Balaji Amines Limited (530999) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Balaji Amines Limited Q1 FY '22 Earnings Conference Call hosted by Emkay Global Financial Services Limited. 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. Rohit Nagraj from Emkay Global Financial Services Limited. Thank you, and over to you, sir.

Thanks, Mallika. On behalf of Emkay Global Financial Services, I welcome you all to the Q1 FY'22 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, post which we'll open the floor for Q&A. Over to you, Ram sir.

Thank you, Nagraj. My name is Ram Reddy, Managing Director, Balaji Amines Limited. Ladies and gentlemen, a very good evening to all of you, and welcome to the conference call to discuss the financial performance -- the Q1 FY'22 performance of our company, Balaji Amines Limited. I hope you have got a chance to go through the press release and financial statements submitted to the stock exchanges and uploaded on our website. First, kindly, let me take you through the stand-alone financial and operational performance. We have recorded 85% growth in total revenue, which stood at INR 394 crores in Q1 FY'22 as against INR 213 crores in the corresponding quarter of previous year. The growth in revenue was on account of additional stream of income from new ethylamine plant, along with overall increase in capacity utilization due to higher industry user demand. Our operations were not hampered much during the second wave of COVID-19 in India as our products fall under essential category with many of them also required as intermediates in medications. EBITDA was up by 119%, which came in at NR 117 crores in Q1 FY'22 as compared to INR 54 crores in the same period last year, with EBITDA margin at 29.7% in Q1 FY'22 as compared to 25.1% in the same period last year. The improvement in operating margins was primarily on account of better capacity utilization and continuing healthier price realization across most of our products. Profit after tax recorded an increase of 136% at INR 82 crores in the current quarter ending review as against INR 35 crores in Q1 FY'21. PAT margin stood at 20.8% in Q1 FY'22 as against 16.3% in Q1 FY'21. Diluted EPS for Q1 FY'22 stood at INR 25.25 per equity share as compared to INR 10.70 per equity share in Q1 FY'21. Total volume stood at INR 21,997 MT for Q1 FY'22, up by 20% as against 18,306 MT in Q1 FY'21. For Q1 FY '22, amines volume stood at 5,394 metric tons. Amines derivatives volumes stood at 9,587 metric tons, specialty chemical volume stood at 7,060 metric tons. Now coming to our consolidated performance for Q1 FY'22. Revenue from operations for Q1 FY'22 stood at INR 452 crores, up by 102% as compared to INR 224 crore in Q1 FY'21. EBITDA for Q1 FY'22 recorded a jump of 165% from INR 55 crores in Q1 FY'21 to INR 144 crores in Q1 FY'22. EBITDA margin for Q1 FY'22 was at 31.9% as against 24.3% in Q1 FY'21. PAT for Q1 FY'22 was up by 208% from INR 32 crores in Q1 FY'21 to INR 97 crores in Q1 FY'22. Diluted EPS for Q1 FY'22 stood at INR 27.90 as against INR 10.17 per equity share in Q1 FY'21. Our subsidiary company, Balaji Specialty Chemicals Private Limited, continued to witness substantial increase in capacity utilization with the company recording sales volume of 3,624 metric tons in Q1 FY'22 as against [ 1,730 ] metric tons in same quarter last year. We have recorded 42% capacity utilization in Q1 FY'22, which was anticipated to further ramp it up to 50% to 60% in subsequent quarters. Non-agrochemical clients constituted about 40% of total sales of ethylenediamine in Q1 FY'22 from about 10% in earlier quarters. Our endeavor is to increase the share of exports from our subsidiary plant to about 25% to 30% going forward from about 13% in Q1 FY'22. With commencement of operations of our state-of-art new plant of ethylamine, which is part of the phase 1 of our 90-acre greenfield project, Unit IV at Solapur. The company has the largest installed capacity of ethylamine in India at 22,500 metric tons per annum. Our new plant has already achieved capacity utilization of over 90% in Q1 FY'22. The new plant of ethylamine at Unit IV will lead to lower cost of production due to a new technology. With the commencement of this plant, Balaji Amines is the largest manufacturer of methylamine, ethylamine and other chemicals in India. The construction of new plants for dimethyl carbonate in Phase 1 of greenfield project, Unit IV is undergoing, as envisaged and we hope to commence production of DMC by the end of FY'22. Till 30th June 2021, we have undertaken a total CapEx of INR 172 crores in Phase 1 of our greenfield project and further INR 53 crores would be invested. We also plan to set up an additional plant of acetonitrile, having capacity of 50 TPD with projected CapEx of about INR 70 crores to INR 80 crores at our 90-acre greenfield project, Unit IV. This plant is expected to commence operations in financial year 2023. Methylamine is a key raw material and the base product for value-added derivative required by pharmaceutical and agrochemical companies. We are currently the market leader in methylamine production in India and 80% of our methylamine production is captively used for manufacturing value-added products. Pharmaceutical application segment and agro chemicals are expected to drive significant demand for methylamines in India as well as global markets. As announced earlier, to meet our increasing captive requirements, we plan to set up a separate plant for methylamine with capacity of 40,000 to 50,000 tons per annum under Phase 2 expansion of greenfield, Unit IV, for which the company has already received environmental clearance. We anticipate the commissioning of this plant by end of 2023. That's all from our side. We now leave the floor for -- open for question and answers.

