About the company:
Archean Chemical
Industries Limited
About the company
Archean Chemical is a leading speciality marine chemical
manufacturer in India and focused on producing and exporting bromine,
industrial salt, and sulphate of potash to customers around the world.
The company is the largest exporter of Industrial salt. It
is an important raw material used in the chemical industry for the production
of sodium carbonate (soda ash), caustic soda, hydrochloric acid, chlorine,
bleaching powders, chlorates, sodium sulphate (salt cake) and sodium metal.
Sulphate of potash is used as a fertilizer and also has medical uses.
Strengths
Diversified
Application: 18 global customers in 13 countries to 24 domestic customers.
Bromine is used as key initial material having applications in various segments
such as pharmaceuticals, agrochemicals, water treatment, energy storage
batteries, etc.
Distribution Moat:
Bromine hazardous and toxic chemical and its handling requires a high degree of
specialized expertise as developed by the company. The transportation of
bromine needs to be carefully done in ISO containers, of which Archean had 228
such containers (owned and leased) for their export business as of June 30,
2022. This gives the company a distribution advantage during volatile times.
Robust
Financials: The business has a RoCE of 11.71% for Q1FY23. Its margins
remain healthy with EBITDA margins at 42.37% and PAT Margins at 21% for the
same period.
Entry Barriers:
The speciality marine chemicals industry faces high entry barriers in terms of
investments and accuracy limiting competition. The company has developed and
specialised the services to invest manufacture and export of these chemicals.
Leadership Position:
Archean holds a leadership position in Indian bromine merchant sales. Moreover,
they are the largest exporter of industrial salt in India and are the sole
manufacturer of sulphate of potash from natural sea brine in India.
Risks
Dependence on
Exports: In the three months ended June 30, 2022, and in Fiscal 2022,
Fiscal 2021 and Fiscal 2020, Archean exported 100% of their industrial salt
production, primarily to customers in Japan and China. However, any reduction
in demand by the importing companies can cause a decline in the sales of the
business.
Product
Concentration: The business is highly reliant on the sales of its three
principal products, Bromine, Industrial Salt and Sulphate of Potash. Any sales
decline may adversely affect the business's financials.
Financial Snapshot
|
Particulars (In
Rs. Crores)
|
Q1FY23
|
FY22
|
FY21
|
FY20
|
|
Revenue From
Operations
|
400.27
|
1,130.44
|
740.76
|
608.17
|
|
EBITDA
|
169.61
|
479.54
|
276.25
|
156.83
|
|
EBITDA Margin
(%)
|
42.37%
|
42.42%
|
37.29%
|
25.79%
|
|
Profit/(loss)
After Tax
|
84.409
|
188.58
|
66.606
|
-36.219
|
|
PAT Margin (%)
|
21.09%
|
16.68%
|
8.99%
|
-5.96%
|
|
Net Cash Generated
From Operations
|
170.94
|
314.52
|
119.10
|
147.55
|
|
ROCE (%)
|
11.71%
|
34.62%
|
21.01%
|
11.24%
|
Peers Comparison
|
Particulars (In
Rs. Crores As of FY22)
|
Archean
Chemicals Industries Limited
|
Tata Chemicals
Limited
|
Deepak Nitrite
Limited
|
Aarti
Industries Limited
|
Neogen
Chemicals Limited
|
|
Revenue From
Operations
|
1,130.44
|
12,622.12
|
6,802.19
|
6,999.96
|
488.32
|
|
EBITDA
|
479.54
|
2775.59
|
1646.19
|
1929.61
|
87.84
|
|
EBITDA Margin
(%)
|
42.42%
|
21.55%
|
24.05%
|
27.56%
|
17.99%
|
|
Profit/(loss)
After Tax
|
188.58
|
1,405.13
|
1,066.64
|
1,307.19
|
44.63
|
|
PAT Margin (%)
|
16.68%
|
10.91%
|
15.58%
|
18.67%
|
9.14%
|
|
Net Cash
Generated From Operations
|
314.52
|
1,644.33
|
823.84
|
470.76
|
1.41
|
|
ROCE (%)
|
34.62%
|
10.86%
|
24.49%
|
10.09%
|
5.46%
|
Conclusion
Archean has
a leadership position in an industry with high entry barriers. This gives the
company a competitive edge over its peers. It will further aid the business in
the continued display of strong financial performance. Coming to the valuation,
the company is fairly valued at the upper price band compared to its peers and
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