Q2 22/23

Nov 10, 2023

Summary

Q2 FY24 revenue, EBITDA and PAT fell QoQ amid destocking, weak end markets and input-cost volatility, despite higher volume. Management expects conditions to improve over the next two quarters and continues Unit IV expansion.

Ladies and gentlemen, good day and welcome to the Balaji Amines Q2 FY24 earnings conference call hosted by Elara Securities Private Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that the conference is being recorded. I now hand the conference over to Mr. Gagan Dixit from Elara Securities Private Limited. Thank you, and over to you, sir. Yes, thank you. Very good evening and warm welcome to everyone. It is our pleasure to be able to bring to you the management of Balaji Amines Limited, led by Mr. D. Ram Reddy, who is Managing Director. I will now hand over the conference to the Balaji Amines management. Over to you, sir. Thank you, Gagan. A very good evening and extend a warm welcome on behalf of Balaji Amines Limited to all of you who have joined us for this conf call to discuss the financial performance of the Q2 and H1 financial 2024, and performance of the company. We appreciate your time and interest in our company's performance. I hope everyone had an opportunity to go through the financial results and investor presentation which have been uploaded on stock exchange. During the second quarter, we encountered a series of unprecedented challenges in the specialty chemical industry. This period was marked by unprecedented hurdles impacting our revenue streams. Firstly, rapid and unexpected shifts in input cost significantly affected our earnings. We have worked diligently to manage these cost fluctuations to safeguard our financial performance. Additionally, a trend of destocking among global industry players impacted our sales and the trend we have observed to some extent in the Q3 as well. The global pharmaceutical, API and agrochemical industries also faced headwinds that affected our operations, creating a complex and challenging business environment. Moreover, in our subsidiary company, we initiated a maintenance shutdown and debottlenecking process in our existing plants to enhance our product mix. This strategic move aims to improve realization, profitability and capacity utilization. While this initiative temporarily impacted our consolidated financial performance, we firmly believe it positions us for long-term success. However, we firmly believe that the present challenges represent a temporary hurdle that is poised to stabilize over the course of the next two quarters. We express confidence in our prospects for the medium to long term. Our ongoing projects are progressing as planned and we continue to adhere to a debt-free approach. We are aiming to introduce distinctive products, enrich our product portfolio and establish state-of-the-art manufacturing facilities. Maintaining our leadership in amines and their derivatives within India has been fundamental to our success. Our extensive range of specialty chemicals continues to distinguish us from our competitors. We are pleased to report that our Unit IV projects are on track and are expected to be commissioned as scheduled. Now let me take you through the consolidated financials and operational performance. Revenues from operations for Q2 FY24 stood at INR 387 crores as compared to INR 469 crores in Q1 FY24. Total volume stood at 27,613 metric tons for Q2 FY24 as against 26,820 MT in Q1 FY24. For Q2 FY24, EBITDA for Q2 FY24 was INR 61 crores as compared to INR 104 crores in Q1 FY24. EBITDA margin for Q2 FY24 stood at 16% as against 22% in Q1 FY24. PAT for Q2 FY24 was INR 36 crores as compared to INR 68 crores in Q1 FY24. Diluted EPS for Q2 FY24 stood at INR 10.71 per equity share as against INR 16.28 in Q1 FY24. For Q2 FY24, amines volume stood at 8,092 metric tons, amines derivative volume stood at 10,236 metric tons and specialty chemical volume stood at 9,285 metric tons. On standalone basis, we are a zero debt company. Looking ahead, new strategic CapEx on new proposed products, projects, plants in place to fuel our future growth journey. We have initiated the CapEx for setting up the following plants, which will significantly contribute to our expansion. N-Butylamine, the new expansion project work is progressing at a brisk pace. The plant is expected to be commissioned during the fourth quarter of financial 2023 and 2024. Methylamine, the project implementation is progressing as planned. The project is likely to be commissioned around the second quarter of financial 2024 and 2025. Dimethyl Ether. The project for manufacture of Dimethyl Ether is initiated to be set up in Unit IV, and the detailing and engineering is completed and the company has started civil works. The plant is expected to be commissioned during the first half of the financial year 2024 and 2025. The company is proposing to