When you a see a table like below in an annual report it immediately stands out. In 24 years

• Sales are up – 100X
• Profits are up – 155x

All at a decent ROE, no wonder long term shareholders / promoters have clearly acquired transformative wealth

Balaji Amines has come on my radar multiple times in last 10 years, however I gave it pass every time as I havent worked much on industry dynamics. But in 2020 while working on Diamines chemical idea I figured out that only Indian competitor creating capacity is Balaji Amines so I had to study them.

NB – I started tracking Diamines chemical idea in score card and we removed as valuations started to become lofty and after digging through I wasn’t able to figure out how will they remove supplier dependency, so we dropped the idea

The Balaji Amines annual report is must read for anyone who is invested in Amines, here are some of the key takeaways that are worth noting

Before take this course on what are amines and come back

Speciality chemicals is a rising tide

Specialty chemical market in India was valued at Rs. 2,357 billion in FY18 and is expected to reach a value of Rs. 4,527 billion by FY24, expanding at a CAGR of about 11.9% during the FY19-FY24.

The efficient and smart players should comfortably grow in mid 20s,In recent years, the sales volume of specialty chemical manufacturers in India has increased due to stringent Policies in regulatory norms, slow economic growth and rising cost of labour across globe.

Amines Industry is regional / domestic focussed

Aliphatic amines are hazardous in nature when not handled with proper safety during transportation and hence the hazardous nature reduces the threat of imports.Globally, the amines industry is well structured with a small number of participants, typically not more than 3-4 players per region and relatively balanced in terms of demand and supply.

Freight is a big element of cost, which makes imports uncompetitive. High shipping cost and hazardous nature of the chemical, which prevents high inventory levels, also force customers to source locally rather than import it.

Oligopoly is one of the most favourable structures for investors.

High Entry Barriers

• Globally, amines technology is closely guarded
• High capital-intensive projects
• significant investments required in research and development (R&D) to develop set of products to be offered
• hazardous nature of the chemical, which prevents high inventory levels, also force customers to source locally rather than import it

More Importantly in India its Duopoly

Absolute size of the industry is very small making it unattractive for any new player to enter the market , In India however it is a duopoly – Indian aliphatic amines market is substantially consolidated with two accounting for 95% of total market share.

But unlike BSE / NSE in indexes where NSE is big brother, Balaji Amines is near equal player to Alkyl Amines and both have many non over lapping products

Crude linked raw materials

Crude is notoriously volatile, However, raw-material cost pass-through to end customers is standard practice in the industry and one can verify with below operating margins for both companies which have improved in last decade

Reverse engineering and import substitution has been key theme for growth

Company’s strength is to identify and develop the technology indigenously and identify the raw material of the particular product and undertake the R&D to develop the same in India. The selection policy for end product is to either be the first or second manufacturer in India – to substitute products that are being imported into the country.

Balaji is entering in Diamines space through Balaji Speciality Chemicals Private Limited

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