[Operator Instructions] The first question is from the line of Amandeep Singh from AMBIT Capital.

Firstly, regarding the stand-alone volume growth of 20% Y-o-Y during the quarter. So can you help us understand the key products contributing to higher volume than blended utilizations for the quarter? And also, despite the ethylamine plant coming up and reaching more than 90% utilization, there was volume decline of 12% on sequential basis. So can you help us understand if this was due to impact on operations due to COVID second wave or any disruption in demand? Any clarity on this?

No. Actually the volume growth which you -- on consolidated basis if you see, that specialty -- Balaji Speciality, that subsidiary's contribution is there more than 3,000 tons in that. And as regards your declining in the current quarter. The ethylamine, it is given only for the part of May and June. Hardly it has worked for, I think so, 40 days. So that is the main reason. And there are many other reasons because after first wave COVID, there are many products like remdesivir and FabiFlu and many other drugs have come to slower. And that capacity is declining.

Any number on blended utilizations?

Number, it is very difficult. You can send a mail, we will give it you.

No worries. No worries, sir. And sir, secondly, on gross margins. So when we see your stand-alone gross margins, that is excluding your Balaji Speciality subsidiary, so on a stand-alone basis, the gross margin came in at 49.5% versus 53.1% in previous quarter. So we believe this has been largely driven by sharp [Technical Difficulty] prices. So can you help us understand the quantum of increase in raw material prices, reason for the same, and how this can be -- and if this can be actually passed on to the customers?

You're right. You are right. The raw material prices were slowly increasing. And exactly by the end of the quarter, the prices have gone to peak. Even now also prices are going up. As I said earlier, it will take at least 2 to 3 weeks' time to passing on to the customers by convincing and by understanding them what is going on actually in the market, which is current situation. Actually, in this quarter -- in the last month that is July, still the prices like methanol earlier, we used to talk about INR 28, INR 29. Today, I'm talking about. As on today, the prices have gone up to on landing basis more than INR 34, INR 35. And same with ammonia, which was INR 40, INR 42. On the landing basis, today, it has become more than INR 50, INR 52. There is a huge increase. And we have already started passing on to the -- explaining to the customers and passing on to the customers, which may take some time, but it will be passed on.

Reason? I mean, it would be due to supply chain issues globally or any other specific reason?

Sir, there are many reasons...

Sorry to interrupt, Mr. Singh, but would request you to rejoin the queue, sir, for follow-up questions.

This was actually in continuation, but yes, I will join in the queue.

Yes, this is -- that is main reason you have rightly said that logistics all over world disturbed. And second thing, there are some plants in the worldwide are not working. They have taken on the shutdowns, some plants are affected because of the logistics and some plants are affected with some accidents in some of the countries. So all these reasons together it has impacted. We don't know how long it will take, but there is a increase in the main raw material.

The next question is from the line of Kunal from Vallum India Discovery Fund.

Sir, am I audible?

Yes. Go ahead, Kunal.