take up the following projects at Unit IV. N-methylmorpholine, 3,000 TPA, N-(n-butyl)thiophosphoric triamide, NBPT, is 2,500 TPA, and Pharmapure Povidone, PVP K-30, is a 4,000 TPA. All these products are first time in the country, and the company is proposing to go for a solar power plant near Solapur, Maharashtra. The company has already initiated a solar power generation plant for factory consumption at Unit IV on all the sheds building for about 1,600 kW, costing approximately INR 7.5 crore for the compliance of net zero under ESG to reduce carbon footprint. Looking forward, we hold a positive outlook for stronger long opportunities. We anticipate the fiscal year 2024-2025 to be marked by growth and increased profit success as market conditions improve. Our ongoing plans and our inherent strengths and competencies continues to guide us as we navigate market complexities and strive for greater excellence as a leader in amines and specialty chemicals. I wish you happy Diwali to everyone. Now we can open the floor for question and answers. Thank you. Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Jaiveer Shekhawat from Ambit Capital. Please go ahead. Sure. Thanks for taking my question, and good evening, Mr. Reddy. My first question is in relation to the challenges that you have addressed in the opening remarks. I do pay attention to the fact that you are mentioning there have been some unprecedented challenges that you faced in this quarter. What I have seen over the last six to seven quarters is there have been many challenges that have continued nonetheless, although there are different reasons every time for the decline in revenue or the margins. If I remember the guidance two quarters back, there was margin improvement guidance of about 5%-7% as well as improvement in the overall demand. While you are saying that you expect things to improve, say, two quarters out, what sort of gives you that confidence? Because if I compare your guidance in the last two quarters, I think things have turned for worse versus what you were expecting. Your comments there. See, looking into the market and that situation, we thought that things will improve. What happened around the world, people have started de-stocking their high-value stocks, looking into the market, and the prices have come down. Specifically in the API and agrochemical industry, they went back to worse situation. That was the reason. Second thing, some of the raw materials, because of the volatility, it has impacted very badly. Now the confidence, why I am telling you, we have seen that improvement. If you take the half yearly volumes, the volumes have increased when you compare to the last year and this year. Because more than 2,000 tons volumes have been improved. Only looking into this, the de-stocking from the global market will complete. Going forward, looking for the current months, what we have seen, some increase the off take from the customers. So as I mentioned, majority of this quarter also will go like this. Further 2 quarters, we are expecting that there should be definitely improvement in the market. Sir, can you specify what kind of volume increase, as you were mentioning, that you're seeing on a year-over-year basis? Given there has been an overall decline in revenues, was that largely due to realization pressures, and to what extent? This is because of realization pressure only. Because if you see Europe, many of the companies, they are doing below 50%, 40% level, because we were doing almost 15%, 20% for Europe. Our customers who are into the API market, they were also mostly depending on the outside country, which are not doing well. They are also all doing more than 30%, 40% below the earlier quarters. Lastly, on the Chinese competition, what I hear from your listed competitor is there has been a lot of Chinese competition that have entered into the Indian market, pushing prices further down for a lot of your key products. So what is your sense on the Chinese competition, and again, what does it take for the Chinese to get out of the market and for your realizations to bounce back? For us, we have only two to three products with the Chinese competition. One is the AD and the specialty chemical, and in Balaji Amines, we have two. One is the morpholine, and the other is the NMP. These are the only three products we are facing the direct competition from China. That is also, as I said, we are talking, they were having huge stocks. Even I was discussing during the recent exhibition, CPhI Worldwide, which was held in Barcelona. We were discussing a couple of Chinese competitors and even European competitors. Everybody is having heavy stocks. They were not looking at the price. They wanted to encash that stocks. They have been making huge losses, and they want to empty all the warehouses of the finished stocks. That is what happened for the last two