It has been a while since I looked into Balaji Amines & Alkyl Amines in details, though I have been tracking the companies. In the current blog ” Balaji Amines Ltd and Alkyl Amines Chemicals Ltd- Q4FY20 Analysis ” I will be sharing my learning as well as updates in the 2 companies in the last one year.
Link to all my blogs on Balaji Amines & Alkyl Amines
Balaji Amines Ltd and Alkyl Amines Chemicals Ltd- Q4FY20 Analysis
KEY LEARNINGS
When I first researched the Indian Amine industry in Dec 2018, my thesis was that the derived products of Balaji Amines is likely to fetch better margin & growth with the sectoral tailwind and the sudden price increase of Acetonitrile {one of the common products (increased by 3x due to demand-supply mismatch) }will be short-lived.
What my learning from the thesis being turned wrong is that management’s execution capability matters a lot. While Balaji Amines struggled, Alkyl Amine prospered. Gauging management quality takes time. Also, even after Balaji Amines getting the NOC for the expanded capacity(quite significant capacity including acetonitrile which according to the management was just waiting for the Environmental clearance to get started) in June 2019(Q1FY20), there is hardly any improvement in the topline till Q4FY20.
Another factor I assume that helped Alkyl Amines is the multipurpose plants which can be turned in short period to manufacture the product fetching better prices. Also, Alkyl Amine keeps debottlenecking its older plants to increase capacity & efficiency.
Coming to Balaji Amines Ltd, the company took loan on its books and then gives it to its subsidiary Balaji Speciality Chemicals Pvt Ltd. In my view what is the need for complicating things. Hotel business continues to be a drag, have been shut for the last 3-4 months due to COVID-19 and have been incurring fixed cost of ₹25 lakhs per month. Looking back it looks like capital misallocation.
Alkyl Amines Chemicals Ltd sold its 30.44% stake in associate company, Diamines and Chemicals Ltd, the only subsidiary/associate company in November 2019.
Acetonitrile- Why the price jump?
Since Acetonitrile is a commodity product, its prices are derived by supply-demand dynamics. So, for prices to go up either demand goes up or supply goes down. In case of Acetonitrile, it was the later
.
Acetonitrile can be manufactured by 2 process:
2) By the reaction of Acetic Acid & Ammonia- Acetonitrile manufactured by this method is used in Pharma industry as the byproduct in the other process consists of impurities.
Acrylonitrile finds usage in Auto industry but to the slowdown in the industry since 2018 and coz of some other disruption, some of the acrylonitrile capacity has been shut down, which reduced the production of acetonitrile. Due to the closure of acrylonitrile plants, acetonitrile production has gone down and hence the sudden increase in price which continues at an elevated level for more than a year now.
THE PRICE OF ACETONITRILE HAS GONE UP BY 3X ABOUT MORE THAN A YEAR BACK AND IS STILL STANDING AT 2.5X. I THINK THIS IS THE PRIMARY FACTOR DERIVING THE OUTPERFORMANCE OF ALKYL AMINES CHEMICALS LTD.
Both the company’s management have indicated that the high price of acetonitrile is likely to continue. But it is anyone’s guess. Just the way price jumped suddenly in a few days, it can go down the same way. I am sure all player in the industry be willing to take advantage of the high price and expanding or setting up capacity of acetonitrile. Balaji Amines has already come up with a capacity of 9000TPA(Tonnes Per annum), will be taking the capacity to 18000T in FY21 and Alkyl Amine is going to add another 15,000TPA. With expanding supply, the demand-supply gap is likely to narrow down.
BUT WE DO NOT KNOW WHEN THAT IS GOING TO HAPPEN.
SO I LEARNED THAT KEEP DANCING TILL THE TIME MUSIC PLAYS BUT NEVER GET DRUNK (Source:Vijay Kedia tweet). Keep an eye out on the price, you can get the price on an Android app called “indianpetrochem”. I missed the bus with similar thoughts around Deepak Nitrite.
Acetonitrile Historical Price. Source: Indianpetrochem.com
Acetonitrile Latest Price. Source: Indianpetrochem.com
Balaji Amines Ltd and Alkyl Amines Chemicals Ltd- Q4FY20 Analysis
I have taken the standalone data as I have data already in the Standalone format. For Alkyl Amine, since there is no subsidiary, the numbers are fine but for Balaji Amines with the subsidiary becoming operational last year, it will be wise to look for consolidated numbers.
Balaji Amines Ltd- Consolidated numbers
Alkyl Amines Chemicals Ltd- Consolidated numbers
Regarding various products of the company you can read this blog.
Balaji Amines Ltd- Quarterly Numbers
After 4-5 quarters of sluggishness, the company saw a turnaround sort of performance in Q4FY20 with revenue increasing by 14%(Consolidated), EBITDA margin increasing to 23.6%(Consolidated) and Profit margin to 13.6%(Consolidated). Even the standalone numbers are quite good. Company benefited due to lower raw material costs as well as higher volume offtake. Also, in Q4 there was very little impact on the company’s performance due to lockdown and were operating at a capacity utilization of 70% during the 10 days of March Quarter.
Their much talked about subsidiary ‘Balaji Specialty Chemicals Private Limited (BSCPL)’ turned profitable with a revenue of 21 cr in Q4FY20 compared to 4 cr in Q3FY20. The subsidiary was shut in April-May 2020 and commenced production in June first week. Regarding the products of subsidiary which are quite new, some of the end clients have started to test them out as their contracts with other suppliers end. The clients are taking one month order and will gradually extend to a quarter once they gain confidence.
The management said in the call that they are witnessing improved demand.
The company owns a Hotel in Solapur,Maharashtra by the name of ‘Balaji Sarovar Premier’. Hotel is not operating for last 3-4 months has been incurring loss of about of 25 lakhs per month.
Balaji Amines also started producing acetonitrile since November 2019. I doubt they would have ramped it up yet.
Now, with the company getting the clearance for the added capacity as well as the subsidiary functioning, they have now lot of new or free capacity.
Balaji Amines Ltd and Alkyl Amines Chemicals Ltd- Q4FY20 Analysis
Alkyl Amines Chemicals td- Quarterly Numbers
Alkyl Amines had a flattish fourth quarter. But the margins were robust since the 3 quarters, I guess it would mainly be on the back of higher Acetonitrile prices.
Alkyl Amines is in the process of setting up an additional plant of acetonitrile of 15,000TPA(Current Capacity=10,000TPA) in Dahej and additional capacity of Methyl Amines from 30,000 TPA to 45,000 TPA in 2 phase. But due to COVID , it is likely to be delayed.
Alkyl Amines also supplies ethanol to refineries under the ethanol blending program of the govt.
With respect to lockdown, the company started production in April and now they are operating normally.
Balaji Amines Ltd and Alkyl Amines Chemicals Ltd- Q4FY20 Analysis
Since the products manufactured by both Balaji Amines & Alkyl Amines are intermediates as well as commodity, their fortune is dependent on how the end industry is performing as well as supply-demand dynamics of its end products.
About 75% of products manufactured by them goes into pharma & agrichem, which are doing very good. Other end industry are also doing good such as home care, personal care, tyres etc.
Similar to GMM Pfaudler which benefited due to pharma & agrichem doing well, amine industry is also witnessing the tailwind.
In terms of idle capacity, Balaji have much more than Alkyl, and can take advantage of the tailwind, if they execute properly.
Other than Acetonitrile which is an exception, even remaining products are doing quite well.