Balaji Amines Limited (530999) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Balaji Amines Limited Q3 FY '21 Earnings Conference Call hosted by Edelweiss Wealth Research. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the 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. Swarna Mukherjee from Edelweiss Wealth Research. Thank you, and over to you, sir.

Good afternoon, all. On behalf of Edelweiss Wealth Research, I welcome you all to the Q3 FY '21 Earnings Conference Call of Balaji Amines Limited. We have with us today Mr. Ram Reddy, Promoter and Managing Director of Balaji Amines Limited. We request him for his opening remarks, post which we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Swarna. Ladies and gentlemen, a very good evening to all of you, and welcome to the conference call to discuss the financial performance of the Q3 and 9 months of financial year 2021 of our company, Balaji Amines Limited. I believe that you would have got a chance to go through the press release, investor presentation and financial statements submitted to the stock exchanges and uploaded on our website. Let me tell you through the Q3 FY '21 stand-alone financial and operational performance. We recorded a 64% year-on-year growth in our total revenue from INR 224 crores in Q3 FY '20 to INR 367 crores in Q3 FY '21. We continue to witness increased demand across our product portfolio continues as there is sustained growth of Indian pharma industry on account of China KS1 business strategies being adopted by western companies. This also led to better price relations across majority of our products. With the price of DMF especially, registering a sharp uptick on account of reduced imports and supply-demand mismatch in domestic market. Our DMF client witnessed a much improved capacity utilization of 45%. This increased capacity utilization is a major positive for the company, as historically DMF plant has been underutilized at about 20% due to dumping from China and Saudi Arabia. Total revenues recorded growth of 34% at 28,350 MT in comparison with 21,160 metric tons in Q3 FY '20. Of Q3 FY '21, values of basic Amines stood 4,950 metric tons. Amines derivatives volume stood at 10,812 MT and our specialty chemicals stood at 12,589 metric tons. EBITDA payment at INR 99 crore in Q3 FY '21, up by 115% as compared to INR 46 crores in the same period last year. EBITDA margin in the current quarter widened by 647 basis points to 26.9% from 20.4% in Q3 FY '20. The increase in EBITDA margin was primarily on account of improvement in operating leverage due to increase in volume uptake and better price valuation. Cost of the tax witnessed a growth of 162% at INR 70 crores in Q3 FY '21 and INR 27 crores in the same quarter last year. BAT margin stood at 19.1%, vis-a-vis 19 -- 11.9% in Q3 FY '20. Diluted EPS for Q3 FY '21 stood at INR 21.66 per equity share. Now coming to our standalone performance for 9 months FY '21. Revenue from operations for 9 months FY '21 stood at INR 863 crores, up by 22% as compared to INR 691 crores in 9 months FY '20. EBITDA witnessed a growth of 68% from INR 134 crore in 9 months FY '20 to INR 224 crore in 9 months FY '21. Our EBITDA margin expanded by 665 basis points to 26% from 19.4% in 9 months FY '20. Part of the tax for 9 months FY '21 witnessed a jump of 87% to INR 152 crore from INR 81 crore in 9 months FY '20. Diluted EPS for 9 months FY '21 stood at INR 40.506 per equity share. Total volume stood at 69,809 metric tons for 9 months. The FY '21 was up by 11% as against 62,006 metric tons in 9 months FY '20. For 9 months FY '21 volumes of basic Amines stood at 14,199 metric tons and derivate volume stood at 29,005 metric tons and the specialty chemicals stood at 26,000... [Technical Difficulty]

Ladies and gentlemen, the line for the management is disconnected. [Operator Instructions] Ladies and gentlemen, we have the management line reconnected to the call. Thank you, and over to you, sir.