months. I expect, future, everybody will do their calculations and the things will improve, and there should be definitely positivity. How long they are going to make the losses? Because one thing, Mr. Shekhawat, in raw materials, there is not much change. As we have gone to such a below level, some 40%, 50% impact on the revenue and 30% of the margins is impact. I do not think that there is that much difference between China and India cost point of view. It is definitely the people are doing the losses. Nobody can do prolonging the doing the continuous losses. Right? For the reason we expect that it will be, yeah. Where you are facing more pressure across the segments, is it more on the basic amine side, more on the derivatives, or say, the specialty side of your portfolio? That will be my last question. Majority in the specialty. Actually, amines, we are not having that much. This thing, we are very strong on the methylamines, ethylamines. Those are the plants which have helped us showing some face today what are the results we are showing. Because of the methylamines and ethylamines, we are doing very well, and some of the methylamines derivatives also helping us. Only specialty like NMP, morpholine, NEP, these are the products because there was some big volatility. Just we came out of the volatility, that high cost inventory is also finished just in this quarter only. Got it. Inventory also, if you compare with the earlier quarter, this quarter, I think it is very reasonably very low inventory maintained in this quarter. Wish you all the very best, and thanks a lot. Thank you, Mr. Shekhawat. Thank you. The next question is from the line of Rajiv Rupani, an individual investor. Please go ahead. Yeah. Good evening, Mr. Reddy. First of all, Diwali wishes to you, your family, and the entire Balaji Amines team. Sir, my first question is, when the concall was held on 8 September last time, you had told us that butylamine will be completed before December, and DME will be completed, the plant will be complete by end of FY 2025. Now in the press release, you have said that butylamine will be completed in Q4, and DME will be completed in Q2. So DME, is it preponed and butylamine is postponed? Am I correct? No, you have not read properly. See, December end it will be commissioned, means fourth quarter. That is January to March, it will be working position you will see for the butylamine. That is number one. Number two, we never mentioned about the Dimethyl Ether. That is we are talking about the methylamine. No, sir. Which is very well going to be second quarter of financial year. Okay. My next question is, in the press release, you have announced new product. That is NMM, NBPT, PVP K-30. My question is, in Unit IV we have 90 acres, out of which 30 acres is green belt. In 45 acres we have methylamine, ethylamines, DMC, PG, PC. In 15 acres we have planned butylamine, DME, DMF, and ACN. With these new three products, is there space available for that DMF new 30,000 tons and ACN 15,000 tons? What about DMA HCL? DMA HCL is already there. In the existing plant, we already done. We just not commissioned. 75% of the work is complete in that Unit III, which I told you the earlier this thing also, 37,500 tons. You are right, these are products identified for the next. Just once again, I want to clarify, we are going to finish all these butylamine, methylamine, Dimethyl Ether first. After finishing this, then you will hear definite dates of these other new identified products. Like N-methylmorpholine, which is going to be using our own morpholine and our own MMA. We have just identified some new process. That is one thing. NBPT, which goes in the agro industry, nobody is making in the country. It is mostly outside country. It is used in America to reduce the urea consumption for the certain crops. We have done a lot of paperwork on this. If you see our environmental clearance, we have taken environmental clearance for this product about one and a half year back. More than two years back, we have taken. From that day onwards, we are working on it. Now we have successfully completed, and after the diisocyanates we are going to take. As regards your space, we are just trying to squeeze out internally, and we are asking for the MIDC also if they can give some space. You are right that DMF we have not taken as of now because the existing plant itself, we are not getting any support from the government. Other countries, they are trying to dump. First we want to streamline the existing DMF plant for the 30,000 tons in full swing. Then only we will talk. If required, we may ask the government for the additional land. Okay. So as for currently, if you want to put up a new DMF and ACN, there is no space available. Space is ACN existing plant. Really we are tying in the existing plant. Listen. Unit IV, we are not doing any ACN because ACN has been kept