Balaji Amines Final - ANS Pvt. Ltd.

Nifty 4844.90Sensex 16191.63Equity DetailsEquity6.48 CrFace Value Rs. 10/-Market Cap97.56 Cr52 Weeks High/Low 195/51BSE Code 530999Bloomberg Code BLA.INReutersBAMN.BO6-month avg. volume 5687.74Business Group NAShareholding Pattern As On DEC’09 (%)Promoters 55Corporate Bodies 5Public 38Others 02TOTAL 100SHAREHOLDING PATTERN2%55%PROMOTERSPUBLIC38%5%CORP. BODOTHERSShare Price Movement – Over last 2 yrsCompany BackgroundBalaji Amines (BAL) incorporated in 1988; is engaged in manufacturingof methylamines, ethylamines, derivatives of specialty chemicals and naturalproducts. The company was set up to cater to the growing requirementsof value based Specialty Chemicals.The company also manufactures derivatives, which are downstreamproducts for various Pharma /Pesticide industries apart from user specificrequirements. Balaji Amines (BAL) is one of the leading manufacturers ofAliphatic Amines in India. Company’s products find application in variousimportant industries including like pharmaceuticals, agro chemicals, watertreatment, rubber chemicals, dyes & pigment, paper, explosives, rocket fueloil refineries, photography etc.BAL manufacturing facility is located in Maharashtra and is fully equippedwith latest technology like digital computerized controlled systems. Thecompany has received ISO 9001: 2000 certification for its quality systems.BAL also owns research and development facility that conducts basicresearch and also to fine tune the process.Products’ PortfolioAminesMonomethylamineDimethylamineTrimethylamineMonoethylamineDiethylamineTriethylamineDimethyl Amino EthanolDiethyl Amino EthanolMono Methyl Amino Ethanol.Specialty ChemicalsN-Methyl PyrrolidoneMorpholineDiethyl Hydroxylamine2-PyrrolidoneDerivativesNatural ProductsDi-Methyl AcetamideCamptothecinDi-Methyl Amine Hydrochloride10 Dab IIITri-Methyl Amine HydrochlorideColeus ForskohliiDi-Ethyl Amine HydrochlorideCalcium SennosoidTri-Ethyl Amine HydrochlorideSolanesolBenzyl Tri Ethyl Ammonium ChlorideMono Methyl Urea, Di-Methyl UreaCholine Chloride*For further details please see “Facts about the Company” given later on inthe Report.

Industry OutlookThe chemical industry in most parts of the world is, at last, showing signs ofrecovery. And it is a welcome experience for company executives andemployees, investors, researchers, and construction workers. The industrywas suffering even before the recession officially began late 2007. This year’sworld outlook, however, shows great variations among individual countries.Asia also has to be taken on a country-by-country basis, with chemicalgrowth reflecting a range of performances, from a 7.2% increase in demandin China to continuing economic problems in Japan.Indian Scenario: The chemical industry in India is poised for explosivegrowth in the coming years. India’s population has grown nearly as large asthat of China, with its consuming middle class accounting for about a third ofits population. Disposable income in India is rising; potentially driving growthof chemicals consumption at exponential rates. India’s GDP growthexceeded 7.2% for the coming fiscal year, fueling considerable growth of itschemicals industry.India’s government has set in place policies and special economic zones topromote investment in its petrochemical sector, and several key domesticcompanies have unveiled ambitious expansion plans for the next few years.In Coming year India should see exponential growth in Pharmaceutical,FMCG & Fertilizer sectors which may prove to be a boon for Companieslike BAL.

Plant LocationsThe Company has three plants situated at different location. The briefdetails of plants described as under.1. Sholapur, Maharashtra plant – for amines & derivatives2. Hyderabad, Andhra Pradesh plant - for natural products.3. Chincholi, Sholapur plant – a recent plant set up for production ofGamma Butyro Lactone (GBL), a raw material for manufacture ofNPM with a name plate capacity of ~6500 TPA.[Pictorial presentation of Company’s Manufacture Plants]

R & D achievementsBAL is among the few handful manufacturers across the world as aminemanufacturing technology is a closely guarded process. And ironicallycompany is using indigenously developed technology i.e. without anytechnical foreign collaboration.Gamma Butyro Lactone (GBL): In November 2009, Balaji Amines (BAL)announced successfully commissioning of the Gamma Butyro Lactone (GBL)to reduce the cost of production of NMP and also enhance the productrange to serve the domestic and export market. Interestingly, this GBL plantis first of its kind in India and is a 100% import substitute.In-House R &D Capability with catalytic dehydrogenation: Thehydrogen produced by the process is further being utilized to run theboilers, First of its kind in India.Core Competence: BAL remarkably, is one of the lowest costproducers of methylamines in the world. Today, it also produces specialtychemicals which are import substitutes like Morpholine, hydroxylamine, N-Methyl Pyrrolidone (NMP) etc and few natural products (herbal extracts)such as solanesol, calcium sennosoid, coleus forskohlii, camptothesin, Co-Enzyme Q-10, Tocopherols, and Tocotrienols & SoyIsoflavones etc.Morpholine - which is being manufactured by company for the first time inIndia through indigenously developed technology, finds extensive applicationin manufacture of corrosion protection compounds used in refineries, ships,steel plants etc.

