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Balaji Amines

Company Background

Balaji Amines Ltd (BAL) is a leading producer of aliphatic amines and manufactures Methylamines, Ethylamines, Derivatives of Specialty Chemicals and Natural Products. Amine technology is a closely guarded process with only a few handful companies having access to such technology. BAL is the first Indian company to have tested an indigenously developed amine technology and is today a producer of export quality products. BAL is largest methylamine player in India (20,000 MTPA) and is the second largest ethylamines producer with a capacity of 6,000 MTPA.

It has successfully invested in R&D over the last few years to develop specialty chemical derivatives. Some of these serve the domestic market as import substitutes (NMP, Morpholine) while some others are used for captive consumption (P2, GBL) and the backward integration has reduced dependency on MNC suppliers and are helping improve margins in BAL's quest for cost-leadership.

Sales are driven primarily by Amines - Methylamine, Ethylamine, Speciality chemicals - N-Methyl Pyrrolidone (NMP) & Morpholine, and Derivatives - Di-Methyl Amine Hydrochloride (DMA HCL), Choline Chloride and other derivatives. Main competitors in India are RCF (Methylamine) and Alkyl Amines (Ethylamine). With NMP & Morpholine the company has started competing with bigger MNC players like BASF.

The company has three manufacturing facilities, Unit-I is located at Tammalwadi, Tuljapur, Maharashtra, Unit-II is located at IDA Bollaram, Hyderabad, and Unit-III is located at MIDC, Chinholi, Solapur. BAL has a 100% subsidiary called Bhagyanagar Chemicals from which it has taken the Bollaram unit in Hyderabad on lease.

BAL caters primarily to the pharma industry in India supplying to leading pharma companies like Sun Pharma, Ranbaxy, Matrix Labs, Dr.Reddys, Aurobindo Pharma etc. for their Active Pharmaceutical Ingredients (API) requirements. it also caters to the Agro Chemicals,  Refineries (lube extraction),  Water Treatment Chemicals,  Rubber Chemicals, and Photographic Chemicals industries.

BAL derives more than 20% of sales from export to several countries such as UK, USA, Canada, Latin America, Germany, Italy, Middle East, South Africa, France, Brazil, Mexico etc. BAL sells directly to its customers in India while in case of exports it goes through distributors. 

BAL has successfully set up power plants for its captive use which includes a 2.5 MW co-generation plant and 1.75 MW of wind power in Maharashtra (2 units). Another, 1.5 MW wind power unit was just commissioned in Sept 2010, taking the total wind power capacity to 3.25 MW. BAL sells excess power to the grid.

Growth Snapshot

We can't just look at a series of past growth rates and assume that they will predict the future - if investing were that easy, money managers would be paid much less, and this stock analysis would be much shorter. It’s critical to investigate the Sources of a company's growth.
Variable FY05 FY06 FY07 FY08 FY09
Sales Turnover (Rs. Cr.) 145.89 197.29 239.68 273.59 277.14
Sales Growth Year on Year 36.46 24.11 15.55 4.06
3yr Average Sales Growth 25.37 14.57
3yr Sales CAGR 30.14 19.76 9.65
5yr Average Sales growth 20.04
5yr Sales CAGR 19.46
Profit After Tax (PAT) (Rs. Cr.) 9.07 10.31 13.26 15.33 20.65
Adjusted EPS 2.80 3.18 4.09 4.73 6.37
EPS Growth Year on Year 13.67 28.61 15.61 34.70
3yr Average EPS growth 19.30 26.31
3yr EPS CAGR 20.91 21.94 24.79
5yr Average EPS growth 23.15
5yr EPS CAGR 22.84

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Profitability Snapshot

Profitability is the second, and in many ways, the most crucial, part of our Analysis framework. How much profit is the company generating relative to the amount of money invested in the business - the returns? This is the real key to separating a great company from average ones -the higher that return, the more attractive that business. Net profit Margins and comparing cash flow from operations to reported earnings per share are good ways to get a rough idea of the company's profitability (because cash flow from Operations represents real profits!). But neither account for the amount of capital that's tied up in the business, and that's something we cant ignore. We need to know how much economic profit the company is able to generate per dollar/rupee of capital employed because it will have more excess profits to re-invest which will give it an advantage over less-efficient competitors.
Variable FY05 FY06 FY07 FY08 FY09
Operating Profit Margin 14.89 14.35 13.68 14.72 17.67
Net Profit Margin 7.05 5.87 6.09 6.09 7.88
Fixed Asset Turnover 2.34 2.96 3.08 3.27 2.18
Asset Turnover 1.50 1.58 1.56 1.46 1.39
Return on Assets 10.58 9.30 9.47 8.90 10.93
Financial Leverage 2.66 2.49 2.47 2.44 2.12
Return on Equity 28.19 23.19 23.43 21.76 23.15
Return on Capital Employed 19.46 19.85 18.81 20.38 21.66
Debtor Days 82.27 83.67 99.59 84.85 93.00
Inventory Days 87.56 85.70 79.58 64.58 62.53
Cash from Operating Activities (Rs. Cr.)
Operating Cash Flow to Sales
Capital Expenditure 7.81 21.36 41.23 16.78
Free Cash Flow
Free Cash Flow to Sales
Equity Dividend (Rs. Cr.) 1.50 0.95 0.97 1.30 1.62
Dividend per share 1.00 0.29 0.30 0.40 0.50
Adjusted DPS 0.46 0.29 0.30 0.40 0.50
Dividend Growth Year on Year -36.67 2.11 34.02 24.62
3yr DPS CAGR -19.58 16.98 29.23
5yr DPS CAGR 1.94
Dividend Payout 16.54 9.21 7.32 8.48 7.85

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Common size P&L Statement

Can we dig deeper to see what else we can understand about how this company makes money? A good way is to look at the common size profit and loss statement. Common size statements are great tools for evaluating companies because they put every line item in context by looking at each of them as a percentage of Sales.
Variable FY05 FY06 FY07 FY08 FY09
Common Size Sales 100.00 100.00 100.00 100.00 100.00
Common Size Raw Material 60.10 64.91 57.70 62.08 55.91
Common Size Power & Fuel 8.90 8.62 7.97 9.17 10.88
Common Size Employee Cost 2.32 2.11 1.97 2.28 2.72
Common Size COGS 73.09 77.97 70.35 74.33 71.32
Gross Profit Margin 26.91 22.03 29.65 25.67 28.68
Common Size Depreciation 2.49 2.13 2.02 1.91 2.61
Common Size Interest Cost 3.44 3.52 3.64 4.05 3.71
Common Size SG&A 12.78 12.80 11.66 11.13 12.04
Operating Profit Margin 14.89 14.35 13.68 14.72 17.67

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Financial Health Snapshot

Once we have figured out how fast (and why) a company has grown and how profitable it is, we need to look at its financial health. Even the most beautiful home needs a solid foundation, after all.
Variable FY05 FY06 FY07 FY08 FY09
Financial Leverage 2.66 2.49 2.47 2.44 2.12
Debt to Assets 0.62 0.60 0.60 0.59 0.53
Debt to Equity 1.66 1.49 1.47 1.44 1.12
Interest Coverage 3.77 3.56 3.32 3.44 4.21
Interest Cost to Total Debt 8.26 9.30 9.50 10.01 9.74
Current Ratio 2.29 2.68 2.36 2.29 2.16
Quick Ratio 1.43 1.70 1.67 1.58 1.62
Cash to Assets 2.42 3.97 3.94 1.38 1.92

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