Archean Chemical Industries Ltd

Introduction

Archean chemicals is a 20 years old, completely debt free company and was the India’s largest exporter of bromine and industrial salt in Fiscal 2021. The company is the leading specialty marine chemical manufacturer in India and is focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world.

Current Market price on the date of publishing this report-: 535Rs

Incorporated in 2003, Archean Chemical Industries Limited is a prominent specialty marine chemical manufacturer based in India. The company is dedicated to the production and global export of bromine, industrial salt, and sulphate of potash. These essential products are derived from brine reserves situated in the Rann of Kutch, located on the Coast of Gujarat, and are manufactured at their facility near Hajipir in Gujarat.

Archean Chemical Industries Limited’s bromine plays a vital role as a key raw material in various industries, finding applications in pharmaceuticals, agrochemicals, water treatment, flame retardants, additives, oil & gas, and energy storage batteries.

Additionally, the company produces industrial salt, a crucial resource used in the chemical industry for the production of sodium carbonate (soda ash), caustic soda, hydrochloric acid, chlorine, bleaching powders, chlorate, sodium sulphate (salt cake), and sodium metal.

Moreover, Archean Chemical Industries Limited specializes in sulphate of potash, a widely-used fertilizer with both agricultural and medical applications.

In addition to its operations in bromine, industrial salt, and sulphate of potash, Archean Chemical Industries Limited boasts an integrated production facility situated in Hajipir, Gujarat. This facility serves as the hub for manufacturing these products, ensuring a seamless production process.

Company majorly export-oriented and the key geographies which company exports to are Japan, China, South Korea, Qatar, Belgium and the Netherlands and many other geographies both in the Middle East as well as Far East.

Manufacturing facility

The strategic location of the manufacturing facility allows for efficient transportation of the products to international customers, with proximity to the captive Jakhau Jetty and Mundra Port. These transportation avenues enable the company to conveniently export their products worldwide.

Spanning approximately 240 square kilometers, the facility is not only equipped with advanced production capabilities but also surrounded by salt fields and brine reservoirs. This natural abundance of resources contributes to the company’s manufacturing prowess.

As of 2021, the manufacturing facility demonstrated impressive installed capacities, including 28,500 metric tons per annum of bromine, 3,000,000 metric tons per annum of industrial salt, and 130,000 metric tons per annum of sulphate of potash. To support these operations, the industrial salt washing facility comprises three washeries, each with a capacity of 200 tons per hour. These washeries are equipped with their own quality department, effluent treatment plant, and sewage treatment plant, ensuring adherence to rigorous quality standards and environmental regulations.

The integration of Archean Chemical Industries Limited’s manufacturing site with access to the Rann of Kutch reserves, coupled with its convenient connectivity to ports, contributes to efficient production processes. This setup ensures the delivery of superior quality products in a timely manner.

Besides that company is also Accredited three star export house by Director General of Foreign Trade, Ministry of Commerce and Industry, Government of India.

Business Products

Archean chemicals is India’s largest producers and exporters of Bromine and Industrial Salt. Company’s portfolio of products is rounded out by Potassium Sulfate (SOP)

Bromine

Bromine holds the unique distinction of being the sole non-metallic element that exists as a liquid under standard conditions. As a member of the halogen family, it occurs naturally in various sources such as seawater, underground brine deposits, and other water reservoirs.

Archean Chemical Industries Limited has established a leadership position in the Indian market for bromine merchant sales. With a significant market share, the company dominates the domestic sales of bromine.

Furthermore, approximately 48% of the company’s business is dedicated to exporting bromine and its related products. This highlights Archean Chemical Industries Limited’s strong presence in the global market and its commitment to meeting international demand for bromine.

Archean Chemical Industries Limited utilizes brine from its own reservoirs as a primary raw material, which includes Industrial Salt, kainite, and end bittern. Additionally, the company procures other necessary raw materials from third-party suppliers within India.

When it comes to global bromine production, the two most renowned sites are located near the Dead Sea in Israel and Jordan, as well as an underground well in the Arkansas region of the United States. However, India is favorably positioned with abundant brine resources in the Great Rann of Kutch, Gujarat. Archean’s manufacturing facility is strategically situated in close proximity to the Jakhau Jetty and Mundra Port. The Jakhau Jetty, operational for approximately seven to eight months per year (from October to May) due to fair weather conditions, possesses a designed capacity of 5 million metric tons per annum. Equipped with a twin conveyor system and diesel generator sets, it has a loading capacity of 28,000 metric tons.

Bromine is a reactive halogen with a wide range of uses from fire retardants to disinfectants.

Bromine stands as the flagship product for Archean Chemical Industries Limited, generating nearly half of the company’s total revenue.

