Archean Chemical Industries Ltd Quarterly Results Q3 FY 25 stock analysis

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Sector Outlook: Neutral

Resilient performance amid global challenges

The company’s revenue fell 41.3% compared to last year but grew slightly by 0.8% from the previous quarter to Rs. 2,423 million, missing the expected Rs. 2,760 million. Bromine made up 38% of sales, while industrial salt contributed 61%. Demand slowed in the short term, but the company expects a recovery, especially in bromine, helped by China’s economic stimulus. Industrial salt shipments improved after monsoon disruptions, aiming for 1-1.2 million tons per quarter. EBITDA dropped 45% YoY but rose 7% QoQ to Rs. 799 million, with a margin of 33.0%, supported by better gross margins. Net profit was Rs. 478 million, down 52.9% YoY but up 203.9% QoQ, exceeding expectations. The bromine derivative plant is ramping up and should generate significant revenue by FY26. Oren Hydrocarbon, acquired in July 2024, will resume operations to support the oil & gas sector. The company is also investing Rs. 3,000 crores in a semiconductor plant in Odisha and has stakes in UK-based Classic Wafer Fab and US-based Off-grid Energy Labs for zinc-bromide battery technology. Archean remains confident in its long-term growth, focusing on efficiency and expansion.

Key Concall Highlights

Bromine Business:

The company is a leader in India’s bromine market and is seeing early signs of recovery.
Demand is expected to grow, helped by China’s economic stimulus and increased use in oil & gas and agrochemicals.
The company plans to produce 20,000-25,000 tons of bromine in FY26, including internal use for bromine derivatives.
Expanding into clear brine fluids (CBF) and PTH synthesis will increase internal consumption to 20-25%, helping maintain stable profit margins.

Industrial Salt Business:

Industrial salt contributed 61% of revenue in Q3FY25.
Supply chain issues caused by monsoons have been resolved, improving shipments.
The company has secured contracts for the next 12 months, ensuring stable revenue and demand.
Prices have slightly decreased, but more spot-based contracts allow better pricing flexibility.

Sulphate of Potash (SOP):

The company is testing and running pilot trials for SOP production.
Pre-monsoon tests will be completed soon, followed by production ramp-up after the monsoon.
SOP is a high-value fertilizer needed for specialty crops, meeting India’s growing agricultural demand.
Minimal sales in Q3FY25, but significant revenue is expected in FY26.

Oren Hydrocarbon Update:

The company is reviving operations at Oren Hydrocarbon, which supports the Clear Brine Fluids (CBF) segment for the oil & gas industry.
Two plants are nearly operational, with customer trials in progress.
Two more plants will restart soon, and full production ramp-up is expected in FY26.

Capex Plan:

The company is investing in expanding its chemical business and entering high-growth sectors.

Semiconductor Business:

Investing Rs. 3,000 crores in India’s first semiconductor wafer fabrication plant through its 6M Pvt. Ltd. subsidiary.
Aims to become a key player in India’s semiconductor industry.

Future Outlook:

Despite global challenges, the company expects double-digit revenue growth in FY26.
Growth will come from stabilizing bromine and industrial salt businesses, and expanding bromine derivatives and new ventures.

Valuation and Outlook

Archean had a strong order book for bromine and industrial salt this quarter, ensuring short-term stability. The bromine business is showing signs of recovery, helped by China’s economic stimulus and higher demand from the oil and gas sector. The company plans to produce 20,000–25,000 tons of bromine in FY26, with increasing use for its own derivative business. Industrial salt volumes should stabilize at 1.0–1.2 million tons per quarter after the monsoon. Archean is shifting towards high-growth, high-profit businesses like bromine derivatives, semiconductor manufacturing, and energy storage. It has invested Rs. 3,000 crores in 6M Private Ltd. for semiconductor wafer production and Rs. 12 million in Offgrid Energy Labs for zinc-bromide batteries. Industrial salt demand is expected to remain strong, and the SOP segment should recover in FY26. We expect the company’s Revenue, EBITDA, and Profit to grow at 7.6%, 10.4%, and 6.1% CAGR from FY24 to FY26, driven by its market leadership, expansion plans, better supply chain, and new business growth. The stock is currently trading at 23.6x P/E for FY25e and 15.2x for FY26e, and we value it at 18x FY26e EPS, setting a target price of Rs. 524 per share, an 18% upside.