Balaji Amines Limited (530999) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Balaji Amines Limited Q2 FY '21 Earnings Conference Call, hosted by Emkay Global Financial Services Limited. This conference call may contain forward-looking statements by the company which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Sinha from Emkay Global Financial Services Limited. Thank you. And over to you, sir.

Thank you. And good evening, everyone. On behalf of Emkay Global Financial Services Limited, I welcome you all to the Q2 FY '21 Earnings Conference Call of Balaji Amines Limited. We have with us today Mr. Ram Reddy, Promoter and MD of Balaji Amines Limited. We request the management for their opening remarks and post which we will open the floor for the Q&A. Over to you, sir.

Thank you, Rohit. Ladies and gentlemen, a very good evening to all of you, and welcome to the conference call to discuss the financial performance of the Q2 and H1 of financial year 2021 of our company, Balaji Amines Limited. I believe that you will have got a chance to go through the press release, investor presentation and financial statements submitted to the stock exchange and uploaded on our website. Let me take you through the Q2 FY '21 stand-alone financial and operational performance. We recorded a 21% year-on-year growth in our total revenue from INR 233 crores in Q2 FY '20 to INR 283 crores in Q2 FY '21. In this quarter, our capacity utilization was similar to that of our pre-COVID levels. We witnessed an increase in demand across our products portfolio with improved price realizations. Demand for certain products like acetonitrile, DMF, NEP, DMA and TEA will continue to remain elevated, as they are also intermediates of drugs required for COVID-19 treatment. We expect better volume offtake in the second half of this fiscal year, especially with the expected revival of the entire economic value chain across industries. Total volumes recorded growth of 8% at 23,150 metric tons in comparison with 21,376 metric tons in Q2 FY '20. For Q2 FY '21, the volumes of basic amines stood at 5,094 metric tons. Amines derivatives volumes stood at 9,916 metric tons and whereas speciality chemicals stood at 8,140 metric tons. EBITDA came in at INR 72 crores in Q2 FY '21, up by 49% as compared to INR 49 crores in the same period last year. EBITDA margin in the current quarter widened by 467 basis points to 25.5% from 20.8% in Q2 FY '20. The increase in EBITDA margin was primarily on account of improvement in operating leverage due to increase in volume offtake, better price realization and benign raw material prices. Profit after tax witnessed a growth of 37% at INR 48 crore in Q2 FY '21, as against INR 35 crores in the same quarter last year. And PAT margin stood at 16.8% vis-a-vis 14.9% in Q2 FY '20. And diluted EPS for Q2 FY '21 stood at INR 14.71 per equity shares. Now coming to our stand-alone performance for H1 FY '21. Revenue from operations in H1 FY '21 stood at INR 496 crore, up by 6% as compared to INR 467 crores in H1 FY '20. EBITDA witnessed a growth of 43% from INR 88 crore in H1 FY '20 to INR 126 crore in H1 FY '21. Our EBITDA margin expanded by 650 basis points to 25.3% from 18.8% in H1 FY '20. PAT for H1 FY '21 witnessed a jump of 51% to INR 82 crores from INR 55 crore in H1 FY '20. Diluted EPS for H1 FY '21 stood at INR 25.41 per equity shares. Total volume stood at 41,456 MT for H1 FY '21, as against 41,525 MT in H1 FY '20. Our H1 FY '21 volumes of basic amines stood at [ 9,247 MT ]. And amines derivatives volumes stood at [ 18,190 MT ], and that of speciality chemicals stood at 14,016 metric tons. Our operating performance is strong despite the losses due to inventory markdown from our legacy CFL business. The losses may continue for some more time as we continue to liquidate inventory. However, we are looking at revaluation of the land and building of CFL business to offset this. Our subsidiary Balaji Speciality Chemicals Private Limited, which largely caters to end-user industry of agrochemicals, had an improved sales run rate of about INR 10 crore per month in Q2 FY '21. It is important to note that the prices of finished products as well as raw material of the products of our subsidiary company have fallen. Our subsidiary company recently received the REACH certification from Europe for export of our product diethylenetriamine, DETA. In FY '20, we had received REACH certification for export of other product, ethylenediamine [Audio Gap] brightened, as agriculture has emerged as a bright spot amid pandemic with highest storage across reservoirs for last 5 years. Coupled with good monsoon rainfall, leading to more acreage under cultivation, this should bode well for improved performance for our subsidiary company in H2 FY '21. India currently imports 29,000 metric tons of EDA and 7,000 metric tons of PIP and 3,000 metric tons of DETA per annum. We plan to address this opportunity by progressively grabbing the share of import market in coming years. We are currently manufacturing about 9 tons per day of acetonitrile. Post the debottlenecking exercise which has recently commenced, we envisage to gradually ramp up our production of acetonitrile to about 18 to 20 metric tons per day. We expect the demand for acetonitrile to remain elevated, as it has emerged as preferred solvent by various end user companies as compared to other solvents. With pharmaceutical companies increasingly preferring to buy acetonitrile that is manufactured via direct route, we are striving to further improve the purity of acetonitrile by proactively undertaking research and development. We have completed CapEx of about INR 105 crore in our 90-acre greenfield project, out of the total CapEx of INR 150 crore, and expect to commission the production of ethylamines by the end of this financial year. The shortfall of supply in ethylamines in India is likely to increase to 15,000 tons per annum by financial year 2023 from 9,000 metric tons per annum currently. Demand for ethylamines is likely to get further boost as it finds applications in COVID-19 medicines also. The production of dimethyl carbonate is expected to commence during financial year 2022. The dimethylformamide prices have improved due to higher import prices from the China and as well as Saudi Arabia. And also a case for antidumping is pending with the government of India, which is expected [ at least ] at any time. Balaji Amines Limited is a market leader in methylamines production in India. Methylamines is a key raw material and the base product for manufacturing value-added derivatives required by pharmaceutical and agrochemical companies. Pharmaceutical applications segment and agrochemicals are expected to drive significant demand for methylamines in India as well as global markets. Demand for DMF is also to increase substantially post the [ government's decision ] to levy antidumping duty. And methylamines is also required to produce DMF. Thus, the Board of Directors have given approval for setting up separate plants for methylamines with a capacity of 40,000 to 50,000 metric tons per annum; and DMF with a capacity of 30,000 metric tons per annum at Unit-IV, which is a greenfield project for which the company has already received environmental clearance for methylamines. We are currently preparing detailed project report, post which we will decide on the time line and determine the funding routes for the CapEx required. The Board of Directors have also approved employees stock option plan providing for grant up to 1 lakh options, equity shares, to employees. That's all from our side. We now leave the floor open for question-and-answers.

