Balaji Amines Limited — Q2 FY24 earnings call

Call held 10 Nov 2023

Management summary

Balaji Amines reported a challenging Q2 FY24 with significant declines in revenue, EBITDA, and PAT, primarily due to unprecedented challenges in the specialty chemical industry, rapid input cost shifts, and global destocking trends impacting realizations. Despite a slight increase in volumes, profitability was severely impacted. The company remains debt-free and is advancing strategic capex projects, expressing confidence in market stabilization and improvement over the next two quarters, targeting a return to pre-COVID price levels.

Highlights

  • Revenue from operations for Q2 FY24 stood at INR 387 crores, a 17.5% sequential decline from Q1 FY24.

  • EBITDA for Q2 FY24 was INR 61 crores, down 41.3% sequentially from INR 104 crores in Q1 FY24.

  • EBITDA margin for Q2 FY24 contracted to 16% from 22% in Q1 FY24.

  • PAT for Q2 FY24 was INR 36 crores, a 47.1% sequential decrease from INR 68 crores in Q1 FY24.

  • Diluted EPS for Q2 FY24 was INR 10.71, down 34.2% from INR 16.28 in Q1 FY24.

  • Total volume for Q2 FY24 increased slightly by 3.0% sequentially to 27,613 MT from 26,820 MT in Q1 FY24.

  • The company remains debt-free on a stand-alone basis and is progressing with key capex projects like n-Butylamine (Q4 FY24), Methylamine (Q2 FY25), and Dimethyl ether (H1 FY25).

  • Management expects market conditions to stabilize and improve over the next two quarters, aiming for pre-COVID price levels.

Concerns

  • Global destocking and price decline in API and agrochemical industries.

  • Chinese competition/dumping for specific products (EDA, Morpholine, NMP).

Key financials

  1. Revenue from Operations ₹387 Cr -17.5%QoQ
  2. EBITDA ₹61 Cr -41.3%QoQ
  3. EBITDA Margin 16%
  4. PAT ₹36 Cr -47.1%QoQ
  5. Diluted EPS ₹10.71 -34.2%QoQ
  6. Total Volume 27,613 MT +3%QoQ

What they filed

Q1 FY27: revenue up 27.4%, net profit up 110.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue347 313 353 358 341 −2%331 +6%395 +12%456 +27%
EBITDA61 46 60 55 60 −2%57 +24%94 +57%116 +111%
Net profit41 31 40 37 37 −10%31 +0%65 +63%78 +111%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Volume
27,613 MT Total
  • Amines Derivatives (Volume) 10,236 MT 37.1%
  • Specialty Chemical (Volume) 9,285 MT 33.6%
  • Amines (Volume) 8,092 MT 29.3%

Guidance & targets

Capacity

  • n-Butylamine Commissioning Capacity · Q4 FY24 · High confidence Q4 FY24
    n-Butylamine, the new expansion project work is progressing at brisk speed. The plant is expected to be commissioned during the fourth quarter of financial 2023 and '24.

    — D. Ram Reddy, Managing Director

  • Methylamine Commissioning Capacity · Q2 FY25 · High confidence Q2 FY25
    Methylamine: The project implementation is progressing as planned. The project is likely to be commissioned around the second quarter of FY 2024 and '25.

    — D. Ram Reddy, Managing Director

  • Dimethyl Ether Commissioning Capacity · H1 FY25 · High confidence H1 FY25
    Dimethyl ether: The project for manufacturing Dimethyl ether is initiated to be set up in Unit IV and the detailing and engineering is completed and the company has started civil works. The plant is expected to be commissioned during the first half of the FY '24 and '25 (end of FY 2025).

