Samco securities limited

Archean Chemical Industries Limited IPO

Add to Calendar 2022-11-09 12:00 AM 2022-11-11 12:00 AM Asia/Kolkata Archean Chemical Industries Limited IPO Archean Chemical Industries Limited IPO India

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 advise our investors to SUBSCRIBE for the IPO. 

Issue Detail

  • Issue Open: Nov 09, 2022
  • Issue Close: Nov 11, 2022
  • Issue Type: Book Built Issue IPO
  • Face Value: Rs.2 per equity share
  • Price Band: Rs. 386 to Rs. 407 per share
  • Bid Lot:36 Shares
  • Minimum Order Quantity:36 Shares
  • Listing At: BSE, NSE
  • Issue Size: ~Rs. 1,462 Crores

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