current because of the market condition. People are still using the acrylonitrile-based ACN. ACN market is not good. So that's the reason the new products are identified. Okay, sir. My question was on Balaji Speciality Chemicals. You have just said the debottlenecking is complete. What further- Not completed. Half of the work in this quarter we have done, and in current quarter also, some work is going on. As on now, the plant is under that only. There is a big column is under erection, which will be completed by 15th. Today is 11th. By 15th or 20th, we are going to complete, then we will start the plant for the additional capacity. We are also, as I said, working on that conversion of EDA into piperazine. That work is also going on. Okay. Now, sir, for that 100 acres which we had got allotment, and last ConCall you said you have just received the papers and all. Any update on that? Have you received the environmental clearance for the same, for the new product? I will tell you. There we have taken 27 acres of the private land and 68 acres of the government land. On that, we have already submitted the papers for the five to six products to the environmental. Maybe next one or two months, you will see. We have got the TOR already triggered for the study, which may take 45 days to 60 days time to get the environmental clearance. After that, you will see the land digging, actual working on that. That project is there. That is called Balaji Speciality Chemicals Unit Two, we call it. Okay. In Balaji Speciality Unit One now, after the debottlenecking, what will be the capacity utilization? We will have to see. Minimum 5% to 7% capacity increase should be there. More than that, we are going to get the value-added products. Like earlier we used to get the AEP lesser quantity, where the price is good. AAA we are not getting the actual required purity. All those things will be attended by this debottlenecking and maintenance. Okay, sir. My next question was on ethylamines. Your competitor, Alkyl Amines, has just commissioned a new 30,000 tons plant, 30,000 to 35,000 tons, 100 tons per day, and our capacity is 22,500 tons. I think the domestic demand is about 40,000 tons. What does it have the impact on the prices of ethylamines and our capacity utilization? Even today also, we have the advantage of the price advantage. There are two types of things. One is I claim that our cost of the production, because of the new technology, what I said earlier, we get the advantage. Second thing, the raw material availability for the ethylamine is around the Solapur, surrounding our plant only, that is ethanol. These are the two plus points for us. I do not know. You are telling that 30,000, but I never seen these figures anywhere. They said that they have increased the capacity, but they never said that 100 tons per day. I do not know how far it is correct. I had attended the ConCall, that is why I told you. Anyways, my next question on DME. Sir, last time you had talked about mixing of DME with LPG, and we have submitted the papers to NITI Aayog. Any update on that? We expect in the coming one or two months, there should be an official notification. The government has already written to the BIS, Bureau of Indian Standards, to get the capabilities of LPG tanks, existing tanks, and mixing of the DME in LPG. 30%, they said. Between 20%-30%, they are talking to, they are going to allow. They are going to make the compulsory for all the oil companies also, it is too early to say, but we will hear in next two months. It is in the process. My next question was on ACN. Have we applied for anti-dumping duty? Because a competitor said that they have not yet applied for anti-dumping duty for ACN. They may apply. We have not applied. If somebody's applying, then we may join them. My next question was on DMC. Last time also I'd asked you about DMC plans for Exide and Amara Raja for setting up lithium-ion and battery plants. Any update on that? Have you guys seen them? No, I cannot tell that because we have signed NDA with them. The moment we start that, we will hear that. We are already serious of meetings going on. Even today, we had a meeting with the lithium-ion battery manufacturers. You will hear that. Thank you. I'll get back in the queue. Thank you. Thank you. A reminder to the participants, anyone wishing to ask a question, please press star and one. The next question is on the line of Varun Mishra, an individual investor. Please go ahead. Hello. Hi, Sam. Am I audible? Yeah. Go ahead, Varun Mishra. Yeah. Hi. My first question is, what are the domestic export mix right now for us, and where will we be targeting down the line over the next 1 or 2 years, sir? We are always trying to do more than 30%, so 25%-30%. Actually, 25%, if I do the 25%, that will give me the natural edge for my imports, if I do some imports also. The reason we are targeting in