    — D. Ram Reddy, Managing Director

New Products

  • N-Methyl Morpholine (NMM) Capacity New Products · Proposed · Medium confidence 3000 TPA
    N-Methyl Morpholine (NΜΜ) - 3000 ΤΡΑ

    — D. Ram Reddy, Managing Director

  • N-(n-butyl) Thiophosphoric triamide (NBPT) Capacity New Products · Proposed · Medium confidence 2500 TPA
    N-(n-butyl) Thiophosphoric triamide (NBPT) - 2500 ΤΡΑ

    — D. Ram Reddy, Managing Director

  • Pharmapure Povidone (PVP K-30) Capacity New Products · Proposed · Medium confidence 4000 TPA
    Pharmapure Povidone (PVP K-30) - 4000 TPA

    — D. Ram Reddy, Managing Director

Capex

  • Solar Power Plant Capacity Capex · Ongoing · High confidence 1600 KW
    The company has already initiated a solar power generation plant for captive consumption at Unit IV on all the sheds, buildings for about 1,600 KW, costing approximately INR 7.5 crores for the compliances of Netzero under ESG to reduce carbon footprint.

    — D. Ram Reddy, Managing Director

  • Solar Power Plant Cost Capex · Ongoing · High confidence INR 7.5 crores

    — D. Ram Reddy, Managing Director

Export Mix

  • Export Mix Percentage Export Mix · next 1-2 years · Medium confidence 25-30%

    From 15-17% today

    We are always trying to do more than 25% to 30%. Actually, 25 -- if I do the 25% that will give me the natural hedge for my imports if I do some imports also. that's the reason we are targeting in coming 1 or 2 years, we should do -- touch to 25% to 30%. Presently, we are doing 15% to 17% of the total products from the total turnover.

    — D. Ram Reddy, Managing Director

Market Conditions

  • Market Stabilization Market Conditions · next 2 quarters · Medium confidence stabilize over the course of the next 2 quarters
    However, we firmly believe that the present challenges represent a temporary hurdle that is poised to stabilize over the course of the next 2 quarters.

    — D. Ram Reddy, Managing Director

Realization

  • Pre-COVID Prices Realization · within next 2 following quarters (after current quarter) · Medium confidence pre-COVID type of prices
    In my personal view, I can say after we finishing this quarter, within next 2 following 2 quarters, should we you should see the pre-COVID type of prices we should see.

    — D. Ram Reddy, Managing Director

Risks & concerns

  • Global destocking and price decline in API and agrochemical industries.

    high

    Attributed to global market conditions, directly impacted Q2 financials and expected to continue for the current quarter, but expects completion of destocking and improvement in 2 quarters.

    Management acknowledged

  • Chinese competition/dumping for specific products (EDA, Morpholine, NMP).

    high

    Competitors are dumping due to heavy stocks and making losses, which management believes is unsustainable, but it is currently impacting realizations.

    Management acknowledged

  • Raw material price volatility.

    medium

    Impacted Q2 financials badly, but management states prices are now 'sitting down' and expects no problem from January onwards.

    Management acknowledged

  • Lack of government support for anti-dumping duty on DMF.

    medium

    Despite applying and having good eligibility, the government is not supporting anti-dumping duties for DMF, impacting domestic pricing and forcing the company to explore exports.

    Both acknowledged

Areas of evasion (2)

  • Exact timeline for market recovery
  • Specific details on NDA with lithium battery manufacturers

Q&A highlights

3 direct
Reasons for continued decline in revenue/margins despite previous guidance for improvement, and confidence in future recovery. Direct
But what happened around the world, people have started destocking their high-value stocks looking into the market and the prices have come down and specifically in the API and agro chemical industry, they went back to worst situation that was the reason.

Directly addresses the core financial underperformance and management's explanation for the miss, linking it to global destocking and industry headwinds, while reiterating confidence in a 2-quarter recovery.

Asked by Jaiveer Shekhawat, AMBIT Capital

Impact of Chinese competition and its sustainability. Direct
For us, we have only 2 to 3 products with the Chinese competition. That is one is the EDA in Specialty Chemicals. And in Balaji Amines, we have 2, one is Morpholine and other is NMP... Everybody is having heavy stocks. They were not looking at the price. They wanted to encash their stocks. And they're making the huge losses. So nobody can do -- prolonging doing the continuous losses, right?

Clarifies the specific products facing Chinese competition, explains the nature of the competition (dumping due to destocking), and provides management's view on its unsustainability, which is crucial for future margin outlook.