[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment.

Congratulation on good numbers. I have 3 questions. One, on the profitability side, now what I see is that the methanol and ammonia prices are back to the June 2019 levels. So just wanted to understand our inventory, if any. And does it mean that the gross profit and the EBITDA per ton starts moving down and we actually go back to the June quarter, which was one of the lowest profitability at the similar ammonia and methanol prices? And is the observation correct?

So thank you, Mr. Chheda. I don't think you are correct on the methanol. Methanol is still -- even today, I can tell you today's price is INR 20. 50 -- or INR 21 is the -- on trade terms basis. When you compare earlier, we used to talk about 24,000, something. And last quarter also, entire quarter, it was between INR 18 to INR 21. So I don't think [ there is ]. As regards to inventory, we have only 1 month inventory we are maintaining on the past 1 year because of the easy availability, so I don't think there will be any problem. Yes, in ammonia, there was a little increase when you compare with the last month, but I don't think -- what you're talking, very huge increases, as of now, I could not see. I can see properly for at least 1 month the prices are maybe INR 500 to INR 1,000 per ton [ year-end here ]. There is no major change in the ammonia prices.

Okay. My second question is, sir, based on the capacity that we have on ground as of now, what is the volumes possible out of that capacity? And second, when we are adding the acetonitrile incremental 11 tons per day -- so that's about 3,600 tons capacity. And we are adding ethylamines capacity by the year-end. So on the expanded capacity, what is the maximum volumes possible? So maximum volume on current capacity that you have today plus these 2 capacities which are supposed to be lined up incrementally over the next 6 to 9 months, what is the incremental capacity volumes that is possible?