Sorry for the interruption. Our subsidiary, Balaji Specialty Chemicals Private Limited, which largely get us to end-user industry of other chemicals had an improved sales run rate of about INR 12.50 crore per month in Q3 FY '21. It is important to note that the prices of initial products as well as raw materials of the products of our subsidiary company have fallen. We are also exporting pure ore products manufactured by our subsidiaries like EDA and DETA to China, which previously used to get dumped in India. The prospects for our ore sector appear broken on account of improved overall dynamics for every delta sector in terms of higher water storage across the individual reservoir for last 5 years, leading to increased acreage under cultivation. These, along with the demand from China should bode well for improved performance for our subsidiary company in coming quarters. India currently imports 29,000 metric tons of EDA and 7,000 metric tons PIP and around 3,000 tons of DETA per annum. We plan to address this opportunity by progressively grabbing these share of imports market in coming years. All our CapEx plans are on track and expected to commence operations as per the decided time line. The debottlenecking exercise for acetonitrile plant is currently being undertaken and should get completed by end of March 2021. For this exercise, we -- the production of acetonitrile is expected to ramp up to 18 to 20 tons per day from the previous 9 metric tons per day. Despite new capacities of acetonitrile coming up in industry, we anticipate the prices to remain elevated as many end user clients may now prefer for sourcing acetonitrile, which is manufactured now direct due to its superior quality. And for going at acetonitrile, which is derived as a by-product. Also, we are undertaking research and development, which will enable us to further purify the quality as well as market by lower the cost of manufacturing of acetonitrile. We have completed CapEx of about INR 128 crores in our 9 PSR greenfield projects out of the total CapEx of INR 150 crore and expect to commission the production of methylamine by end of financial year 2021. The shortfall of methylamine in India is likely to increase to 15,000 tons per annum by FY '23 from 9,000 tons per annum currently. The production of diluted carbonate is expected... [Technical Difficulty]

Ladies and gentlemen, we have the management line reconnected to the call. Thank you, and over to you, sir.

Sorry for the interruption. Methylamine is a key raw material and the base product for value-added generating required by pharmas today and other chemical companies. We are currently a market leader in methylamine production in India and 80% of our methylamine production is captive-reviewed for manufacturing value-added products. Pharma today, application segment and agrochemicals are expected to drive significant demand for methylamine in India as well as global markets. As announced earlier, we made our increasing capital repayment, we plan to set up a separate plan for methylamine with capacity of [ 15,000 ] metric tons per annum undertake the expansion of greenfield projects at unit store for which the company has already received environmental clearance. We anticipate the commissioning of this plant by end of November 2021. We also plan to set up a separate plant for DMF with capacity of 40,000 metric tons and per annum at unit store, that is the greenfield project. The demand for DMF in India is witnessing a growth in the range of 7% to 10% per annum. We are currently preparing detailed project results, of which we will decide on the time line and determine the coming routes for whatever's required. 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 Rohit Nagraj from Sunidhi Securities.

Congratulations on a great set of numbers. [Technical Difficulty] Congrats on great set of numbers. The first question is in terms of the raw material availability. Could you just throw some color, how was it in Q3? And how is it panning out in terms of Q4, both pricing as well as our legacy, given that there is container shortage as well as the create rates have increased. How are we seeing that to pan out in Q4?

For the container shortages, it will not impact anyway for our impact because we do not insure anything in the container. Most of the [indiscernible] will come in the [indiscernible] on which we are getting that there's no problem. Only we see giving some impact on the exports, not only for the balance, so everybody in the country says the same thing, not only in the country, all are [indiscernible] probably this may improve actual analysis maybe at the end of the March, the situation will improve. That is number one. Number two, on the [indiscernible] prices, yes, there was increase in the methanol price, it's due to options for Iranian material last 1 or 2 years. We are not getting any raw material in Iran. We expect that with the new leadership in the America, situation may improve, whereby India may allow to import this from North America, Iran that comes then not only dollar amount. Everybody will be better [indiscernible] in the India on the chemical, pharma and everybody will be happy. Because for the Iran, the favorable destination is India. So we will definitely get the price advantage for getting all the high raw materials like the methanol, ammonia, any products from the Iran. So because it was almost 2 to 3 quarters continuously debt -- including all in a position to pass on this into industry customers. So with regard to [indiscernible] from March onward, there is the possibility of [indiscernible] including logistics and even the prices also, we are expecting -- that all the prices internationally should be improved at the lower price.