In FY23, Archean Chemical Industries Limited recorded sales of 18,700 tons of bromine, indicating a notable contribution to their revenue. Additionally, salt sales amounted to 3.75 million tons, reflecting a substantial market demand for the company’s industrial salt.

Looking ahead to FY24, the company anticipates growth in bromine volume. This suggests a positive outlook for bromine sales and signifies the company’s confidence in the increasing demand for this essential product.

In the fourth quarter, the company produced 5,078 tons of bromine, resulting in a total annual production of 18,900 tons.

End User Industries are

Pharmaceuticals
Agrochemicals
Flame Retardants
Water Treatment
Oil & Gas & energy storage

Bromine Derivative

The company’s greenfield expansion of Bromine derivatives will introduce the following products to its portfolio:

High-end Flame Retardant: 10,000 MTPA. Applications include -: Electronics industry, wire and cable compounds, and in everyday commodities such as rubbers, etc. The expected CAGR growth for this product globally is expected to be around 11% CAGR during period FY 21 TO FY25e.
Clear Brine Fluids: 13,000 MTPA. Applications include-: Produce calcium bromide which is used in Oil drillingand organic synthesis and flow batteries. The expected CAGR growth for this product globally is expected to be around 3.6% CAGR during period FY 21 TO FY25e.
Pure Terephthalic Acid (PTA) Synthesis Derivatives: 5,000 MTPA. Applications include-: Polyester resins, such as polyester films, polyester fibre and yarn, and PET material bottles. The expected CAGR growth for this product globally is expected to be around 6.6% CAGR during period FY 21 TO FY25e.

Sulphate of Potash

Sulphate of potash is a inorganic compound which is a key ingredients in fertilizers.

Sulphate of Potash (SOP), or potassium sulphate, is a premium fertilizer specifically designed for chlorine-sensitive crops. Archean Chemical Industries Limited holds the distinction of being the sole manufacturer of SOP derived from natural sea brine in India.

With a significant focus on the export market, approximately 70% of their business revolves around international sales. In recent years, lower SOP production was observed due to higher sodium chloride content in KTMS (kainite type mixed salt).

Archean Chemical Industries Limited extracts SOP (sulphate of potash) from mixed salts that precipitate after the halite (common salt) is separated from seawater. The company’s crystalline SOP product has a moisture content of less than 1.5% by mass and a chloride content of less than 2.5%. These strict quality standards ensure that the SOP produced by the company meets the required specifications and is of high purity.

The market demand for Sulphate of Potash remains robust, with a stock of 8,000 tons awaiting swift liquidation.

In FY24, Archean Chemical Industries Limited foresees the sale of approximately 8,000 metric tons (MT) of Sulphate of Potash (SOP) on a full-year basis. Moreover, the company aims to achieve a slightly higher volume of SOP sales when considering the total basis. This projection reflects the company’s expectations for sustained market demand and highlights their efforts to meet the needs of customers seeking SOP as a fertilizer and for other applications.

End User Industries are

Agrochemicals
Various industries including glass, cosmetics etc.
Medical uses

Industrial Salt

Industrial salt is a base chemicals which is highly used across industries from glass manufacturing to case-hardened steel.

Salt, a fundamental source of sodium and chlorine, serves as a key ingredient in a diverse range of materials encompassing over 14,000 commercial applications. These applications span a wide spectrum, including plastics, glass, synthetic rubber, cleansers, pesticides, paints, adhesives, fertilizers, and many more.

Archean Chemical Industries Limited produces salt using the solar evaporation method. The company’s operations focus entirely on the export market, with a 100% export-oriented business model. This signifies their dedication to meeting global demand and supplying high-quality salt products to customers worldwide.

Archean Chemical Industries Limited harnesses the power of the Sun to concentrate brine from the sea in expansive ponds. Through this natural solar evaporation process, the brine is gradually crystallized, allowing for the harvest of industrial salt.

The company specializes in producing Grade 1 salt, which exceeds 99.5% purity of NaCl (sodium chloride). This high-grade salt is carefully obtained through meticulous crystallization techniques, ensuring its exceptional quality and meeting industry standards.

Industrial salt serves as another major product, contributing to almost an equal share of the company’s overall revenue.

For industrial salt, the fourth quarter witnessed a production of 1.2 million tons, with a cumulative annual production reaching 4.02 million tons.

End User Industries are

Chloralkali Chemicals
Food & Beverage
Water Treatment
Oil & Gas

Clients

Capex

Archean Chemical Industries Limited has recently increased its production capacity by removing bottlenecks in the manufacturing processes of Bromine and Industrial Salt. This expansion is expected to play a crucial role in the company’s growth trajectory. In addition, the company plans to enhance its product offerings by introducing new Bromine Derivatives capacity at Jhagadia, GIDC, which is set to be operational by FY24. Furthermore, Archean Chemical Industries Limited aims to expand its customer base and establish a stronger global presence.