See, sure visibility, I can see the DMF what we are -- earlier we used to sell, about 600 to 800 tons. This month onwards, I think we can sell about 1,500 tons per month. So there will 5,000 to 6,000 tons easily can come from the only DMF. As regards our acetonitrile, yes, last 2, 2.5 months, we can get that 10 tons per day, the 8 to 10 tons per day we can see. And ethylamines, if we start at least 2 months, I'm expecting at least [ it will be very much ] we should easily get that capacity even if we take what -- 50% or 40% capacity also. We can take 20 tons per day. That is [ another ] 60 days you can take from ethylamines. These are -- volumes are guaranteed, visible as at today, if everything goes well.

What is the ethylamine additional capacity, 20,000, right?

50,000. 50 tons per day we are talking additional capacity.

Right. So about -- yes, so that's about 20 tons -- 20,000 tons...

16,500 tons, if you take 330 days, [ workable days ].

Okay, okay. And my last question is, sir, on the DMA HCL antidumping, what is the status there? And does it bring anything incremental?

It's not DMA HCL, my dear. It is about DMF, dimethylformamide...

Sorry. I'm sorry. Yes.

Dimethylformamide. So the case is pending. We are actively talking every day, but end of the day, what I can say, it is -- depends upon the government. We cannot insist to them, and we are the -- not that big that we can put some pressure [ and do ]. We -- but with the grade of god, we are in a good position as in today. The prices without antidumping also, we are in a commanding position in the price point of view. Because I don't know. Something went wrong with the other competitor or manufacturers in other countries. Like China is also increased the prices. And Saudi has also increased prices. Actually, today, it is in short supply, DMF. So without, okay. We may yet expect antidumping, but without that also, I can see the visibility for next 2, 3 months. It should be -- the pricing should be good.

That's why you're adding 5,000 to 6,000 from DMF, [ is it ]? And you have the capacity there, right, already?

Yes.

What is the capacity, sir?

We have total if it goes. I don't think we can run 100%. 100% is 30,000 tonnes per year. So we have 6 months time. We already finished 6 months. And in these 6 months, I am expecting at least 1,000, 1,500 tons per month. So about 8,000 to 9,000 tons, we should do in this half year, okay?

Okay, versus last year...

Last year, we have done average 600 to 700 tons per month, total year.

[Operator Instructions] The next question is from the line of Kunal Mehta from Vallum Capital.

Congrats for a very good quarter. Sir, the first question, [ firstly ], I want to understand this new capacity of methylamine which you are going to -- which you have announced to add. This capacity, when will it come on stream? And so that's the first question. And then secondly, just as linked to that, so now this methylamine will also be used in the DMF plant which we have. And I think we'll also use the same methylamine for increasing -- for producing more DMA HCL, if I'm correct. So for DMF, I just wanted to understand. What is giving you the comfort that this sort of pricing which we are seeing will not reverse itself in the future? Assuming, that is, this antidumping duty may not come through in the worst case, then...

There's a reason -- Kunal, thanks of your questions. There's a reason I am talking about -- I am not emphasizing that DMF...

Sorry to interrupt, Mr. Reddy. Sir, your voice is breaking up.

Okay, is it clear now?

Sir, a little bit better.

Yes. See, I am very [indiscernible] I am talking -- I am not talking about the antidumping. [ This whole ] antidumping basically started forming up the last [ 2, 1 ] quarter. It has started forming up the prices. From the 60 to 70, 70 to 80, now it is 85, 90 current rolling price. Even if not 90, it will not go below 80, which is comfortable for us. So definitely, we expect, with looking into this current India's drive, what -- Atmanirbhar Bharat drive, all pharma industry -- see current import is almost 60,000 tons in the country for the DMF. I am expecting a lot of the API pharma industries are -- plan their expansions. [ This 60,000 ] should definitely go to 80,000, 90,000 in coming 1 or 2 years. By the time we come on to this additional market, we will be talking about only 50% of the market that time also should not be more than 50,000, 60,000 tons, where we are talking about today additional 30,000 tons adding to the current 30,000 tons. And as regards methylamines. If I run current DMF plant, DMA HCL plant, DMAC, DMAE, all this, on NMP, this choline chloride. If we run all these plants 100%, I will not have a single [indiscernible] of DMA to sell in the market. So that is the current -- there's a reason we have taken it very seriously. And at the earliest possible, we will [ take up this ]. And I'm expecting that, the moment we take decision, it will not take more than 12 to 18 months to come into production.