Facts about the companyStrong R&D FocusAmines technology is a closely guarded secret and only the Company’s withstrong R&D focus can continue to grow. BAL has over the years has provedits capabilities in R&D beyond doubt.It has always been the company's endeavor to continuously seek knowledgeinto newer products and technologies. It boasts of having two state-of-theartR&D centers at both its plants. The R&D initiatives undertaken over theyears have been one of the largest contributories in making the company amajor player in specialty chemicals. Infact, for FY09 it has spent more than5% of its revenue for R&D. Thus because of its strategic backward & forwardintegration, BAL has been able to maintain its status of one of the lowestcost producers.Unutilized Capacity itself provides a scope for doubling theturnover without any further capital investmentsThe company has following plants that would reach their full capacity in thenear future:i) Manufacture of GBLii)Manufacture of PVP*Both products are innovative and first of their kind in IndiaBAL is also in a process of fine tuning its R & D plant for Morpholine andNMP which will enhance the plant capacityDiversified client and Industry baseBAL produces a variety of products catering large number of variousindustries. The products manufactured by BAL can be utilized in a number ofdifferent industries namely; Pharmaceuticals, Agro Chemicals, WaterTreatment, Rubber Chemicals, Dyes & Pigment, Paper, Explosives,Rocket Fuel Oil Refineries, Photography, Refineries, Ships, SteelPlants, etc.Domestic & Global Presence: The client base of the company is very welldiversified in India and abroad. Globally the company has presence incountries like; UK, USA, Latin America, Canada, Israel, Pakistan, Bangladesh,Oman, Germany, Italy, Egypt, South Africa, Korea, Taiwan, Spain, PolandIt also has a strong presence in domestic market with major clients frompharma sector including Aurobindo, Aventis, Clariant, Dr. Reddy’s, Glaxo, Merck,Ranbaxy, Sun Pharma, Wyeth, Wockhardt, etc. Earlier it also entered into aLong Term Strategic arrangement with BASF for supply of NMP -N-Methyl Pyrrolidone.

Z scorePARTICULARS 2006 2007 2008 2009T1 0.34 0.42 0.41 0.41T2 0.06 0.06 0.06 0.07T3 0.14 0.15 0.14 0.19T4 0.81 0.76 0.50 0.10T5 1.12 1.19 1.17 1.37Z SCORE 2.60 2.75 2.55 2.67REMARKS Grey Grey Grey Grey• The Z-score formula for predicting bankruptcy wasdeveloped in 1968 by Edward I. Altman, a financial economistand professor at the Leonard N. Stern School of Business atNew York University. The Z-score is a multivariate formulathat measures the financial health of a company and predicts theprobability of bankruptcy within two years.• It divides companies into three zones on basis of Z scoreZ > 2.99 -“Safe” Zone1.8 < Z < 2.99 -“Grey” ZoneZ < 1.80 -“Distress” Zone• Balaji Amines Limited has a stable Z score in the upper GREYzone level. The possible explanation is the expansion of thecompany over the last 4 years and relatively high debt level.• The company has also paid regular dividends, yet managedreasonable Retained Earnings.

Current Capacity and Future Expansion PlansThe company has acquired 100% shares in its subsidiary company,Bhagyanagar Chemicals Limited making it as wholly owned subsidiarycompany in the year 2008-2009.During the year company has:• Started power generation through windmill by establishing 1.5 MWwindmill at Satara, Maharashtra• Set up an R & D GBL Plant at Tamalwadi, Sholapur• Commenced Setting up 2.5 MW Co-Generation Power Plant atTamalwadi, Sholapur• Commenced Setting up PVP Plant at Chincholi, SholapurIn addition to the domestic market the company has developed a long termvendor relations with its overseas customers and a large amount ofcompany's efforts are being focused on the development of overseasmarkets.Capacity ExpansionBAL boasts of having total combined installed capacity of 50,500 TPA foraliphatic amines and derivatives of amines. Against this company is working atless than 80% capacity utilization.BAL started commercial production of a niche product PolyvinylPyrrolidone (PVP K-30) under the brand name Bolidone.BAL has built its state-of-the-art facility to produce Bolidone in ChincholiMIDC area in Sholapur, spread on 40 acres of land. The product PVP K-30is an ingredient binder for granules & tablets used in many pharmaceuticalsformulations.The capacity of the plant is around 1200 M T per annum. Balaji is in positionto export this product after catering the domestic requirement. PVP K-30 is6th product of company in two years to break monopoly of global leaderslike BASF and ISP in India.

Risk FactorsUnrealistic Diversification: Our major concern about the company is itsunrelated diversification of business. It has recently got approval from itsboard to venture into constructing, developing and to lease out property forHotel business in Sholapur. We believe such diversification of businessinto a NON RELATED SECTOR can affect company’s reputation, operations& Financial Heath.High Leverages: Although the Company requires additional Fund for itsdevelopments but it has keep a control over its Debt/Equity Ratio. However,BAL has succeeded in gradually reducing D/E Ratio in last Four Years.Systematic & General Risks: These include a general downturn in marketdemand conditions, escalation in raw material prices and changes inregulatory frameworks.RecommendationsWe expect that the company will continue a Net Sales growth ofCAGR 20% for FY10E-FY11E. In view of this we Recommend a BUYON DECLINE rating on the stock with a target price of Rs. 203denoting a multiple of 7x of FY10E forward earnings and Rs. 280denoting a multiple of 8x of FY 11E forward earnings.