Expanded Bromine capacity by 18,000 MT per annum through feed enrichment at the site in Hajipir, Gujarat.
Added 14,500 MT per annum capacity in FY23 for the production of Bromine Derivatives in a forthcoming greenfield project.
Archean Chemical Industries Limited, through its subsidiary Acume Chemicals Private Limited, is establishing a new facility at Jhagadia, GIDC.
The purpose of this facility is to manufacture Bromine Performance Derivatives.
The primary products to be manufactured at this facility include Brominated flame retardants, Clear Brine Fluids, and Bromine Catalysts.

Company will be expanding our product portfolio of bromine performance derivatives like flame retardants, clear brine fluids and bromine catalyst at Jhagadia. This Greenfield site and expansion at Jhagadia is on track and expected to commence production by the end of FY24.

Industrial Salt

Archean Chemical Industries Limited has plans to expand its manufacturing capacities for Industrial Salt production. As part of this expansion, the company intends to add an additional washery with a capacity of 250 tons per hour. This expansion initiative will enhance the company’s production capabilities and enable them to meet the growing demand for Industrial Salt effectively.

Financials

For the year ended March 23

Revenue for FY23 amounted to Rs. 14,852 million or Rs. 1,485 crores, showcasing a remarkable 30% year-on-year growth.
Bromine remains the primary product, contributing approximately half of the total revenue.
Archean Chemical Industries Limited holds the leadership position in India’s bromine merchant sales and stands as the largest exporter from the country.
The overall bromine business witnessed a substantial 17% year-on-year growth in FY23, with production volumes reaching nearly 19,000 MT.
The export market accounted for 73% of the revenue, while the domestic market contributed 27%.
Bromine comprised approximately 49% of the business mix, while industrial salt contributed 51%.
EBITDA for the full year stood at Rs. 6,785 million, representing a growth of 41% year-on-year, with a margin of around 46%.
Net profit after tax for the year was Rs. 3,837 million, showing a significant growth of 103% on a YoY basis.
The reduction in interest costs and better realization in liquid bromine and industrial salt contributed to the substantial growth in net profit.
Net debt-to-equity ratio stood at zero due to the redemption of NCDs with IPO proceeds.
Return on equity (ROE) was 45%, and return on capital employed (ROCE) stood at 39% for FY23.

For Q4FY 23

Total revenue for Q4 FY23 was Rs. 3,909 million or Rs. 391 crores, reflecting a 4% year-on-year growth.
Export market accounted for approximately 70% of the revenue, while the domestic market contributed the remaining 30%.
Bromine comprised around 45% of the business mix, while industrial salt made up around 55%.
EBITDA for the quarter reached approximately Rs. 2,031 million or Rs. 203 crores, demonstrating a growth of around 24% on a year-on-year basis.
The EBITDA margin stood at 52%, benefiting from improved realization in both industrial salt and bromine.
Net profit after tax for the quarter amounted to approximately Rs. 1,368 million, indicating a remarkable growth of 67%. The higher growth in net profit after tax compared to EBITDA growth is attributed to a reduction in interest costs resulting from the redemption of NCDs.

Management’s comments

The company’s capacity expansion is expected to be completed towards the end of FY24. Therefore, the benefits of this expansion are likely to be realized in FY25.

Management anticipates growth, which is expected to pick up in the post 4-5 month period.

The company expects an asset turnover of more than 3 times from the 250 crores greenfield expansion. Even in the least optimistic scenario, the company anticipates additional sales of around 700 crores, contributing to the overall revenue. With a projected margin of 40%, this expansion is expected to significantly enhance the EBITDA performance.

The company attributes its good margins to its ability to secure favorable prices based on its performance, delivery, and long-standing relationships with customers. Additionally, the company prides itself on its operational efficiency, consistently maintaining a position in the lowest cost quartile of manufacturing. In terms of short-term guidance, the company refrains from providing specific forecasts but suggests that the information shared throughout the conversation can be inferred to gain insights into their expectations for the next 12 months. As per the managements comments , the margins wont decline even when the new plant capacity comes online as well as new products from the same are added to the company’s portfolio.

Sectorial Outlook

The combination of factors, including destocking and the gradual recovery of downstream industries post-lockdown, has impacted the industry. Prices of bromine were high and unsustainable, leading to increased stockpiling. Supply chain disruptions further contributed to the stockpiling. However, this destocking process is expected to normalize in the next four to five months. The industry fundamentals remain strong, with demand for flame retardants, electronics, and car tires remaining intact. The Indian agrochemical industry also exhibits strength. Overall, the demand for bromine continues to be robust.

The additional demand for the products is going to come from the following.