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A leading B2B player in the specialty marine chemicals KEY CHANGES: TARGET

Archean Chemical Industries Ltd (ACIL) is a leading marine specialty chemical manufacturer focused on producing and exporting bromine, industrial salt, and sulphate of potash. Incorporated in 2003 at Chennai, Tamil Nadu, they are the largest exporter of bromine and industrial salt by volume in India. They produce the products from the brine reserves in the Rann of Kutch, Gujarat, and manufacture the products at the facility near Hajipir in Gujarat. The company markets its products to 18 global customers and to 24 domestic customers.

• The bromine global market size was US$3.13 billion in CY21, and the market is expected to grow at a CAGR of 6% between CY20 and CY25.

• The global demand for industrial salt was 153 million MT in CY20 and is expected to grow at a CAGR of 3% between CY20 and CY25.

• ACIL is the only manufacturer of sulphate of potash from natural sea brine in India. The global demand for sulphate of potash was 6.9 million MT in CY21 and is expected to grow at a CAGR of 6% between CY21 and CY25.

• In FY22, ACIL has installed capacities of 28,500 MT for bromine, 3,000,000 MT for industrial salt, and 130,000 MT for sulphate of potash, with a capacity utilization of 71%, 120%, and 2%, respectively.

• The revenue has increased at a CAGR of 36% and the revenue from exports has grown at a CAGR of 29% between FY20 and FY22.

• The company has one of the lowest costs of production globally in both bromine and industrial salt. They have an EBITDA margin, PAT margin and ROCE of 41%, 17%, and 13%, respectively, in FY22. • ACIL is expanding into bromine derivative performance products and is setting up a new facility in the next two-to-three years with an estimated cost of ?252cr, funded through internal accruals.

• The company intends to add an additional 12,500 MT/annum capacity for bromine production and to expand the manufacturing capacities for industrial salt production by adding an additional washery in FY23.

• ACIL had a D/E of 3.5x in FY22 and Post IPO it will be 0.3x, which enables utilization of internal accruals for investment in business growth and expansion.

• At the upper price band of Rs.407, ACIL is available at a P/E of 26x (FY22), which appears reasonably priced. Considering its consistent top-line & bottom-line growth with cost efficiencies, industry leading position in a high entry barrier industry, expansion plans in product lines and capacities, we assign a “Subscribe” rating on a short to medium term basis.

Purpose of IPO

The IPO consists of a fresh issue and an offer for sale. The objects of the offer are to (i) redemption or earlier redemption, in part or full, of NCDs issued by the company (Rs.644cr) (ii) General corporate purposes.

Key Risks

• They have only one manufacturing facility and rely on three products for revenue generation.

• The top 10 customers generated 60% of revenue from operations, with Sojitz Corporation contributing 20%.

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