Table of Contents
Sector Outlook: Neutral
Weak performance amid logistic challenges
The company reported a 17.2% YoY revenue decline (up 13.1% QoQ) to ₹2,405 mn in Q2FY25, below expectations of ₹2,560 mn, mainly due to logistics challenges. EBITDA fell 21.7% YoY (up 4.9% QoQ) to ₹747 mn, with a margin of 31.1% (down 240bps QoQ), impacted by gross margin contraction. Net profit dropped 52.2% YoY (down 22.1% QoQ) to ₹157 mn, missing expectations of ₹235 mn, with PAT margin at 6.5% versus 21.1% QoQ. An exceptional loss of ₹401.8 mn was reported due to the Asna cyclone, impacting industrial salt stock in Gujarat; the insurance claim process has begun. Elemental bromine demand showed domestic recovery, though export demand remained weak. The industrial salt segment faced challenges from a prolonged monsoon, while trials for Sulphate of Potash (SOP) yielded positive results, with promising global and domestic inquiries for its second-grade SOP.
Key Concall Highlights
Bromine Business
- The company is seeing a broad recovery in domestic demand for bromine products.
- Export demand for bromine remains subdued.
- Anticipates consistent demand for bromine due to stable or improving end-user applications.
- Aims to produce over 20,000 tons of bromine in FY25, including for captive consumption.
- Estimates bromine production to increase to 20,000-25,000 tons in FY26.
Industrial Salt business:
- The industrial salt business faced challenges due to the monsoon season and difficult road conditions, impacting exports to ports.
- Operations were further disrupted by Cyclone Asna, resulting in a loss of salt stock.
- H2 is historically stronger for the salt business, offering better prospects.
- Management anticipates a volume run rate of more than 10 Lc tons in the coming quarters.
- Focus remains on enhancing processes and improving cost efficiencies to optimize performance.
Sulphate of Potash:
- The company continues to see encouraging results in its SOP (Sulfate of Potash) trials and has taken steps to produce a second grade of SOP.
- It has begun receiving inquiries from both global and domestic markets, and management anticipates meaningful contributions next year.
Oren Hydrocarbon Update:
- The company received NCLT approval and initiated refurbishments and renovations at various production sites.
- Two plants are expected to be fully operational within the next few weeks, with significant contributions anticipated from Q4FY25 onwards. The company focuses on products related to Clear Brine Fluids and the oil and drilling industry.
Strategic Acquisition of Clas-Sic Wafer Fab Ltd:
- The company acquired a 21.33% stake in Clas-Sic Wafer Fab Ltd during the quarter.
- The acquisition involved a primary subscription investment of GBP 10 Mn and a secondary purchase of GBP 5 Mn.
- This move aligns with the company’s broader expansion strategy in the compound semiconductor space.
- Archean aims to produce high-quality SiC power devices within 2-3 years.
- The production will cater to both domestic and international markets.
Capex:
- The company does not foresee any significant capital expenditures over the next six months, except expenses related to the Oren project, which are estimated to be around Rs 750 million.
Valuation and Outlook
Archean reported strong domestic demand recovery, though export demand remained subdued. As a leading marine specialty chemical manufacturer, Archean produces elemental bromine, industrial salt, and Sulphate of Potash. The company continues to expand through synergies between its core business and investments in sectors like compound semiconductors and energy storage.
Key highlights include:
- Oren Hydrocarbon acquisition: Operations to begin in H2FY25 post-NCLT approval.
- Bromine Derivatives Project: Expected significant contribution to revenue starting Q4FY25.
- Industrial Salt & SOP segments: Anticipating strong demand in H2FY25 and FY26.
Financial outlook: Revenue/EBITDA/PAT projected to grow at CAGRs of 14.6%/27.0%/23.5% from FY24-FY26, driven by market leadership, capacity expansion, and new derivative products. At a revised valuation of 27x FY26e EPS, the target price is Rs. 776/share, offering a 16% upside.
