Boardroom pain: Why Balaji Amines is going through a rough patch

After five independent directors of Balaji Amines, a chemical manufacturer headquartered in Hyderabad, resigned in May citing “personal reasons”, the company clarified that all of them stepped down to comply with the Securities and Exchange Board of India’s (Sebi) regulations that require independent directors to resign if they complete 10 years in that position.

In addition to Independent Directors Naveena Thammishetty Chandra, Kashinath Revappa Dhole, Satyanarayana Murthy Chavali, Amarender Reddy Minupuri, and Vimala Behram Madon, the company’s Chief Financial Officer Hemanth Reddy Gaddam also resigned, effective May 20. Gaddam is expected to move to subsidiary Balaji Specialty Chemicals, and Srinivas Reddy will replace him.

The market did not take the news of Gaddam’s exit well—shares tanked 15 per cent. “We were merely following the law, but we got negative publicity and this is how, unfortunately, the market reacted... This will help give new directors a chance to serve on the board. Already four new independent directors have come on board and by the next AGM (annual general meeting) in July we’ll have everything regularised,” a former independent director, who recently resigned, told Business Today.

Balaji Amines’ revenue from operations declined 39.5 per cent year-on-year (YoY) in Q4FY23 to Rs 471.4 crore from Rs 779 crore last year. Its standalone revenue, too, declined significantly, falling by 44 per cent YoY and 16 per cent quarter on-quarter (QoQ) to Rs 347 crore. According to KRChoksey Research, this decline was due to weak demand in the pharma, active pharmaceutical ingredients (API), and agro segments, along with the volatility in key input prices such as ammonia, methanol, and acetic acid. “Moreover, realisations also dipped, falling by 26 per cent YoY and 14 per cent QoQ to Rs 159 per kg due to correction in key raw material prices. Balaji Specialty Chemicals witnessed a significant decline in the revenue by 22 per cent YoY and 28 per cent QoQ to Rs 124 crore. This decline can be attributed to the non-availability of certain key raw materials, which led to lower utilisation levels of around 70-72 per cent,” Abhishek Agarwal, analyst at KRChoksey Research, said.

But, the management is optimistic. They expect to deliver a margin of approximately 26 per cent and anticipate an improvement from the second half of FY24 spurred by an uptick in volumes in the pharmaceutical and API segments, ramp-up in capacity utilisation and optimisation of raw material costs.

Sandeep Raina, Head of Research at Nuvama Professional Clients Group, says consolidated profit and gross margins were under pressure in Q4 owing to elevated input prices and non-availability key raw materials. “We expect profitability to recover going forward, with an uptick in volumes from product launches, a recovery in the pharma and API sector, and optimisation of acetonitrile production to withstand the volatility in acetic acid (key raw materials),” he said.

Headwinds in pharma, API, and agro chemicals, he adds, will impact its performance in H1FY24. “Due to a weak performance, the stock has seen a massive de-rating,” he adds.

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