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Archean Chemical Industries

Building on the Bromine Advantage

Capitalising on India’s natural advantage of bromine reserves: Amid i) depleting underground brine reserves of China and the US, and ii) receding water level of the northern basin of the Dead Sea, India’s bromine production from Rann of Kutch has risen rapidly. In our view, ACIL, being the largest and one of the lowest-cost Indian producers of bromine, is likely to continue benefitting from its brine reserves in Rann of Kutch over the next few years. Moreover, its entry into bromine derivatives will only increase its global footprint.

Revenue/EBITDA/PAT CAGR expected at 27%/34%/44% over FY23E25E: We expect ACIL’s revenue to register 27% CAGR over FY23E-25E and reach INR 23.7bn by FY25E on the back of ramp-up of additional available capacities from i) expansion of bromine and salt capacities despite baking in bromine price correction in FY25E, and ii) greenfield capex for bromine derivatives (flame retardants, clear brine fluids, and PTA synthesis catalysts). Bromine derivatives will be the major growth driver for the company during FY23E-25E as its contribution will rise to INR 4.6bn in FY25E (19% of overall revenue) from nil contribution in FY23E. Since bromine derivatives will be a forward integration of bromine, EBITDA margin is slated to rise from ~41% in FY22 to ~49% in FY24E. As a result, EBITDA is likely to grow to INR 11.5bn (34% CAGR over FY23E-25E) and PAT is likely to reach INR 8.0bn (44% CAGR over FY23E-25E).

Initiate with BUY and TP of INR 785 per share: On account of fixed pricing contracts (6-12 months in case of bromine and 24 months in case of salt), ACIL offers a high degree of earnings certainty. Moreover, competitive threat to ACIL is limited due to its cost leadership and longterm customer relationships. We initiate coverage on ACIL with a BUY and a Mar’24 TP of INR 785/share (based on 12X Mar’25E EPS).

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