Buy This Multibagger Small Cap Specialty Chemicals Stock For 44% Returns, Says KR Choksey

KR Choksey has assigned a buy call to Balaji Amines Limited, a small cap speciality chemicals company. The brokerage has estimated a target price of Rs 4,313 per share. According to the brokerage's given target price, the stock is likely to gain 44% from its current level.

During the quarter, Balaji Amines Ltd reported robust revenue of INR 6,276 Mn (+19.38% YoY / -6.33% QoQ). Such performance was mainly driven higher realisations from Amines & specialty chemical segment (+18.44% YoY).

Balaji Amines Ltd. is a leading manufacturer of ethyl and methyl amines which have various applications in chemical industries. The company specialised in manufacturing Methylamines, Ethylamines, Derivatives of Specialty Chemicals and Pharma Excipients.

Stock Outlook & Returns

The stock today last traded at Rs 3,012.90 per share, gaining 1.17% compared to its previous close. The 52 week high level is Rs 4,048.95 and the 52-week low is Rs 2,682.75, respectively. It has a market cap of Rs 9,762.10 core. 

The stock has given 1.65% negative returns in 1 week. It has given 6.69% negative returns in 1 month and 10.3% negative returns in 3 months, respectively. Over a year it gave 15.34% negative returns on investments. However, the stock has performed well on long-term investments as it has given 827.76% and 628.81% multibagger returns in 3 and 5 years, respectively.

Volumes continue to be in uptrend

In Q2FY23, Balaji Amines Ltd reported robust revenue of INR 6,276 Mn (+19.38% YoY / - 6.33% QoQ). Such performance was mainly driven higher realisations from Amines & specialty chemical segment (+18.44% YoY). Total volumes stood at 28,498 MT for Q2FY23 as against 28,360 MT in Q2FY22. From the upcoming quarters on, revenues from the newly operational facilities are expected to start contributing to the top line, thus enhancing potential growth opportunities.

Enhanced capacity utilisation led to greater operating leverage

Balaji Amines's EBITDA in Q2FY23 stood at INR 1,731 Mn (+33.82% YoY / -19.38% QoQ), OPM improved by 286bps YoY but contracted 446bps QoQ to 27.58% in Q2FY23. Improved capacity utilisation led to better operational leverage in some of the older units as well as newly launched plants. The improvement in operating margins YoY was primarily on account of better product mix whereas higher input costs dented the margins on QoQ basis Net Profit in Q2FY23 stood at INR 1,186 Mn showing an improvement of 34.62% on YoY basis and was down by 19.86% on QoQ basis, with NPM at 18.90%.

Update on the recent capex

Balaji Amines has successfully completed its Phase 1 90 acre Greenfield Project (Unit IV) capex and has began commercial production from its DMC/PC and PG Plant at the end of September 2022. With that Methyl Amine production has also started. We anticipate that the capacity utilisation levels will increase due rise in demand for its products in FY23 as client's access to the raw materials for corresponding products becomes more seamless in the ensuing quarters. This will also lead to a significant increase in volume offtake as well as better margin profile.

Valuation and view

KR Choksey said, "We believe Balaji Amines's improved capacity utilisation at different plants will result in better operating leverage. Its strategic investments towards products which are substantial imports or products with limited competition will aid growth in the near future. At CMP, Balaji Amines is trading at 21.28x/16.56x its FY23E/24E earnings. We remain positive as it will sustain growth potential and value the stock at a target P/E multiple of 23.5x FY24E, which yields a price of INR 4,313 per share and thus maintain 'BUY' recommendation."

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.