coming 1 or 2 years, we should touch 25%-30%. Presently, we are doing 15%-17% of the total products from the total turnover. Okay, sir. My next question is, as you mentioned in the commentary that we have been facing headwinds in the pharma and agro industry. Can you throw some light on what are the issues, and when can we expect this to settle down? See, simply they are not doing. Their capacity is down. Many in India and outside also, many people are doing below 50% only. They are saying that they are not getting their prices. So worldwide, prices are not viable for them. The reason, they have down the capacities. Whereby our products also, consumption has come down. Okay, sir. So when can we expect this to settle down, sir, any approximate time? Looking into, I can only assume. Like you, I am also human only. Because if I say today, you immediately ask in the next con call, "You said like this." See, looking into the trends, present trends, what we have seen, like last month. That gives me some indication that there is an improvement in the market. What we have seen in the current month, and we expect at least a quarter, so half of the quarter has gone with the similar problems. Coming quarter, after this quarter, coming two quarters, we are expecting there should be improvement in the margin as well as total sales also. Okay. Okay, sir. Yeah, that's all from my side, sir. Happy Dhanteras and a very happy Diwali in advance, sir. Thank you. Thank you, Varun. Thank you very much. Thank you. The next question is on the line of Darshan Shah, an individual investor. Please go ahead. Yeah, hi, sir. Am I audible? Yes. Mr. Darshan, go ahead. Yes, sir. My first question was, are we facing any type of raw material supply issues? Not really. There was some issue because for the specialty chemical, you know that we consume one product, monoethanolamine, which was based on the ethylene oxide. There was one big plant that is Dow plant in the U.S.A., was gone for the force majeure. Another 2 to 3 months, there was not real damage, but prices have shoot up. That has been calm down. For the last week, we are seeing the easing that raw material. Prices should be come down. Okay, sir. We expect this trend. Sorry, sir. Yes, sir. Go ahead. Other than that raw material, I don't see any problem in the availability of raw material. Unlike other countries, like ammonia, still some of the countries are facing the problem who are depending on either Ukraine or Russia. Since that war still continued, they are still facing the problems. Whereas in India, we never faced any problem of the shortage, but prices have been increased because of the shortage outside country, which was temporary. Slowly they are settling down to the normal level for the pricing point of view. Yeah. We expect this trend to continue in the upcoming quarter as well for the key raw materials as well as the other materials. I don't think other than this quarter, the current quarter which we are talking, today is November up to December, we feel that there may be some headwind like this. January onward, there should not be any problem, because why I'm telling you, I have not seen any problem in getting the raw materials, and the prices are setting down. Only problem we are seeing, the end user side, they are not doing well. Their products are not moving properly. Those are only the problems. They are not getting the prices, whereby they are not giving us the prices. That is that which may impact on the bottom line. Otherwise, we expect after this quarter, there should be some positive trend. Yes, sir. That is actually, you answered part of my next question too, which will delay because my question next leading into it was, because even in the previous participant you mentioned that you expect better margins and at least sales going forward, not the immediate quarter, but some time down the line. Just wanted to understand your sense of what you feel the demand at the end market part, key end market, agrochem, pharma. What are your just general overall views on demand side and how are they holding up? I will tell you, because people were having very heavy stocks. For example, China, they were having huge stocks, means minimum 3 months, 4 months, 5 months of their finished products were in stock. They are simply dumping, destocking the thing irrespective of the prices, which was occurring last 1 and a half month. Entire world is witnessing that. Those things may not continue, which is giving me the confidence. Because how long they are going to do the losses? Once they have finished this inventory, one will go back and work their calculations and do what is the realistic and what is to be realistic price. That is the reason I am saying, going forward, the price improvement and margin improvement should be there. Two quarters. If you can just give some timeline as to when you see- My personal view. Yes, Mr. Varshan. My personal view, I can say after finishing this quarter, within next two, after following two quarters, we should see the pre-COVID type of prices, we should see. Okay. Yes, thank you for your insight, sir. That was very helpful, and Happy Diwali to you. Thank you, sir. Thank you. Thank you. Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is on the line of Rajiv Rupani, an individual investor. Please go ahead. Yes, sir, I had a question on DMF. So now we have the REACH certificate and we are exporting to Europe. Am I correct, sir? Yes. The prices in Europe, are they better than in India? It was there. I will tell you, Rajiv, because without your one or two questions, the con call will not complete. I am happy that for your repeated questions, and we get energy with your questions, right? DMF what has happened, I will just want to give in detail. Earlier, I thought that our country's consumption was 90,000 tons. So my 30,000 tons can be adjusted anywhere. That was our intention. That is the reason we are very comfortable, and we did not look seriously on the export market. Because in the total 90,000 tons, you can fit somewhere. But these people started dumping like anything. Like Saudi, I will give you example. In Saudi, there is a consumption, one customer is there. They are selling at INR 170, INR 160. And India, they are selling at INR 60, INR 70, INR 80. That has given us the reason for going for the REACH registration and to scout outside the country. And last month we have given in very Saudi Arabia, our 60, 70 tons I have exported to Saudi Arabia, much better price. Now it has become very alert for those people also. So those people who are selling outside country high price and India at lower price, now they have to take a call. If they continue like this, we are also going to do the same thing, what they have done in our country. So that has given some sense to them. Probably, either the prices should be improved from their side, or they should stop coming to here and they should go to where they have the good prices, right? We got not only Europe and Saudi, we have exported couple of ISO tanks to U.S.A. also this month. So slowly it should be improved. We have taken like earlier morpholine and also and been like this only. Have we applied for anti-dumping duty in India for DMF? We have applied. This government is not supporting. I told you earlier also. We have done everything that happened before summing out the notification to this government and did not back up. We blame the government only, even today also. They showed that they went to the court against what we have done along with many other cases. It is in the Delhi High Court. Almost 15, 20 companies are there in the Delhi High Court along with the DMF. There are 15 to 20 other products also are there. There is a good reason, good eligibility is there, but still they are not giving. Okay. My last question was on like two, three products. DMC, what is the current prices and what is the capacity utilization? The DMC, we are doing some 30% to 40% capacity we are utilizing. And we were selling the DMC at INR 60, INR 50. And this Associate product, EMC and propylene glycol will come together. That we are selling at INR 120. This is INR 55 to INR 60. Together net realization will come somewhere around INR 90. Last question was on PC, what is the price and capacity utilization? Can you repeat that? The last question on PC, price and capacity utilization. Which price you are telling? PC product. Propylene, we are not doing anything. Actually, this growth exclusively only for the lithium-ion battery. Nobody has started. I think we have not sold anything. We have made a small quantity and we just kept aside. The moment the battery activity starts, probably that will move. Okay, thank you. That was helpful. Thank you. All the best. You are welcome. Thank you, Rajiv. Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments. Thank you. I would like to thank everyone for taking the time out and joining on the call today. I hope we have been able to respond to your queries adequately. We look forward to your continued support as we navigate the journey ahead. If you have any further queries, you may reach out to our investor relation partner, Orient Capital, and also you can reach to our company secretary. Thank you very much and wishing you and your loved ones a joyful and prosperous Diwali in advance. Thank you once again for the continuous being with us as an investor, for showing the confidence on the company. Thank you very much. Thank you once again. Yeah. Thank you, sir. Happy Diwali, sir. Thank you. Thank you. Thank you, members of the management team. Ladies and gentlemen, on behalf of Elara Securities Private Limited, that concludes this conference. We thank you for joining us and you may now disconnect your lines. Thank you.