Target ₹3,916

CMP: ₹2,852.90

Much of the Indian chemical industry, particularly the specialty chemicals space, has been undertaking capacity expansions along with increased capital expenditure commitments on account of impetus being given to ‘China Plus One’ policy by companies in western economies. This trend has been further fueled by the GOI's Aatmanirbhar Bharat and PLI schemes.

Balaji Amines is no different as apprehending the growing demand for amines and specialty chemicals, the company has planned to gradually ramp-up its production capabilities- DMF to be further debottlenecked; DMC to start production soon; new acetonitrile plant likely to commence operations by FY24; and a slew of other capacity expansion plans to be announced soon.

Overall volume growth of 5.24 per cent in 9M-FY22 (81,569 mt vs. 77,510 mt in 9MFY21) barely help us understand the top-line growth of 71.7 per cent (₹1541.31 crore vs. ₹897.42 crore in 9MFY21) not least due to favourable product mix and unprecedented jump in raw material price inflation.

Although, ability to pass on high raw material prices has been hindered across the chemical industry, Balaji Amines has demonstrated superior pricing power in the past quarters compared to its peers, though its subsidiary accounts for much of this strength recently.

Positive outlook of Balaji Speciality has pushed the management to plan capacity expansions in subsidiary plants as well, the details of which could be announced in the coming quarters. Moreover, supply bottlenecks, especially regarding the availability raw materials, have started easing since the onset of this year could lend scalability to its business, which would help in attaining capacity utilisation levels of 70-80 per cent in the next fiscal.

Weighing odds, we retain our ‘buy’ rating on the stock with a revise target of ₹3,916 (previous target: ₹3,613) based on 26x FY23 earnings.

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