IGI Logo

Cyclone rips through earnings

Archean’s 2QFY25 earnings print was significantly weaker than expected with EBITDA miss of ~19%, on account of less-than-expected sales due to the impact of cyclone Asna on salt volume (resulting in a stock loss of 472k MT). The management has indicated ~1mn MT quarterly run-rate of industrial salt volume buoyed by long-term contracts with its customers. On the bromine front, it is confident of achieving 20k MT volume in FY25 and has guided for 20-25k MT for FY26. Overall, in the coming quarters, we expect i) sharp uptick in salt volumes towards the quarterly run-rate guidance, ii) steady bromine volumes, iii) ramp-up of bromine derivatives, and iv) INR 1bn contribution in FY25 from Oren Hydrocarbon. Taking into account 2QFY25 results and management commentary, we lower our FY25/26/27 EPS estimates by ~40%/29%/14%. We maintain our positive stance on the name as with the ramp-up of bromine derivatives and oren hydrocarbon facilities, contribution from noncommodity business will increase to ~20-25% in FY27E. Further, zinc bromide and silicon carbide story is likely to play out beyond FY27E. Moreover, the bromine cycle has also bottomed out in our view, which provides an upside risk in the case of a pick-up in bromine prices. Considering this, stock is trading at attractive valuation of ~14x Mar’27E EPS. Hence, we maintain BUY with a revised Mar’26 TP of INR 795/share (based on 16X Mar’27E EPS) (from INR 830 earlier).

* EBITDA miss on account of cyclone impact on industrial salt sales: Archean Chemicals’ consolidated 2QFY25 gross profit came in 15% below JMFe at INR 2.3bn (down 2%/17% QoQ/YoY) on account of a sharp drop in revenue to INR 2.4bn (19%/25% below JMFe/consensus, up 13% QoQ while down 17% YoY), more than offsetting higher-thananticipated gross margin of 94.3% (vs. JMFe of 90%). Further, with other expenses coming in lower at INR 1.4bn (vs. JMFe of INR 1.6bn), EBITDA was 19%/35% below JMFe/consensus and stood at INR 747mn (up 5% QoQ while down 22% YoY). During the quarter, the company reported an exceptional loss of INR 402mn on account of Asna cyclone impact, resulting in loss of industrial salt stock of 472k MT. The company has initiated the claim process with the insurance company. As a result, PAT was 75%/80% below JMFe/consensus and stood at INR 157mn (down 65%/76% QoQ/YoY). In 2QFY25, industrial sales volume stood at 792k MT (vs. average run-rate of ~985k MT over the last 5-6 quarters) on account of loss of 472k MT of industrial salt volume due to the cyclone. Further, salt realisation jumped to ~INR 2,064/MT (vs. INR 1,772/MT in 1QFY25). As a result, industrial salt revenue came in at INR 1.6bn in 2QFY25 (vs. INR 1.2bn in 1QFY25). The management indicated a quarterly run-rate of ~1mn MT industrial salt volume in the upcoming quarters owing to steady demand from customers with long-term contracts.

* Bromine sales lower than anticipated: In 2QFY25, bromine sales volume stood at 4,800MT with bromine realisation coming in at ~ INR 160/kg (vs. INR 200/kg in 1QFY25). As a result, bromine sales were below our estimates and stood at INR 769mn (vs. JMFe of INR 950mn). Going forward, the company expects bromine demand to improve gradually as the domestic demand has been healthy while export demand is expected to improve. In FY25, the company

expects to produce ~20,000MT of bromine (including captive consumption).