Yes. And sir, wanted to understand, firstly, for the last few quarters, we have been seeing specialty products volume for Balaji Amines stand-alone to be around 10,000 tons plus volumes we have been seeing in the last 4 quarters. So this quarter, we were -- I mean, this quarter, it was 7,000 tons roughly. Sir, what was the reason for the decline in specialty products volume this quarter?

See, that is mainly because of the raw material cost like acetic acid has gone up very abnormally. The acetic acid used to be around INR 30, INR 40, which has went more than INR 100 in the last quarter. And even now also it is somewhere INR 85 to INR 90. There are 2 to 3 main products, which are used by this acetic acid, mainly acetonitrile. We -- for some period we have stopped the plant because of the high prices of the acetic acid. We have taken the break, and we have started working on that revamping work we have taken during this period. And even for the dimethylacetamide also is affected because of this acetic acid. Because of those reasons, this impact has taken. And to some extent, one product that is DMF also because of the shortage of the oxygen to some period, did not work in the last quarter.

Sir, in the coming quarters, we will again stick to this same level of 7,000, 8,000, 6,000 tons or we can go -- we can still rebounce back to the 10,000 plus level...

It's very difficult to say. We just started working. That acetic acid have -- has come down to INR 65, INR 66, again, it has gone up, and we started the plant of the acetonitrile. It is working and DMAC also it is working. We -- probably we should improve from the 7,000, right?

Got it, sir. And sir, just last 2 -- last 1 question. Firstly, I wanted to understand what was it -- I mean, what was the utilization of DMF plant in this quarter? I mean I wanted to understand for the month of June, specifically, what is the running rate which you are having because I think I believe that in the month of April, the shortage of oxygen would have caused droppings in production. But in the June -- by the end of June, what did we close in terms of utilization of DMF. And regarding Balaji Specialty, where 40% of the product is going for nonagro use. So sir, can you highlight in what area that is going, and into which set of customers? I mean, I don't want the names, but that -- just the application.

See lot of pesticide industries are there like UPL, Coromandel, all these companies are using the -- PI Industries. Many, many -- you name any pesticide industries, they are using our chemicals from Balaji Amines. And for the specialty, these are the 3 means -- main -- 3 companies like UPL, Coromandel, Indofil and all. And DMF, I think it ramp because April totally, we could not run because of the season. I think June, we have done some 1,200 to 1,300 tons. And I think current July, maybe more than 1,400, 1,500 tons. From here, it should ramp up because the oxygen, we have already started getting from outside and we are also making alternate arrangement. Internally, we are building a plant for the oxygen if something goes wrong like earlier, we are preparing for the -- any adverse impact on the oxygen in coming period.

The next question is from the line of Punit Mittal from Global Core Capital.

I have just one question. Whether it's in Balaji Specialty as a standalone plants, are our plants fungible? In the sense, can we interchangeably use for other products?

No. As of now, no. See, Balaji Amines, we have some opportunities. Like earlier, we said that acetonitrile and THF interchangeable. But specialty, we have not tried. Specialty -- Balaji Specialty, we are exclusive plant and exclusive products. We have not tried anything -- to change any other product.

Okay. Understood. And the second question is you were highlighting that the raw material prices are still up. So do you see a continuous pressure, little bit pressure on the gross margin in this quarter and the next quarter as well?

See, there will be pressure, not only on Balaji, all chemical industries passing through this pressure because of this logistic hitted very badly on the -- all the chemical and specialty chemical industries. But for Balaji, we have some new capacities added which are compensating. If you see this quarter, in spite of all these things, because this greenfield project is commissioned that has helped us to maintain our values of the revenues and even the improvement in the bottom line.

The next question is from the line of Swarnabha Mukherjee from Edelweiss.

Ram sir, two, three questions from my side. So first one is related to acetonitrile. You just mentioned that you had stock for acetonitrile and now after the revamping you have started the plant. So now going forward, are we expecting 18 to 20 tons per day volume in this facility?

See, revamping has not completed fully. The moment the acetic acid prices have come down, we immediately packed up and we started the work. There is another 8, 10 days work still pending for the debottlenecking, which we will be doing in the maybe coming weeks, next 2, 3 weeks, we will take up that.

