Balaji Amines Ltd Q2 FY2024 Concall Summary

Key Takeaways

• A quarter of external shocks: Revenue fell under the weight of global destocking, Chinese dumping, and pharma/agro customer slowdowns, while the amines base held firm.
• Volume up, realizations crushed: Half-yearly volumes rose over 2,000 tons YoY, but price pressure from competitors selling below cost wiped out the volume gain.
• The pain is concentrated in specialties: Basic Methylamines and Ethylamines plants performed very well; the majority of pressure sits in the specialty segment.
• Recovery bet rests on competitors' pain ending: Management's confidence that prices will normalize hinges on Chinese and European rivals being unable to sustain loss-making dumping.
• What to watch next quarter: Whether the "indication of improvement" from one customer's larger order converts into a broader realization recovery, and if the debottlenecking column is commissioned on time.

The Quarter's Damage: What Happened

• Global destocking hit all at once: Chinese and European competitors held 3 to 5 months of finished goods and spent the last 1 to 1.5 months dumping irrespective of price to empty warehouses, a phenomenon management says the entire world witnessed.
• Customer industries collapsed: Pharma API and agrochemical customers globally are running below 50% capacity because they cannot get viable prices, so their consumption of Balaji's products dropped sharply. European customers operated at 50% to 40% capacity.
• Raw material spike added pressure: Monoethanolamine prices spiked after a Dow plant in the USA went on force majeure for 2 to 3 months; prices have started easing only in the last week.
• Subsidiary shutdown compounded the hit: A maintenance shutdown and debottlenecking process at Balaji Specialty Chemicals temporarily dragged consolidated performance.
• Only three products face direct Chinese competition: EDA in Specialty Chemicals, plus Morpholine and NMP in Balaji Amines; the rest of the portfolio is not in a direct fight with Chinese dumping.

D. Ram Reddy: "They were simply dumping, destocking the thing, irrespective the prices, which was happening last 1, 1.5 month. Entire world is witnessing that. So those things may not continue, which is giving me the confidence."

Where the Strength Is: Amines Base

• Methylamines and Ethylamines carried the quarter: These plants are performing very well and are the reason the results are being shown at all, with some Methylamines derivatives also helping.
• Ethylamines cost advantage: New technology and raw material (ethanol) availability near the Solapur plant give Balaji a structural cost edge in Ethylamines.
• DMF export pivot activated: After Saudi and other players dumped DMF in India at INR 70 to 80 while selling at INR 160 to 170 in their home markets, Balaji obtained REACH registration and began exporting to Saudi Arabia and the USA, shipping 60 to 70 tons to Saudi Arabia last month and ISO tanks to the USA this month.

D. Ram Reddy: "Earlier, I thought that our country's consumption was 90,000 tonnes. So my 30,000 tonnes can be adjusted anywhere. That was our intention, that's the reason we are very comfortable, and we did not look seriously on the export market. Because in the total 90,000 tonnes, we can fit somewhere. But these people started dumping like anything."

The Recovery Thesis

• Competitors cannot sustain losses indefinitely: Management argues raw material costs are not much different between China and India, so the current dumping is pure loss-making that nobody can prolong.
• Destocking will end: The global destocking cycle is expected to complete, removing the overhang of finished goods that competitors are desperate to liquidate.
• Early signal from a customer: One customer who previously took 150 tons is now talking about taking 200 tons, giving management an indication of improvement in the current month.
• Pre-COVID prices expected within two quarters: Management expects that after finishing this quarter, pre-COVID type of prices should be visible within the next two following quarters.
• Raw material relief arriving: From January onwards, raw material prices are settling down and should not pose a problem.

D. Ram Reddy: "I don't think that there is that much difference between China and India cost point of view. It is definitely the people are doing the losses. So nobody can do -- prolonging doing..."

Project Pipeline & Capacity Build

• n-Butylamine expansion on track: Plant expected to be commissioned during Q4 of FY 2023-24, with working position from January to March.
• Methylamine project progressing: Likely to be commissioned around Q2 of FY 2024-25.
• Dimethyl ether project initiated: Detailing and engineering completed, civil works started, expected commissioning during H1 of FY 2024-25.
• Three new first-in-India products announced: N-Methyl Morpholine (3,000 TPA), NBPT (2,500 TPA), and Pharmapure Povidone PVP K-30 (4,000 TPA) proposed at Unit IV, all first time in the country; no commissioning date given.
• Debottlenecking at subsidiary nearing completion: A big column is under erection, to be completed by 15th or 20th of the month, after which the plant starts for additional capacity; work on converting EDA into Piperazine is also underway.
• DMAHCL plant: 75% of work completed in Unit III, not yet commissioned.

New Market Opportunities

• DME with LPG blending: Papers submitted to NITI Aayog; the government has returned to BIS to pick up capabilities; official notification making it compulsory for all oil companies expected in the coming 1 to 2 months.
• DMC and lithium batteries: Balaji has signed NDAs with battery manufacturers and a series of meetings is ongoing; Propylene Carbonate made in small quantity and kept aside, will move when battery activity starts.
• Export ambition: Targeting 25% to 30% of total turnover from exports in the coming 1 to 2 years, up from the current 15% to 17%.
• Solar power for captive consumption: A 1,600 KW solar plant initiated at Unit IV on all sheds and buildings, costing approximately INR 7.5 crores for Netzero under ESG to reduce carbon footprint.
• Antidumping duty on DMF stalled: Balaji has applied but the government is not supporting; the matter is in Delhi court along with 15 to 20 other companies and products.

Guidance & Commitments

Key Metrics