CD Equisearch

Balaji Amines (Buy)

CMP: ₹402.95

Target: ₹543

On the back of strong conviction to increase revenues, BAL increased capacities for a basket of products. In November, it started production of acetonitrile with an installed capacity of 9,000 tonnes currently and approval to increase the capacity by another 9,000 tonnes in the future. The plant will also be able to manufacture THF in the same line. What make acetonitrile attractive too are higher margins. In FY19 BAL started manufacturing morpholine, with a capacity of 10,000 tonnes for which it is the only producer in India.

The stock currently trades at 13.1x FY20e EPS of ₹31.18 and 10.5x FY21e EPS of ₹38.82. Improving industry outlook and growing demand for specialty chemicals should bode well for the company Increases in capacity will accentuate revenue increases in FY21 by a massive 29 per cent and have a positive impact on margins (operating margin to jump from 18.5 per cent in FY20 to 22.5 per cent in FY21). Yet, demand stress in overseas automobile and agrochemical markets has the potential to disrupt specialty chemical volumes.

Effect of Covid-19 on global chemical market is yet to be fully ascertained. Weighing odds, we advise ‘buy’ rating on the stock with target price of ₹543 based on 14x FY21e EPS of ₹38.82 over a period of 9-12 months.