Right. Sir, I understand the prices of our products have been quite vibrant in Q3 and the seasons to probably even the month of January as well. So you just commented that probably the prices will start normalizing sometimes from April or March onwards. So what is our expectation? Will it have an impact on the margins? And if so, what are the sustainable operating margins that we are looking at from start '23, '23 hereto?

So I expect [indiscernible] the sustainable margin -- EBITDA margin should be 20% to 22%. But in our case, what will happen, yes, you are right, that prices may come down, margins may come down a little. But to the extent in our case, the new capacities will come by the time of March and April, which will be compensated by the margins from the additional capacities.

[Operator Instructions] The next question is from the line of Kishan Gupta from CD Research.

So I wanted to understand how would you explain this increase in margins this time from some 25% in Q2? Again, it has jumped to 26.5% this time. So how would you explain that?

See, this all depends. That's what we are talking. Not everybody talking in the live FY '20 raw material -- FY '20 how will it be, the situation. That doesn't mean you describe the product because product mix [indiscernible] because we are between 20 [indiscernible]. The [indiscernible] compilation have done very well. And we've been operating at 90%, 94% or more than these plants. And additionally, vis-à-vis DMF operated in with higher capacity. All [indiscernible] follow that rate, there will be more margins.

And how much of that is sustainable, do you think?

That's why I tell you regard your question. That the 20% to 22% is best situation between 20% to 25% is the alternative.

About the exports, like how much is your export scalable from here on?

See, that is again unavailable because of the current situation. And the logistics all over the [indiscernible] container, all these things are creating the problems. If this situation improves from our channel definitely [indiscernible], and we are also adding a lot of volume and also adding a lot pending models, piling up. We are just checking [indiscernible] availability approval from the shipping lines. We are just moving the cargoes. That is the situation.

So when if that improves from March or from April, so what is your understanding, how much of your revenues will -- total revenues will come from exports over a couple of years?

We have started in the last 3, 4 years. Last 2 years, we were trying to target up to 50%, but we are unable to -- for one or another reason, we are reaching from that 17% to 25% and this year probably we will try to target 20%. And coming to U.S., gradually maybe in one of U.S., we should try to reach the 30% of the total revenue from this page..

The next question is from the line of Jatin Damania from Kotak Securities.

Congratulations on the very good set of numbers. So I just wanted to [indiscernible] the demand for all our products are going up. So I just wanted to know how you ramp-up that...

Can you say something? It's [indiscernible] [Technical Difficulty]

Hello? Is this clear now?

Yes, this is clear now.

Sir, just wanted to understand the ramp-up in our acetonitrile, we had -- in last quarter, you were operating at 8 to 10 PPD. What is the ramp-up? And how do we see before our new capital will come in place?

Yes, [indiscernible] like to still be on their way to 10 only. I think said now in my opening comment. I'll request to everybody, please don't repeat the question. I clearly said that we are doing [indiscernible] 10x presently. We are doing the debottlenecking, we're expecting to complete by the next month, hereby, it will go to 18, 20x further, once you completed the debottlenecking.

Right. Okay, sir. Sir, 2 more questions, firstly, on the DMF, last quarter, we had an INR 8 crore worth of inventory. So as we enter 2019 booked in this quarter? Or we might see one...

I just wanted to tell you. I think, sorry, we look to the opening comments. The electric current rates balance after last quarter, which is completed, nice presently. And that we sold on a current basis here, which we relate this 6 to 7 [indiscernible]. And of the -- your information, now we have only bills. Presently, the so available given [indiscernible]. We started getting 9 lakhs per month, which is going direct to bottom line [indiscernible]. Second thing, the line, total [indiscernible] line is going year by margin need to be near the late, whereby the land costs have gone to more than INR 25 crores to INR 30 crores. So in the near future, it will be asset, which will be added directly to the bottom line. So there's a possibility of telling that land as well in near future. Nearly and ultimately. Definitely.

I just have 2 bookkeeping question. Can you help us in terms of the methanol and the DMF prices in the last quarter?

No, there is [indiscernible] 27 -- 26 to 27 [indiscernible] of DMF under the [indiscernible]. Importantly, methanol has gone to 29 to [indiscernible] and the DMF price also have gone to more than 1 to [indiscernible]

The next question is from the line of Amandeep Singh from AMBIT Capital.