Okay. So the -- starting from maybe if this gets approved in the next -- maybe in this Board -- your next Board meeting, then starting from that, we should have, I mean, in the next, I will say -- today, we are in November, so we should -- so by the time -- by June 2022, we should have -- this plan should be onstream and production should start. Is that the right way, sir?

Yes...

For methylamine, 40,000 tonnes methylamine new plant.

Yes, yes. You are right.

Okay. Okay. And sir, second question I wanted to understand was regarding the subsidiary. So this quarter, what -- in the first half, what was the total EBITDA of the subsidiary? And what was the gross margin of the subsidiary in the first half?

See, for -- I think we have given -- 6 month numbers, I think, we've already given. We have done -- so about volumes, we have done -- around 44,000 tons, we have done, for...

No -- sir, Balaji Speciality, on the subsidiary.

Yes, Balaji Speciality, I'm talking. Sales, I think we have done 55 crores we have done. There we have done profit -- loss before tax of 743. Depreciation is about 502 crores. Cash loss is 242 crores, as against depreciation of 502 crores.

Okay, okay. So this is -- this has been a lag...

And cash lag, if you compare last year, for the 6 months, it was 511 crores...

[indiscernible].

5.11 crores. Now it is 2.41 crores.

Okay...

And see, probably next 2 quarter, we should see this is into the green, not into the red. This is my expectation. From next quarter onwards, you will see the -- we will not talk about anything [ last word ]. That is my expectation.

So next quarter will not have any cash loss. That is the right way to put it, sir...

[indiscernible] [ expectation ] we should see the net profit, not even cash. That is my expectation, because all things [ are sold ] slowly...

And the order book in the subsidiaries stands at what amount? I mean, any visibility on the orders of the -- can we -- can this INR 10 crore run rate increase to INR 15 crores, INR 20 crores?

Actually what happens, if I am doing INR 10 crores to INR 12 crores every month, in any business you will see the farm confirm maybe 50% booking will be there. Balance [indiscernible]. We can say the [ on-the-spot ] sales will be there. That's what is happening in our companies also. Last year, we were seeing about INR 8 crores -- INR 7 crores, INR 8 crores. This year, I have seen INR 10 crores to INR 11 crores form sales every year we are making.

Understood, understood, sir, okay. And one final question, sir, if I'm -- we can add. Sir, this regarding this -- so this quarter, there is 2 -- there are 2 factors. One is that you said that methanol prices are low -- are still lower, as compared to what we had last year. So that benefit is something which we are able to avail. Secondly, sir, because of this good demand from our customers because, pharma, agrochemical, both -- are the only sectors where things -- where volumes are expanding. So because of the demand, sir, we are seeing, good price also -- so realization is also improving. So this realization, this should also continue for the next 2, 3 quarters, right? That there will not be any problem in the net pricing of the -- I mean the realization should not drop.

For me, at least I can see the visibility 1 and more quarter. I can't talk to 3 to 4 quarters. [ The current quarter, really, ] I can see, this running quarter. And the coming quarter also should be proper only.

The next question is from the line of Nirav Jimudia from Anvil Research.

Sir, I had a few questions. Sir, could you just share the perspective on DMA HCL? Because, sir, what we have been seeing is most of the players in India, like Aarti Drugs, [ have ] recently announced that they are also expanding their metformin capacities. So if you can just share your perspective in terms of our current sales and when our 7,500 metric ton capacity will come online.

Yes. See, I was also -- like you, I was also under impression that everybody is increasing where the metformin will go, all these things. I've seen one positive things last [Audio Gap]

Sorry to interrupt, Mr. Reddy. We lost the audio from your line.

Isn't it -- hello.

Yes, sir, it's audible now.

Yes. See, in the -- I think it is in the business line in a newspaper. There was a article. They say that, metformin, they have started prescribing in addition to [indiscernible] started surely writing for [indiscernible]. And they are talking now [indiscernible]. They have mentioned two more I do not remember, but if you search it, then you will get it. [ So into this ] -- and I have seen -- last 1 quarter, there's a good demand I have seen. [ I don't know ]. Either it is real natural demand. It should be. Or maybe my competitors are not working because, DMA HCL, I've seen going very hand to mouth [ for a straight quarter ]. This shows people are on right track for their expansions [ outlooks ].