Asked by Jaiveer Shekhawat, AMBIT Capital

Status of DMF anti-dumping duty application and government support. Direct
We've applied already. this Government is not supporting. I told you earlier also. We have done, everything has happened. Before -- coming out of the notification, this government has -- did not the backup, we blame -- the government only even today also. They showed that they went to the court against what we have done along with many other cases. So it is in the Delhi court almost 15, 20 companies are there in the Delhi court along with the DMF. There's a good reason, good eligibility is there, but still they are not giving.

Reveals a significant regulatory hurdle and lack of government support for a key product (DMF) against dumping, impacting domestic pricing and the company's ability to compete, despite having applied for protection.

Asked by Rajiv Rupani, Individual Investor

3 min read 6 chapters

Detailed narrative

Q2 FY24 Financial Performance Overview

Balaji Amines reported a challenging Q2 FY24 with significant declines across key financial metrics. Revenue from operations fell to INR 387 crores from INR 469 crores in Q1 FY24, representing a 17.5% sequential decline. EBITDA dropped sharply to INR 61 crores from INR 104 crores, with the EBITDA margin contracting to 16% from 22%. Consequently, PAT decreased to INR 36 crores from INR 68 crores, and diluted EPS stood at INR 10.71, down from INR 16.28 in the previous quarter. Despite these declines, total volumes saw a slight sequential increase of 3.0% to 27,613 MT from 26,820 MT in Q1 FY24.

Market Headwinds and Realization Pressures

The management attributed the subdued performance to unprecedented challenges in the specialty chemical industry, including rapid and unexpected shifts in input costs, widespread destocking among global industry players, and headwinds in the global pharmaceutical API and agrochemical sectors. Realization pressures were a primary driver of revenue decline, with European operations running at 40-50% below previous levels and API market customers experiencing 30-40% lower activity. The company noted that raw material volatility impacted revenue by 40-50% and margins by 30%.

Strategic Capex and New Product Pipeline

Balaji Amines is progressing with its strategic capex projects. The n-Butylamine expansion is on track for commissioning in Q4 FY24 (January-March). The Methylamine project is expected to be commissioned around Q2 FY25, and the Dimethyl ether (DME) plant in Unit IV is slated for commissioning in H1 FY25. Additionally, the company is proposing new products at Unit IV, including N-Methyl Morpholine (3000 TPA), N-(n-butyl) Thiophosphoric triamide (2500 TPA), and Pharmapure Povidone (4000 TPA), all of which would be first-time productions in India. A solar power plant of 1,600 KW, costing approximately INR 7.5 crores, is also being initiated at Unit IV for captive consumption.

Chinese Competition and Anti-Dumping Challenges

The company faces direct competition from China in 2-3 products, specifically EDA in Specialty Chemicals and Morpholine and NMP in Balaji Amines. Management stated that Chinese and European competitors are dumping products due to heavy destocking, selling at significant losses. While this impacts realizations, management believes such continuous losses are unsustainable. For DMF, despite applying for anti-dumping duties, the government has not provided support, leading the company to explore export markets, successfully exporting 60-70 tons to Saudi Arabia last month at much better prices.

Outlook and Recovery Expectations

Management expressed a positive outlook for the medium to long term, anticipating market stabilization over the next two quarters. They expect FY24-25 to be marked by growth as market conditions improve, with a target to achieve pre-COVID type of prices within two quarters after the current one. The company aims to increase its export mix from the current 15-17% of total turnover to 25-30% in the next 1-2 years to hedge against import costs. Raw material prices, which were volatile, are now expected to stabilize from January onwards.

Capacity Utilization and Debottlenecking Initiatives

In Balaji Specialty Unit I, debottlenecking and maintenance work is ongoing, with half completed in Q2 and the rest in Q3. This is expected to result in a minimum 5-7% capacity increase and enable the production of value-added products. For Dimethyl Carbonate (DMC), capacity utilization is currently 30-40%, with sales at INR 50-60 per unit. However, with an associated product, the net realization is expected to be around INR 90. The company is also working on converting EDA into Piperazine to enhance product mix and profitability.

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