This article was published on 20th July, 2021 on LinkedIn, after which the share has given more than 33% return till now. The link to the article is posted above.
Since the beginning of this year, things have turned out to be a hell of a ride for investors, and this pandemic has turned out to be a disguise in blessing for traders and investors. I am back with another growth story and a multi-multi-bagger in this second episode of Going long for a Decade!
This time I have something which has already given unimaginable returns in such a short period, i.e., "The golden sector of this decade - AMINES". For all who don't have any acquaintance with the chemical sector, let me simplify things a bit for all of you. AMINES are the specialty chemicals that play a significant role in the survival of life. From pharma to textile to chemical business, we can find amines having a critical role in the manufacturing of products such as life-saving drugs, dyes, nylon products, etc. So AMINES are close to omnipresent in various products. Some of the uses of amine products are listed below.
India is one of the fastest-growing markets in the global specialty chemicals industry. The sector contributes 21% of the overall chemical industry and the size of which is estimated to be around the US $40 Bn. Seen from where it stands now, the industry has only good things to fall back on. As per the latest estimates, the size of the global amines market stands at the US $16.8 Bn in CY 2020. It is expected to grow to the US $ 26.6 Bn at a CAGR of 6.8% from 2020-2027.
The Indian amines industry is a growth story based on import substitution. Earlier majority of products were imported from China but now being produced in India itself gave a boost to this segment. The major players in the Indian amines industry are Alkyl Amines, and Balaji Amines, both of them are listed companies. They enjoy duopoly and captures more than 90% of the market share. Both the companies are in B2B segment only. Increasing demand from pharmaceutical, personal care, agrochemical, agriculture, water treatment, paint, coating, and petroleum industries are the key growth drivers of the market. The trend was evident during the COVID-19 outbreak, which led to an uptick in demand from the pharmaceutical industry and eventually pushed the demand for the amines industry.
Since March 2020, Alkyl Amines has given an unbelievable 900% returns. The stock rose from 400 to make a high of 3983 on May 21, giving handsome returns to investors. The scenario is similar in the case of Balaji Amines too. The stock rose from 300 levels to 3200 levels within one year period. But after a massive bull run, the question is whether any steam is still left in them or not.
The rise in the share price of Alkyl Amines is backed by a steep rise in net profits as NPM% increased from 9.89 in FY-2019 to 23.77 in FY-2021. And in the case of Balaji Amines, net profit increased from 118 cr in FY-20 to 213 cr in FY-21.
But the most relevant question now is: are the margins sustainable in the future? To answer this question, I dug deep into annual reports of Balaji Amines (The largest producer of Aliphatic amines) only to get surprised by the fact that this is just a start.
"The Plant for manufacture of Ethylamine under the first phase of our 90-acre Greenfield Project has commenced commercial operation on 21st May, 2021. The commencement of the production of Di-Methyl Carbonate (DMC) is expected in the last quarter of 2021-22. Under Phase I, the Company has installed additional capacities of 16,500 TPA of Ethylamine, which has moved our company to be the largest manufacturer of Ethylamines in India. (Additionally, the Company is also installing capacity of 9,900 TPA of DMC). There is a supply shortfall of about 9,000 TPA of Ethylamine in India, which is expected to be fulfilled by the Company owing to production increase." - source: Balaji Amines annual report 2021
It is conclusive that this production increase will again push revenues and margins higher. Moreover, Balaji Amines has become completely debt-free in FY-20. It seems the growth story will continue for at least the next 5 years or so. For short, medium, or long-term investors, the target remains to be lucrative even when the stock has already moved more than 1000% in a year. So as per my point of view, the Balaji Amines is buy on dips with medium-term support at 2500. The stock will outperform again in the near future, with a target of over 50% from current prices by the end of this year.
*Disclaimer- The above mentioned article is just for educational and research purposes. I am neither a SEBI registered advisor or broker nor I have any financial relations with Balaji Amines or Alkyl Amines. This is not a financial or equity recommendation.
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