Firstly, regarding the stand-alone volume growth of 34% y-o-y during the quarter, so can you help us understand the key products contributing to higher volumes? And if this is covered like demand or you are witnessing more sustainable order inflows along with your volume outlook over the next 2 to 3 years? That would be helpful.

Yes. See, on the volume [indiscernible]. Sometimes it happens because we do the integrated complex. So:ole sometimes, we will sell methylamine. Sometimes we sell developers more by using the methylamines. This makes the difference. Margins may impact are more also, but sometimes variance will make difference. But in this particular quarter, as I said in my opening remarks, the DMF has helped a lot because the DMF earlier used to operate 20%, 20%, 25% only. This quarter, I think, we'll operate at more than 45%. And we are expecting the prices on the market all over to go like this. It may ramp up further, 50% to 60% in the coming quarters.

And sir, overall volume growth outlook, which you could provide for the current year and the next year? Any sense on it?

It is a little difficult. Current year, we are on the track. As I say, the current year, I think we have given the 9 months -- I think we have given the full rather year, we have done some 7,702 metric tons in Q3. 9 months... Hello? Can you hear me?

That's helpful. And sir, secondly, in continuation to acetonitrile. So can you help us understand the average realization during the quarter?

The 280 is something we get. 242, 285. And is that [indiscernible] the price of the acetonitrile estimated and organic [indiscernible] and it has come down. [indiscernible] We combine to [indiscernible] something for another plan to develop [indiscernible] is not doing well and then [indiscernible] go up and down. That's why the [indiscernible].

Sure, sir. And sir, in the opening remarks, you highlighted that despite the debottlenecking, you still expect the prices to remain elevated. However, even your competitor is setting up a new plant, which is expected to be operational over the next 2 to 3 quarters. Given that also, will it be possible to give some outlook on acetonitrile prices post the commencement of the upcoming capacities?

Yes, we have our own idea, which are following by next quarter, you'll hear from us. We are also doing a lot of R&D. Thereby, you will see very low-cost [indiscernible] coming from Balaji Amines. So that time, we will see. We will do that at a different system. It will happen only when we do the next year. We are also working at the funding, which we have not been [indiscernible] to nuclear right now because we are at peak near the [indiscernible].

Sure. Sir, that was very helpful. And sir, lastly, if I could ask, your CapEx plans over the next 1 or 2 years given your upcoming capacities across methylamine, DMC, methylamine and DMF. So is it not possible to quantify the CapEx?

Yes, yes. The percent of methylamine, you know that this is coming to [indiscernible] target. And then maybe after 2, 3 quarters, the dimethyl carbonate will come. We -- ordinarily, we are starting only 10,000 tons, but filing working, it may go a little more also 10,000 to 15,000 tons sometimes, it will depend on minimum 10,000 tons. It may about slightly above 13,000 tons, that is. And the second, mainly by November 2021, we will commence with the 40,000 to 50,000 metric tons capacity of methylamine in new plant. And after that -- after this, then we are talking about DMF, which will take some time during in the next quarter we'll declare the highlight in the literature sometime in the next quarter.

Sure, sir. And sir, what would be the CapEx amount?

For this, we earmarked the INR 150 crores for methylamine, which we have already spent INR 160 crores, INR 75 crores for the DMT. And the amount, methylamine maybe INR 200 or INR 300 crores. And again, the DMF, which may not come this current year, maybe next -- mid of next year, which may come. That is also another INR 250 crores. But overall by the current run rate, we see that most of the more than 70% to 80% will -- the investment in coming from that grows.

The next question is from the line of Kunal Mehta from Vallum Capital.

Congratulations for a very good result. Sir, firstly, I wanted to understand, the first quarter in Balaji Speciality where now we have broken even at the pattern and we have reps actually report to INR 7.5 crores in this quarter. And a turnover of INR 58 crores. I just wanted to understand, sir, now that the utilization right now for this plant and reaching the utility that we have. And plus, I think we are now also exporting some of these products to China.

