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Archean Chemical Industries Ltd – Chemical Giant you Don’t know about

Archean Chemical is the largest exporter of bromine and industrial salt in India, and amongst the lowest cost producer.

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(A) About

Archean Chemical Industries Ltd - logo

Archean Chemical Ltd is a leading specialty chemicals manufacturing company in India that focuses on producing and exporting bromine, industrial salt, and sulphate of potash to customers worldwide. The company is the largest exporter of bromine and industrial salt from India and is also among the lowest cost of producers of bromine and industrial salt globally.

Additionally the company markets its products to 27 global customers across 13 countries and to 28 domestic customers.

(B) Journey

Archean Chemical Industries Ltd - Journey

(C) Board of Directors

Archean Chemical Industries Ltd - Board Members

(D) Shareholding Pattern

Archean Chemical Industries Ltd - Shareholding Pattern
Archean Chemical Industries Ltd - Shareholding

(E) Product Segment

(i) Bromine

Archean exports most of its bromine to China, with the rest it sells in India. Meanwhile, the global bromine market is expected to grow from $2.96 billion in 2020 to $3.92 billion by 2025E.

End User - Pharmaceuticals, Agrochemicals, Flame Retardants, Water Treatment, Oil & Gas and also in energy storage.

Growth Triggers -

  • Demand for flame retardants is increasing.
  • The consumption of oil well chemicals is also increasing.
  • Agro chemicals are in higher demand.
  • Bromide compounds are being used more in energy flow batteries.

(ii) Industrial Salt

Archean Chemical is the largest exporter of industrial salt in India. Industrial salt is also used in the production of Chlorine and Caustic soda. The global market size of Industrial salt is expected to grow from 157 Mn MT in 220 to 185 Mn MT till 2025E.

End User - Chloralkali Chemicals, foods & beverage, water treatment and Oil & Gas.

Growth Triggers - Increasing industrialization leading to increase in Chlor Alkali, PVC and also Polyurethane.

(iii) Sulphate of Potash

Also known as potassium sulphate is a high-end specialty fertilizer for chlorine sensitive crops. Archean is also the only manufacturer of SOP from natural sea brine in India. Meanwhile, the market size of Sulphate of Potash is expected to increase from 6.5 Mn MT in 2020 to 8.7 Mn MT in 2025E.

End User - Agrochemical, various industries including glass, cosmetics, etc.

Growth Triggers - Growing use of fertilizers in fruit and vegetables.

(F) Revenue Segment

(G) Cost Structure

Archean Chemical Industries Ltd - Cost Structure

(H) Financials

Archean Chemical Industries Ltd - Financials

Company has grown its revenue at 26.84% in past 5 years, while PAT grew from Rs 41 Cr in FY19 to Rs 384 Cr in FY23. Moreover, company now become a debt free in FY23.

Archean Chemical Industries Ltd - Du Pont Analysis

(I) Management Discussion & Concall Highlights

  • Bromine are present in inland seas and brine wells, much of the bromine compounds which the company manufactures are in Israel, Jordan, US and also in India.
  • Furthermore, company holds the leadership positon in India's bromine merchant sales. Moreover in bromine they are the largest exporter out of India.
  • Meanwhile, company sold 100% of its industrial salt to oversease clients.
  • It is the only company which makes Potassium Sulphate from Natural sea brine, hence the lowest cost producer.
  • Meanwhile, company expects margins to be b/w 37% - 42% going forward.
  • Moreover company currently has a bromine capacity of 42,000 MTPA and 3 million MTPA for industrial salt.

Capex

Brownfield Expansion

  • Increase Bromine capacity by 18,000 MTPA.
  • Further, company is adding 14,500 MTPA capacity in FY23 which will be use for producing bromine derivatives in the upcoming greenfield projects.
  • Intend to expand the manufacturing capacities for industrial salt production by also adding one more washery of 250TPh.

Greenfield Expansion

It will be for the manfacture of bromine derivatives.

(J) Strengths & Weaknesses

Strengths

(i) Healthy market presence and product offerings

Archean Chemical is also one of the leading players in the bromine with largest capacity in India. Company further holds ~60-70% of the market share in exports of bromine. Besides its market leading position in Bromine, ACIL is one of the largest producers of industrial salt in India with capacity of over 3 million MTPA.

(ii) Healthy operating efficiency

It enjoys healthy operating efficiency with profitability of over ~40% in fiscals 2022 and 2023, driven by low cost of production due to fully integrated facility and quality of sea brine available in the Great Rann of Kutch region. Due to the quality and nature of the available sea brine, the steaming out process is used to extract bromine, which is more cost-effective than the blowing out process used in China and Japan.

Weaknesses

(i) Product and customer concentration

It derives ~25% of revenues from its top customer, Sojitz and also about ~70% of revenues from its top 10 customers exposing the company to customer concentration risk. The concentration risk is particularly high in industrial salt wherein ACIL only has 4-5 customers, and the top customer – Sojitz- contributes 60-65% of revenues of the segment.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets and Management Interviews, Industry Publications.

Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered a recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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