* Estimates lowered; we expect ~24% EPS CAGR over FY24-27E, maintain BUY: On the downstream products front, we expect meaningful contribution from bromine derivatives in the upcoming quarters. Factoring in 2QFY25 results and the management commentary, we lower our FY25/26/27 EBITDA estimates by ~36%/26%/12% and EPS estimates by ~40%/29%/14%. We expect ~23%/24% EBITDA/EPS CAGR over FY24-27E. Our maintained target multiple of 16x Mar’27E EPS builds in 25x target multiple for ~25% EPS contribution from non-commodity business and 12x target multiple for ~75% EPS contribution from commodity business (salt and bromine). We maintain BUY with a revised Mar’26TP of INR 795 (based on 16x Mar’27E EPS).

2QFY25 Result Review

Key takeaways from post-results conference call

* INR 500mn-750mn capex for 2HFY25 – Company expects to spend INR 500mn-750mn capex in 2HFY25 mainly for existing initiatives. It has already completed almost all of the capex planned for its derivatives business and Oren Hydrocarbon and is not expecting any significant additional investment in FY25. The company is not planning any major capex for its base business of salts, bromine and sulphate of potash in the foreseeable future

* FY25 industrial salt volume to be impacted by cyclone, bromine volume to be at 20k MT – The management informed that it expects a downward variance of 10% on the previously guided industrial salts volume of 4.5mn MT due to the impact of Asna cyclone. Bromine (including captive consumption) volume is expected to reach 20k MT in FY25. In 2QFY25, industrial salt volume was at 792k MT, bromine at 4.8k MT and Sulphate of Potash 27MT. There was a loss of 472k MT of industrial salts due to the cyclone. Domestic demand for bromine improved while export demand remained soft in 2QFY25.

* Expecting 1mn MT quarterly run-rate of industrial salt volume, bromine volume is expected to be 20-25k MT in FY26 – The management said that it is expecting 1mn MT per quarter of industrial salt volumes, going forward. It expects this to be driven by its major markets Asia and Far East with deliveries for long-term contracts and customers on track so far. It expects the bromine volume to be 20-25k MT in FY26. The company expects volume to pick up with the situation in China stabilising, recovery in domestic demand and local players in end-user industries expanding their operations.

* Meaningful contribution from SoP in FY26, CBF in coming quarters – The management expects meaningful contribution from SoP from next year as it has seen encouraging results in trials and good global and domestic demand. The company has already dispatched trial orders to clients and has seen an encouraging response. It is actively engaging with clients to conduct further trials and define customer requirements and is expecting meaningful contribution in the coming quarters. On the PTA synthesis front, the company sees extensive applications across various industries, particularly in textiles and packaging. With growth in these industries and increase in polymer usage, it anticipates growing demand for its PTA synthesis products.

* Oren Hydrocarbon to contribute from 4QFY25 – The company is actively working on refurbishing and renovating existing facilities with two plants to be fully operational in the next 2 weeks. Meaningful contribution is expected from 4QFY25. This will enable the company to expand its product offerings with CBF and chemicals for the oil & gas drilling industry.

* Global SiC semiconductor devices market size at USD 2bn-3bn – The management said the global market size of SiC semiconductor devices was USD 2bn-3bn. It expects this to grow at a CAGR of 25+% till 2030 to USD 10+bn.

* SiC segment commercialisation in 2-3 years - The management expects a 2-3 year period for concept to commercialisation of SiC semiconductor products. It has submitted its project plan and is waiting for approvals from the government with regards to possible incentives. The quantum of government incentives will have an impact on the return ratios of the project. The commercial supplies will be for the domestic and the global market.

* Zinc bromide battery pilot plant to come up in the UK, giga factory to be in India – the company is providing support to its partner for the establishment of a pilot manufacturing facility in the UK and intends to setup a giga factory in India in the near future to ramp up zinc bromide battery production. The concept to commercialisation time is expected to be 2 years. As per the company, zinc bromide batteries offer superior cycle life, safety and cost effectiveness compared to existing battery technologies. This makes them ideal for daily charging cycles in commercial and industrial solar applications and grid stability projects. The company's bromine business provides synergy as the batteries use bromide chemistry for the battery zinc gel.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361