Sector Outlook: Positive
Archean Chemical Industries reported a revenue drop of 25.8% year-on-year and 31.2% quarter-on-quarter to Rs. 2,839 million, missing expectations of Rs. 3,060 million. This decline was mainly due to slow demand recovery for bromine and commercialization issues for SOP. EBITDA fell by 55.2% YoY and 40.1% QoQ to Rs. 871 million, with a margin of 30.7%. Net profit increased by 57.8% YoY but decreased by 43.3% QoQ to Rs. 576 million, below the expected Rs. 635 million. Despite these challenges, the management is optimistic, targeting 28,000-29,000 tonnes of bromine in FY25 at Rs. 220-225 per kg and at least 30% volume growth for industrial salt. They are also focusing on capacity expansion, subsidiary operations, and R&D in flow batteries.
Key Concall Highlights
Bromine Business
The company has seen steady demand for its bromine in the domestic market, which is a positive sign. They have increased supply, and demand from end-user industries like agrochemicals and pharmaceuticals has grown over the past few months. The company expects the bromine price to stay around USD 3 per kg. They are targeting a volume of 28,000-29,000 tonnes in FY25, with expected realisation between Rs. 220-225 per kg.
Industrial Salt Business:
The company’s industrial salt volume exceeded 4 million tonnes in FY24 and is expected to maintain this stable rate. With few competitors worldwide that can match this quality and volume, Archean stands out. They anticipate continued growth in FY25, aiming for at least a 30% increase in industrial salt volume.
Sulphate of Potash:
Archean has recently secured new clients for Sulphate of Potash (SOP) and achieved good business results. To diversify their product offerings, the company is conducting several trials with both domestic and international clients.
Oren Hydrocarbon Acquisition Update:
The company has acquired Idealis Chemicals Private Limited through its wholly-owned subsidiary. They are currently waiting for NCLT approval, which is pending. Once they secure the necessary approvals, Archean Chemical expects this project to strengthen its market position.
Entry into the power electronic segment:
Archean Chemical subsidiary Siscon Private Limited focuses on power electronic segment operations, and the company has seen encouraging results in flow battery research.
Expansion in bromine derivatives business:
The company is setting up a new facility in Randedi, Gujarat, for bromine performance derivatives products, with an estimated cost of around Rs. 2.52 billion. This investment will be funded through internal funds. The increased bromine capacity from this facility will be used internally in the bromine derivatives plant, allowing the company to expand its product range.
Greenfield Project:
The company’s phase 1 expansion of a new facility at Jhagadia, Gujarat, through its subsidiary Acume Chemicals Private Limited, was launched in Q4FY24 to manufacture bromine performance derivatives. Trial production started in January and received positive feedback from both domestic and international customers. The phase 2 project, which will include flame retardants, is set to begin in Q1FY25.
Valuation and Outlook
Archean is India’s largest exporter of bromine and industrial salt and has one of the lowest production costs globally. This cost efficiency gives it a competitive edge over other chemical manufacturers. The company benefits from strong client relationships, established infrastructure, and proximity to the Rann of Kutch reserves and ports, ensuring efficient production and timely delivery of high-quality products. Archean is expanding its bromine and industrial salt capacities, projecting a return on capital employed (ROCE) of 30.7% and return on equity (ROE) of 23.8% by FY25. Due to high entry barriers in the bromine market and a long business gestation period, Archean is well-positioned and deserves a valuation premium. The company is expected to see revenue, EBITDA, and PAT growth of 17.2%, 17.0%, and 23.9% CAGR over FY24-26, respectively. Archean is valued at a P/E of 17.3x/12.2x on FY25/26 EPS estimates, with a target price of Rs. 758 per share, implying a 23% upside.
