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* Archean Specialty Chemicals Ltd (ACIL) is a leading specialty marine chemical manufacturer in India. It manufactures three major product categories such as bromine (Br), industrial salts (NaCl) and sulphate of potash (SOP). In addition, ACIL looks positive on account of its expansion into value added portfolio such as – i) bromine derivatives (through an acquisition of wholly owned subsisdiary, Acume Chemical Pvt Ltd.) and ii) oil & gas and drilling segment (through an acquisition of Oren hydrocarbon Pvt Ltd acquired by ACIL’s wholly owned subsidiary of Idealils Chemicals Pvt. Ltd).

* The bromine industry is currently facing some challenges, such as reduced demand from end-user industries led to price reduction and revenue decline. Margins have also contracted due to higher freight costs and lower realisations. Additionally, construction slowdown in China have impacted the industry. However, management remains optimistic about recovery in demand and possible government intervention will further improve market dynamics in the medium term.

* Despite slowdown in bromine segment, incremental revenue from phase-I of bromine derivative products and revenue from newly acquired Oren Hydrocarbon to support the growth. The management expects healthy contribution from bromine derivatives, oil & gas and drilling business in FY25. It has received approval for CBF and Pure Terephthalic acid (PTA) synthesis from ~10 clients.

* Industrial salt segment has shown weaker than expected performance in Q1FY25 (55% of revenue vs 65% of revenue historically). This was largely due to delayed shipments caused by movement from Jakhau to Mundra ports where they lost of couple weeks. Management believes this as a temporary phenomenon and expects good recovery in FY25. In addition, it will continue to focus on improving its processes, cost efficiencies and logistics.

* SOP has recently commissioned a pilot plant at technology provider’s lab with a larger sample size. Currently, it focuses on second grade SOP and seeing enquiries from global and domestic markets. It expects sales from Q3 onwards.

* We expect ACIL to witness topline growth of ~16% in FY24-27E led by its existing portfolio as well as upcoming bromine derivative products. It has seen steep correction in its valuation in the last few months due to weak performance in Q1FY25; however, we remain bullish on the ACIL’s business model. We assign a PE valuation of 16x to FY27E EPS to arrive at a target of Rs. 823/share.

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