Correct, but sir, when our capacity of 7,500 tonnes would come onstream. We are already at 25,000 tons, right?

Yes, yes. This continues. If this quarter continues, definitely, we will go. My -- debottlenecking is the [ the MA ]. There's a reason we have announced really the MA or methylamines capacity, [ though ] it should be coming parallel, methylamines, even DMA HCL, DMF. All these things should come because, anyway, we have -- environmental clearance with 7,500 is already in place. [ That means we already ] -- methylamine is already you've got the environmental clearance for about 40,000 tons.

Correct. So probably this may be the reason why DMF utilization is slightly lower, because we are facing some constraint on the [ DMF ], right?

That also, yes. That also will come. Thus when the sales point comes and the demand comes [indiscernible] natural we will see, which is a high realization [ from a ] profit point of view. So those things will be seen, whether I should make the DMF, whether I should make the DMA HCL or I should sell [ as DMA ]. All these will come until we commence the new capacity of methylamines, yes.

Correct, yes. Sir, the second question is on the morpholine. So like our current capacity is like around 10,000 tons. So how we are seeing the utilization currently. Because what we have seen, that some of the sectors like rubber chemicals and dyes, they have again come back. So if you can just share your perspective in terms of the domestic as well as if we are doing some exports on the same.

Yes. Internationally, I am seeing a lot of demand for the morpholine. We -- I think, last month -- [ last quarter and ] last month, we sold to China morpholine, which is a significant thing, I can say, second time we have sold more than 400 tons in a single month. We have sold. And I am seeing the demand from the various parts of the world. We've been running these plants for the past 2, 3 years. Our cost has become self sufficient, without any support from the antidumping type of things. Now we can compete. We have confidence to compete with anybody in the world for this product. So probably this year we should reach more than 80% capacity utilization if things go like this.

Okay. And has the pricing improved, sir, on the morpholine?

Yes. It's maybe going the same level, playing like -- it depends on the raw material. If raw material improves, finished product improving. Raw material goes down [ will allow to reduce ] the finished product also.

And sir, last question...

Sorry to interrupt, Mr. Jimudia. [Operator Instructions] The next question is from the line of Swarnabha Mukherjee from Edelweiss.

So congrats on a great set of numbers, sir. My first question is related to your margin profile. So you had mentioned that you have some visibility over the next 1, 1.5 months, at least, that realizations will hold. And it has -- well, as we can see, it has gone up quite a bit over year-on-year or quarter-on-quarter comparisons. So does this mean that for the at least coming some point of time you would like to revise your earlier EBITDA guidance -- EBITDA margin guidance that you used to provide? Should we expect now a little bit higher?

[indiscernible] it will take some time, if you see my earlier statements also. I do not believe [ for a 1/4 quarter or, not, 2 quarters ]. Even the people who are talking about the acetonitrile. I -- it took for me to -- almost a year to say that, yes, prices are [ fine. ] Here also I would like to say that [Technical Difficulty]

Ladies and gentlemen, thank you for patiently holding. We now have the lines of the speaker reconnected. Over to you, sir.

Mr. Swarnab, can you hear me?

Yes, I can hear you, sir.

Yes. See, as regards this margin, see, we were talking, maybe I should wait another quarter to get these type of numbers. Then we can understand, yes, these are the natural growth [ or natural elements ] by the market. Then we can revise our -- saying that between 20% to 22% or more than 22%, we can say, EBITDAs.

Okay, okay. All right, sir, got it. Sir, another question that I had was on the you mentioned on the CFL losses in your opening statement that it is -- there is, I think, some amount of stock also remaining. Can you give us some color on how much could we expect more in terms of losses?

We have another 7 crores, 8 crores worth -- 8 crores, something, worth of inventories there, but I can assure you here what happened. When we sell this, probably we may lose some more money in this from 6 crores to 7 crores to 8 crores, but at the same time we have land which is shown in the books only 1.6 crores. Building is shown only 3.6 crores. If we revalue these 2 assets, this will become more than 20 crores, 25 crores. So probably, by next time when we do this, when we complete this inventory as a final sale -- so that time, we will do this revaluation also to come out of all these things we'll clean upon. There the episode will close.