in FY11 which will contribute both to the top line and bottom line of the Company

  • The company has a 49% stake in Balaji Greentech (www.balajigreentech.com) which makes CFLs. It may not mean much now and also the numbers are not being consolidated.
  • Input prices (methyl/ethyl alcohol) - prices of molasses have reduced so they have made a lot of cost reduction. That may reverse once molasses/ethyl alcohol prices go up.
  • They are generating most of their required capacity of electricity through their captive power plants. Setting up one more 1.5 MW wind power plant this year as well. Given the power situation and cost in Maharashtra that may be a good cost -saving move.
I am not very comfortable about the diversification into the hotel business. They could probably have thought of something else for their land. But atleast they have got away from operating it and have got Sarovar to do it. So, it might not work out badly after all. But not very comfortable.

Also, their R&D costs are capitalized to a large extent (rather than expensed) which has the possibility of raising the PAT. But realistically, the impact is not very significant as of now.

Historically the debt-equity ratio has been over 1, although it is reducing a bit now, which is another red flag. But they seem to be doing well. I am expecting a yoy PAT growth of around 25-30% this year. Long term it may revert to its mean of 20%.

I am expecting an EPS of around 38-40 this year, so at a PE of 8-10, my expected target is around 310-380, which is a significant upside from the current level (220-230).


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