Okay. So I mean, by end of August or early September then we'll be running at 18 to 20 tons per day...

Yes, we'll be running at the new capacity after debottlenecking whatever capacity comes like 15 to 18 tons whatever comes per day we'll be running.

Okay. And sir, can you give me acetonitrile and DMF prices what you are seeing right now?

See, acetonitrile prices are somewhere INR 270 to INR 280 is the current rolling price. And this is actually very lower price when you compare to the increase in the acetic acid prices. The reason these acetic acid prices increased and lower capacity has given us a lesson to learn to go for the -- create a new capacity -- a sizable capacity, which we have announced in yesterday's Board meeting, that is we are coming up with a new plant of 50 metric tons acetonitrile, which should be operative in the next financial year. And that will be the new technology, which will be lower cost of price.

Okay, sir. And in terms of DMF, where do we see the capacity now? I mean -- and the exit rate sir, because I think for the quarter if we look at it, then few days, as you mentioned, must have been lost because of raw materials...

We should be doing 1,500 to 1,800 tons this quarter also, if this goes continuously demand, whatever we are seeing, there is good demand. I think there is a short supply in the world market for this product. Unlike earlier we used to face the pressure on the pricing from the imports. This time, we are not facing that much. The current roll price is around INR 150 to INR 160.

Okay. And sir, the new acetonitrile CapEx that you announced, will it have the fungibility with THF?

Can you repeat?

Sir, the new acetonitrile, the CapEx that you have announced yesterday, will we also have the facility to manufacture THF in case if you see a oversupply or anything like that?

That is very difficult to say right now because that's totally new technology, totally new plant and totally new route. So it's very difficult to say today until otherwise we operate once.

Okay. Okay, sir. And last 1, 2 questions, sir. Methylamines, we expect to run at 90% now going forward?

Yes. Presently, we are running 90% capacity.

Okay. And the per ton -- I mean, the per ton profitability of both your base business and subsidiary has gone up. What are your thoughts, sir, how it is going to pan out, particularly in subsidiary because I think it is a critical import substitute product. So will it be running at EBIT per ton at a similar level? Or should we see normalization going forward?

Actually, it is doing very well, Balaji Specialty Chemical. Those products -- all the new products like EDA, piperazine, DETA, all the field products, short supply in domestic as well as international market. So that is giving us some leverage in improving the prices and margins. Only thing is there was some short supply of the raw material. We are still facing that short supply. Otherwise, today, the capacity would have gone to more than 60%, 70% now itself. So we are expecting for the coming months, that is maybe August end, September onwards improvement in the availability of the raw material that is monoethylamine. That will definitely give leverage to improve this utilizing of the capacity.

Okay, sir. All right. And any guidance on the revenue front around base and -- base business and the subsidiary for this year and next year?

Q3, I'm expecting -- we have done INR 75 crores for this quarter. And we expect minimum INR 300 crores to INR 350 crores minimum, on conservative basis I'm telling. In current financial year, it should touch INR 350 crores.

Okay. And in the base business?

Base business, I think we should touch INR 1,400 crores plus it should touch, INR 1,400 crores to INR 1,450 crores.

The next question is from the line of Dhruv from HDFC Asset Management Company.

Sir, a bit related to the earlier one. The acetonitrile, sir, our existing capacity, I believe, is still to be fully ramped up. I thought it was facing some issues. Sir -- and we have announced this CapEx. So what is the confidence that this will be at the full run rate once it is commissioned?

Yes, there is an international demand and even domestic also, still there's a lot of imports are coming. And there are a few customers where we have seen that a lot of increased capacity are coming up, even in the country also under Atmanirbhar Bharat we are seeing lot of capacities have been planned up, where we expect the acetonitrile will go huge quantities. That is the reason we have just planned up to cope up all this capacity -- demands.

Yes, sir. So actually, I was trying to understand from the production side, the existing capacity is also, I believe, taking some time to ramp up. So we believe the other route is more viable and it can ramp up fast.

