This Small Cap Chemical Stock Can Grow By 40%, Says Nuvama

Nuvama Wealth and Investment, one of the prominent stock-broking firms, sees that Balaji Amines stock can grow by nearly 40%. Balaji Amines is a small cap chemical manufacturing company incorporated in 1988. The company specialises in manufacturing methylamines, ethylamine, derivatives of specialty chemicals and pharma excipients.

Despite the company posting a dismissal fourth quarter performance due to weak demand from the pharma, API and agro-industry, the brokerage house still has a positive view of the company.

Q4 Performance

Balaji consolidated revenue fell 39% YoY and 20% QoQ to Rs 471 crore due to weak demand, resulting in lower volumes and realisation. The consolidated EBITDA fell 52% YoY and 27% QoQ to Rs 93 crore in Q4FY2 and the EBITDA margin contracted by 518bp YoY and 205bp QoQ to 19.8% on lower realisation and higher raw material prices. All the numbers reported were below Nuvama's estimated ones.

The profit after tax fell 56% YoY and 24% QoQ to Rs 47crore, lower than the estimate of Rs 61 crore. Besides the revenue from the subsidiary Balaji Specialty Chemicals also fell 22% YoY and 28% QoQ to Rs 124 crore. Also for the full year, the revenue grew 2% YoY to Rs 2,355 crore, while EBITDA/PAT fell 3%/12% to Rs 609cr/Rs 326 crore in FY23.

Nuvama's View & Valuation

Nuvama suggests that there will be macro headwinds in pharma, API and agrochemicals, which will impact Balaji Amines' operating performance in H1FY24.

The stock-broking firm expects the performance of the company would improve after H1FY24, with an uptick in volumes, improvement in demand from end-users and volume growth from upcoming capacities of DMC and PG, n-butylamine, dimethyl formamide, acetonitrile and methylamine plants. With the operationalisation of these plants, the management is targeting a revenue of more than Rs 4,000 crore.

Thus, factoring in a slowdown, the brokerage house has cut its FY24/FY25 earnings estimate by 12%/9%. Due to weak performance, the stock has seen a massive derating and is trading at 16x/13x FY24E/FY25E EPS.

"Accounting for the upside from new projects, we have arrived at our revised TP of Rs 3,090 (earlier Rs 3,450), evaluating the stock at a target multiple of 20x its average FY24E/FY25E EPS. Retain 'BUY'," added Nuvama.

Stock Price Movement

The latest closing price of Balaji Amines has fallen by 2.10% to Rs 2162.05 per share on an intraday basis. In the last one year, the share price has plunged steeply by 22.23% but over three years it has soared up 457.37%.

Disclaimer

The stock has been picked up from the brokerage report of Nuvama Wealth and Investment Limited. Greynium Information Technologies, the author or the brokerage firm will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.