Balaji Specialty Chemicals files DRHP with SEBI for IPO

Balaji Speciality Chemicals, a subsidiary of listed specialty chemicals player Balaji Amines, has filed the draft red herring prospectus (DRHP) with SEBI for its proposed IPO. The SEBI approval normally takes around 2-3 months post which, if SEBI is satisfied in all respects, the observations are issued, which is tantamount to an approval from SEBI. The actual IPO process can only start after the SEBI approval. It is not clear if Balaji Specialty Chemicals would be keen to rush through its IPO in the present challenging IPO market conditions.

As per the DRHP filed, the offer will consist of a fresh issue of equity shares worth Rs250 crore plus an offer for sale (OFS) of 2.60 crore shares by certain existing shareholders of Balaji Speciality Chemicals. The parent company, Balaji Amines Ltd, has already confirmed that it will not be participating in the OFS. The DRHP was filed with SEBI on 10th of August, so the approval can be expected by around October or November. The fund raising plan was already approved by the board of Balaji Specialty Chemicals and Balaji Amines in June 2022. 

Balaji Speciality Chemicals, the subsidiary of Balaji Amines, manufactures niche chemicals such as ethylene diamine (EDA), piperazine anhydrous (PIP), diethylenetriamine (DETA), aminoethyl ethanolamine (AEEA) and aminoethyl piperazine (AEP). All these specialty chemicals are manufactured using the mono-ethanol amine (MEA) process. These chemicals manufactured by the company find application in various industries like speciality chemicals, agrochemicals and pharmaceuticals. Investors have generally favoured this sector.

For the recently concluded financial year FY22, Balaji Specialty Chemical saw a 186% jump in the operating revenues compared to FY21. For the full year FY22, Balaji Specialty Chemicals had reported sales revenues of Rs515.80 crore and a net profit of Rs109.96 crore, giving the company an attractive net profit margin (NPM) of more than 21% for the full year. However, the yoy profits were lower on account of a 164% rise in raw material costs, which has been a general problem for most of these chemical companies due to supply chain constraints.

Let us take a quick look at the parent company, Balaji Amines Ltd. This Solapur based specialty chemicals and amines company is focused on 4 key business segments viz. Amines, specialty chemicals, derivatives and pharma excipients. Balaji Amines has been one of the leading manufacturers of Aliphatic Amines in India and now focuses more on value-based specialty chemicals. Broadly, it manufactures Methyl Amines and Ethyl Amines as well as the derivatives of Methyl Amines and Ethyl Amines.

Balaji Amines has also been consistently adding capacities. Generally, the practice across the world is that the amine technology is a closely guarded process. Balaji Amines holds the distinction of testing on an indigenously developed technology. It is currently working on developing it further. Balaji Amines products are globally accepted and recognized and that is evident from its distinct export quality status. Its state of the art manufacturing facility is located at Tamalwadi Village, near Solapur district. It is a centrally controlled operation.

From a stock market perspective, specialty chemical companies have been among the star performers. Even the IPOs of specialty chemicals over the last one year have done very well. One reason is that the demand for specialty chemicals from India has been booming even as China has curtailed its output in deference with the environment focus of the government. That has opened up a huge opportunity basket for Indian specialty chemical units. Above all, the pandemic has forced a lot of global companies to diversify their specialty chemicals sourcing beyond China, and India has been a natural choice.