Yes. Existing capacity, there were 2 reasons. One reason, when there was a -- price were very good, we were unable to take the shut down for doing this debottlenecking activities. So now probably the next coming 2, 3 weeks, we'll complete this debottlenecking, and then we will be running this capacity full, that is, between 15 to 18 tons per day. Then next year, we are talking about this new capacity of 50 tons per day. It will be next year. So will be -- even though at higher prices of the acetic acid, it should be viable, that's the reason we have chosen this new technology and the new plant.

Okay. Got it. Got it. And sir, the second question was now if I look at the overall demand-supply situation, you plus your competitor -- the other competitor, both have announced significant capacities. You have also announced the methyl expansion. Sir, once again, just to confirm, this 2023, you mentioned is CY '23 -- end of CY '23 or FY '23. Methyl expansion -- methylamines expansion?

Yes, yes. Next -- 2023 -- you see because this has taken frontline. ACN has taken the first place because of the certain dynamic market changes and dynamic reasons. Acetonitrile will be coming first. After DMC, dimethyl carbonate, then acetonitrile, then methylamines.

Methylamine. And methylamine is by December '23?

Yes, '23.

Understood. Got it. And sir, if I look at all the expansion, it seems all the capacity additions will exceed the current import volumes. Basically, India, will it seems become largely domestic dependent then. Sir, in any sense if, for example, the demand were to be relatively slow for whatever reason, is it possible to start targeting exports if such a situation arise?

We're already doing. Dhruv, you would have seen our reports, we're already doing 20% -- 30% exports. Specifically -- yes, basic products also. We are doing the -- DMA also we are exporting. Because of the domestic demand, we are restricted to the exports. And ethylamines also we started exporting. NMP is already doing. Morpholine, we were not doing, that also we have -- morpholine, we are also exporting. And even DMF also we just started penetrating outside market.

[Operator Instructions] The next question is from the line of Amar Mourya from AlfAccurate Advisors.

Sir, my question was more on the other expenditure and the employee cost, which has come down. So how we should take the run rate going forward, if you can comment on this?

Other expenses. See, other expenses, sometimes what happens like insurance premiums and we are coming up with a power plant, sometimes we were running 1 plant on the power plant of our own power plant and sometimes we are on the MHD. This makes a difference. I think this quarter, there is a change in that. So the reason you have seen the difference. Going forward, we are coming up with a power plant also. I think we have not mentioned, I missed it, maybe next 3, 4 months, there will be a power plant, cogeneration plant in the Unit III with 4.9 megawatts capacity, which will take care of entire Unit III and Unit IV power requirement. So that time, you will see substantial savings and consistency in the supply also.

Okay. Okay. And sir, employee cost is also slightly down. So any specific reason?

Down mean, units increased in the same location. That's the reason you will see the revenue increased and this is with the same staff and same things, that must be the reason. And that will be increased probably in the coming years, there will be increments -- dues will come. That time, you will see it will be come to the same level.

Okay. Because Q4, the employee cost was around INR 210. And this quarter, it is INR 180. Even the third quarter is at INR 180. So you're saying it is at the same level. That is how I should understand, right?

It may go to the old level because there are the increments due for the -- this month, July, August, some of the increments are due for the employees.

The next question is from the line of Kishan Gupta from CD Equisearch.

I want to understand what sort of pricing power do you currently have in your DMF and ethylamines business?

What sort of -- can you repeat, please?

The pricing power in the DMF and ethylamines?

DMF, I just told, it is INR 150 to INR 160 is going on current price. And ethylamines also somewhere INR 190 to INR 200 is going on presently.

So what sort of pricing power? I mean, because the raw material prices are on the up move, so how much is it possible for you at this stage to pass on, specifically these 2 products.

First 1 or 2 quarters -- 1 or 2 weeks it will take some time to explain and improving, 1 or 2 weeks, it will be difficult on the same price. And after 2 weeks, you will see the passing on the entire increase of the both your ammonia and methanol, whatever is there. It's only a matter of weeks. It is only a matter of weeks during the passing on, transition period.

Okay. And you talked about this new ethylamines new technology in the last con call. You said what sort of cost advantage we'll get we'll be able to tell you after some time. So what...

You will see. What do you want to me to explain?