Stock Review: Balaji Amines

This is a Maharashtra based company. This company manufactures various kinds of amines and derivatives of specialty chemicals and natural products. This company has got three manufacturing plants; two are located close to Solapur and one plant located in Hyderabad. This company caters to a wide range of industries starting from pharmaceutical to agrochemicals. It also caters to the chemical industry and FMCG in a small way. Almost all pharmaceutical companies whether Indian or international, the major international companies, are the customers of Balaji Amines.

If you take a look at the financials of the company, for FY10 company achieved a sales of about Rs 260 crore which was up by close to 4% compared to FY09 and profit after tax was up by about 35% to about Rs 20 crore. This company has got a small equity of about 6.5 crore. In the first half of the current financial year, sales are up by close to 35% to about Rs 170 crore. Profit after tax is up by 30% to about Rs 16 crore. Earnings per share (EPS) on an annualised basis is coming close to Rs 10, the stock is traded at about Rs 40, which means that the P/E in this case is about 4. Even assuming a conservative P/E of 8, in case they don't do the same as what they have done in the first half of the current financial year, P/E is just about 5.

Now, there are a couple of reasons why we like the stock. One is this company has been growing at between 30% and 35% consistently over the past seven years and they have almost grown their turnover 5.5 times in the last seven years. This company is one of the lowest cost producers of Methylamine in the world, this is what the company claims. This is because of in house R&D and also captive power generation which the company has. Then the company is very strong in R&D, this company has developed a few new products in the past few years, some of which are undergoing regulatory clearances. So, these are products which are import substitute, they are high margin products. Once the regulatory clearances are obtained, the stock may undergo a rerating.

The company is also increasing capacities of various products and it hopes to grow by at least 20-25% over the next few years. So, you have a company which has been growing at 30-35% over the past seven years, consistent dividend payment for the past ten years. The company's asset rate in fact the company is utilising its surplus assets to build a 100-room four-star hotel in Solapur. This move may not lead to immediate cash flows for the company, but it will definitely result in asset creation. Also, the plants, which the company has, are large sized plants given the market cap of about Rs 135 crore. Two plants are located on land size of about 25-40 acres. So, given all these factors, P/E of 4-5, which is currently being given by the market, the stock has the potential to undergo a rerating.