The chemical specialty small-cap stock delivered strong topline but high interest rates dented its net profit
Balaji Amines, a specialty chemicals company, reported solid second quarter sales. Its net sales grew 21% year-on-year (y-o-y), to Rs126.01 crore (up from Rs104.17 crore clocked in the same period last year). Operating profit grew 10% y-o-y. It was Rs23.07 crore for the quarter ended 30 September 2012 when compared to Rs20.94 crore recorded on the corresponding period last year. However, its net profit was disappointing as it dipped 16%, to Rs8.89 crore for the latest quarter. The main culprits were increased finance cost and taxes.
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A closer look into the numbers in our Moneylife database reveals something about the Balaji Amines results. It has never reported any decline in y-o-y net sales. In fact, current quarter net sales nearly matched the three-quarter y-o-y average growth rate of 25%, which is impressive. Balaji Amines’ net sales have been steadily growing. The same was observed for its operating profit—not a single decline in operating profit on a year-to-year basis—a testament to its solid way of running the business. Of course, the vagaries of net profits are left to interest rates and such, which is why Balaji Amines’ net profit declined. Interest rate increased by nearly 40% and caused net profit to go down by 16%. However, the underlying fundamentals (i.e. sales, operating parameters) continue to remain intact. Balaji Amines valuation continues to remain attractive, with market capitalization at 2.24 times operating profit while return on equity an impressive 25%.
Balaji Amines share price of the stock tanked 9.54% to Rs54.50 at time of writing this article. Despite this, the share price is still up 37.97% since we recommended the stock sometime back.
To read more about Balaji Amines, please click here.
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