Why Balaji Amines Share Price is Falling

Editor's note: On Monday, 22 May 2023, a good quality specialty chemical stock - Balaji Amines crashed over 15% to hit a new 52 week low.

This made investors ponder over the long term investment proposition in the company.

Balaji Amines is the largest maker of aliphatic amines and a leader in oligopolistic amines. It also enjoys the position of sole producer for certain specialty chemicals like Di-methyl Carbonate (DMC) and Propylene Carbonate (PC), making it more resilient to slowdown in the end industries of pharma and agrochemicals.

Of these, DMC is used in Li batteries - the consumption of which is expected to grow significantly in India backed by various government initiatives and electric vehicle (EV) industry.

It's clear that the company has strong growth prospects. So, what factors are dragging the stock currently?

Earlier this year in January 2023, when the stock of Balaji Amines was witnessing a similar movement, we covered a detailed editorial explaining the reasons why its share price was falling and what lies ahead.

There's one major update to it. Continue reading to know more...

Why Balaji Amines Share is Falling

The Indian chemical sector has expanded significantly over the past ten years as a result of both government efforts and active business engagement.

The industry is preparing for the future with increased vigor and a worldwide view, focusing on better value generation.

India's specialty chemicals sector appears upbeat about its prospects, as companies aim to expand capacity to capitalize on growth opportunities after sluggish earnings growth because of rising input costs.

However, it has recently encountered difficulties like high energy costs, rising freight expenses, and skyrocketing raw material prices, pressurizing margins of even the best chemical stocks in India.

Due to this, shares of many chemical stocks have plummeted in the last month. One of India's biggest manufacturers of aliphatic amines in India, Balaji Amines, also fell over 10% in a month.

Here is what triggered the fall.

#1 Profit booking due to higher valuation

Shares of Balaji Amines rallied 28% from June 2022 to September 2022, touching their 52-week high. This was on the back of supply disruptions from China along with high logistic costs and a weakening rupee.

Also, with China plus one megatrend picking up steam in India, chemical stocks have been trading at a higher valuation, driving the Price to Earning (PE) multiple of Balaji Amines to 27.7x.

This is higher than the chemical industry PE multiple of 21.5x, making it overvalued on the PE front.

Therefore, the recent correction could be due to profit booking in the stocks.

Update: At the current price, Balaji Amines trades at a PE multiple of 27.5x, slightly above its 5-year median PE of 22x.

Have a look at the table below to see how it's stacked up against peers -

Comparative Analysis

Company	Balaji Amines	Meghmani Finechem	Meghmani Organics	Alkyl Amines	Navin Fluorine
ROE (%)	26.1	33.1	14.2	43.2	17.2
ROCE (%)	36.5	36.4	18.3	43.1	17.8
Latest EPS (Rs)	100.5	85.1	9.4	39.4	75.7
TTM PE (x)	22.9	11.0	8.7	72.9	60.3
TTM Price to book (x)	4.8	3.6	1.2	11.1	10.4
Dividend yield (%)	0.4	0.5	1.7	0.3	0.3
Industry PE	28.4
Industry PB	4.4

Data Source: Ace Equity, Equitymaster

#2 Lower-than-expected quarterly results

The company reported a 19.4% YoY increase in revenue for the September 2022 quarter to Rs 6.3 bn from Rs 5.2 bn a year ago, which was below analyst expectations.

This was primarily due to underperformance by the standalone business, which reported a muted rise of 3.6% YoY in revenue to Rs 4.5 bn.

However, the company reported an improvement in gross margin to 27.6% on account of a better product mix from 24.7% a year ago.

Overall, the company's net profit rose to 16% YoY to Rs 925.7 m, as against Rs 797.5 m in the year ago period. The net profit margin of the company also rose to 18.9% from 16.8% a year ago.

#3 Change in Management & Weak Q4 Results

In an exchange filing on 20 May 2023, the company said that its Chief Financial Officer (CFO) Hemanth Reddy Gaddam has resigned. Shares of the company plunged over 15% on Monday following the resignation.

The filing read that Hemanth has resigned to focus on subsidiary company, Balaji Speciality Chemicals.

While some of the selling pressure could be attributed to this resignation, the other reason why the stock dropped sharply is due to weak Q4 results.

Topline declined by almost 30% while the net profit came in over 70% lower at Rs 787 million, compared to Rs 2.9 bn in the year ago quarter.

Quarterly Results of Balaji Amines

Rs m, consolidated	Mar-23	Mar-22	Dec-22	YoY (%)	QoQ (%)
Net Sales	7,850	11,030	9,383	-29%	-16%
Operating Profit	2,074	4,136	3,511	-50%	-41%
Net Profit	787	2,859	2,319	-72%	-66%

Data Source: Ace Equity

Positive long-term outlook

Balaji Amines has completed the capex for its Phase one 90-acre Greenfield Project (Unit IV) and has begun commercial production from its DMC/PC and PG Plant.

With that, Methyl Amine production has also started.

The capacity utilisation levels of company is expected to increase due to rising demand for its products as the clients can access the raw materials for products that becomes more seamless in the ensuing quarters.

Under Phase two of the greenfield project, the company has announced a strong pipeline of capex for increasing the capacity for the Butylamine and Acetonitrile plant based on the new technology. This will aid in absorbing the acetic acid price volatility.

The company is also looking forward to setting up a DMF (drug Master File) plant with 30,000 MTPA additional capacity to cater for the growing demand from the pharma and API industries.

The company is almost debt free and enjoys strong returns on capital employed and equity - 50% and 39% respectively.

Also check out the below video where lead smallcap analyst at Equitymaster Richa Agarwal compares Balaji Amines with Alkyl Amines.

How Balaji Amines shares have performed recently

Balaji Amines shares have declined by more than 9.9% in the last month. Over the year, the stock is down more than 29%.

The company touched its 52-week high of Rs 3,935 on 4 January 2022 and its 52-week low of Rs 2,593.8 on 26 December 2022.

About Balaji Amines

Balaji Amines is a leading manufacturer of ethyl and methyl amines.

It is presently engaged in the manufacturing and sale of specialty chemicals, Aliphatic Amines, and derivatives.

Apart from this, it has now diversified into producing derivatives of methyl and ethyl amines, Di-Methyl Amine Hydrochloride (DMA-HCl), Choline Chloride Di Methyl Acetamide, etc.

The company's products find applications in active pharmaceutical ingredients (APIs), refineries, water treatment chemicals, agrochemicals and pesticide formulations, rubber chemicals, electronics, dyestuffs and paints, and leather processing chemicals.

It owns a Five Star Hotel in Solapur Maharashtra and has a CFL lamps facility at Medak Telangana.

The Company presently operates in three segments Specialty Chemicals and Amines, Hotel, and CFL Lamps.

For more details about the company, you can have a look at the Balaji Amines company fact sheet and quarterly results on our website.

You can also compare Page Industries with its peers:

Balaji Amines vs Alkyl Amines

Balaji Amines vs Navin Fluorine

Balaji Amines vs Gujarat Fluorochemicals

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