Can you tell me loudly, Kunal?

Yes. Sir, can you hear me? Can you -- could you hear my question, what I mentioned?

Yes. Say it loudly, a bit better.

Absolutely, sir. Sir, I just wanted to understand, sir, from a Balaji Speciality perspective, so how do we see the production going up in the next coming quarters? And at what point can we reach, I would say -- particularly, what is the retention -- can you reach more than 50% ratio for this [indiscernible], 50% to 70%?

Yes, Kunal. Presently, I think this quarter in India, we are slightly more than 40%, possible -- even possible 50%. We are expecting in the coming quarter by -- quarter-by-quarter, we are at least 10% more. Maybe about next year, it should go to more than 80%, 80% to 90%. And we [indiscernible] we are expecting situation like [indiscernible] today have a huge demand from the outside countries. So now we are exporting this product [indiscernible].

Got it, sir. Got it. So at least based on the order book that we have right now, we can be confident of improving to 70%, 80%, the next 3, 4 quarters gradually in the span of [indiscernible]. Sir, that is something we have to work with, sir? Sir, can you hear me?

Just give me a minute, sir. [Technical Difficulty] Ladies and gentlemen, we have the management line reconnected to the call. Thank you, and over to you, sir.

[indiscernible]?

Yes, yes, yes, sir.

In the coming quarter, answer your question. We expect in the next year or mid, it should be more than 80%, 90%. And the -- even by quality, we expect to see prices will be in the uptrend only. As we have seen outside the country, lot of demand we are seeing. [indiscernible] coming almost 70% [indiscernible]. Along with that, we started exporting in very good quality or other crops for the coming quarters from the Balaji Speciality because of the things we have seen, developments that we've seen last 2, 3 months even for an [indiscernible]. with asking the -- even 500,000 tons per month, we are not in a position to domestic commitments. So it -- situation most likely, definitely a positive for the Balaji Speciality.

That is very helpful. And sir, any -- we have a position , so maybe it's not a problem?

There was some chart [indiscernible] that we are managing. So that -- whatever possibility we are going to do.

Understood. That is very helpful. And sir, my second question is on the volume side. So I was just looking at the stand-alone volume numbers, which you report every quarter. And I was just looking at the trend of volume. So this year -- every year -- I mean this is the highest volume quarter in the history of the company, and we are at 28,500 tons of volume. And I could see that the volume of the Speciality products -- I mean, the Speciality products has gone up by roughly around 4,500 tons. So I can make out, based on the commentaries which you have given, that you have more amount of acetonitrile compared to this quarter last year. So just based on Speciality products or any other products, which are -- where we have increased our volumes on the Speciality side but...

Whereas the DMAC improved, DMAC, we are doing much is running full as around 15 to 20 days per month is was running on 5 to 27 days every month. So that is also another point in time [indiscernible].

And sir -- and these other products, I mean morpholine and the [indiscernible]...

It's all in the comments. There is no -- we were already doing 80%, 84% because 5% here and there, we are operating all the products. [indiscernible] in this country, operated properly. Next year, of course, these are some new capacities also to methylamine.

Okay, sir. And anything for NMP, because NMP the pharma intermediate, demand is not shorter, sir? NMP?

Yes. It's very -- a there's no problem. It is going with a normal . And what I said in my opening remarks, most of the [indiscernible] 80%.

Correct, sir. And just one last question, sir, for this quarter, can you give us the gross margin and the EBITDA margin of the Balaji Speciality actually for this quarter?

In EBITDA margin, I want to check. You can mail for that?

Sure, sir.

back on the tape. Okay.

Okay, sir. Okay.

But you can come in the queue for the time .

The next question is from the line of Sachin Kasera from Svan Investment.

Congrats for a good set of numbers. The first question on this volume, this 20,000 tons that we have done. Is this the peak that we can do from the current capacity? Or if the demand is there, if the...

We all order capacity in the DMF, which I said in my remarks, is value with the current ramp rate of DMF is 42%. There is still room in the DMF, which can go up to [indiscernible]. So now that will increase.

If the demand is strong, we can even do 30,000 tons from existing capacity?