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Archean Chemical IPO  Fundamental Analysis

Archean Chemical Industries IPO Review

  • Archean is a leading specialty marine chemical manufacturer in India focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world.
  • It is the largest exporter of bromine and industrial salt by volume in India in FY21 and has the lowest cost of production globally in both bromine and industrial salt.
  • The business of the Issuer is an export-oriented business, 66.74% (Q1FY23), 70.32% (FY22), 74.41% (FY21), and 78.41% (FY20), of revenue from operations were attributed to export sales. The countries to which exports are made are China, Japan, South Korea, Qatar, Belgium, and the Netherlands. Some of the major customers include Sojitz Corporation, which is also a shareholder in the Issuer Company, Shandong Tianyi Chemical Corporation, Unibrom Corporation, Wanhua Chemicals, and Qatar Vinyl Company Limited.
  • As of June 30, 2022, the Issuer marketed its products to 18 global customers in 13 countries and 24 domestic customers.
  • Its product, bromine has applications in pharmaceuticals, agrochemicals, water treatment, flame retardant, additives, oil & gas, and energy storage batteries. Industrial salt 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.
  • Sale of bromine constituted 50.94% (Q1FY23), 53.54% (FY22), 46.49% (FY21), and 35.43% (FY20), sales of industrial salt constituted 48.98% (Q1FY23), 45.37% (FY22), 49.10% (FY21) and 57.88% (FY20), and sales of sulphate of potash constituted 0.06%, 1.01%, 4.39%, and 6.55%, of revenue from operations.
  • The production facility is located at Hajipir, Gujarat, which is located on the northern edge of the Rann of Kutch brine fields. As of June 30, 2022, the facility had an installed capacity of 28,500 MT per annum of bromine, 3,000,000 MT per annum of industrial salt, and 130,000 MT per annum of sulphate of potash.

Financial Review

    Archean posted total revenues of Rs 408.82 crore for Q1FY23 and PAT of Rs 84.41 crore for the same period. During FY22, the total revenues increased by 51% to 1142.83 crores from Rs 754.80 crore in FY21. PAT more than doubled to Rs 189 crore from Rs 67 crore in FY21 due to an increase in revenues. The EBITDA margins are robust being more than 35% since the last two last fiscals. Net margins are also strong for the Issuer as can be seen in the table.

    The debt to equity ratio has remained high for the last 2-3 fiscals and in the latest for Q1FY23, it was 2.35x Return on equity.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Particulars Q1FY2023 Q1FY2022 FY2022 FY2021 FY2020
Total Revenue 408.82 201.77 1142.83 754.79 617.01
Revenue from Operations 400.27 200.76 1130.44 740.76 608.17
PAT 84.41 18.69 188.58 66.61 -36.22
EBITDA 169.61 NA 479.54 276.25 156.83
Total Assets 1606.65 1459.25 1529.68 1432.43 1428.62
EBITDA Margin 42.37% 0.00% 42.42% 37.29% 25.79%
Net Margin 21.09% 9.31% 16.68% 8.99% -5.96%

Valuation and Peer Comparison

The IPO is valued at 12.45x times with annualized EPS of 32.68for Q1FY23 calculated at the upper price band of Rs 407. However, with FY22 EPS of 18.26, P/E is 22.29 x as compared to industry average of 38x. Its listed peer, Tata Chemicals, Deepak Nitrite, AartiInd and Neogen are trading at P/E of 19.74x,28.69x and 26.53x and 93.28 respectively. Hence the Issue appears to be priced cheaper than majority of its peers. For listed peer related data and information, refer the Peer table comparison given below.

Table 2 - Listed Peer Comparison
Parameters Tata Chemicals Deepak Nitrite Aarti Industries Neogen Chemicals Archean Chemical
Total Income for FY22 (Cr) 1287.81 6844.80 7000.76 488.32 1142.83
EPS 49.17 49.17 36.06 18.7 18.26
NAV Per Share 716.48 244.77 163.16 176.12 25.28
Return on net worth 6.89% 31.95% 22.10% 10.16% 72.24%
P/E 19.74 28.69 26.53 93.28 NA
Debt to equity ratio (in times) 0.37 0.09 0.37 0.46 2.35
P/BV 1.36 9.17 5.86 9.91 NA
CMP 1114.3 2305.25 726.4 1512 NA

Issue Details

Archean ChemicalIPO (Rs 1462.31 crore) opens on 9th Nov- 11th Nov 2022 with a price band of 386-407 per share. The retail quota is 10% and investors can apply with a minimum bid of 36 shares (Rs 14,652). The maximum lot size is 468 shares (Rs 1,90,476). The issue is both a fresh issue (Rs 805 crore) and an offer for sale (Rs 657.31 crore) by promoter shareholder, ChemikasSpeciality and investor selling shareholder, India Resurgence fund, Piramal Natural Resources.Net proceeds would be used to repay the NCD’s (Rs 644 crore) and rest towards corporate purposes. The issue is expected to list on 21st Nov 2022.

Conclusion and Investment Strategy

ArcheanChemicals has a strong market position due to factors like long-standing relationships with global customers, established infrastructure, and access to brine reserves at the Rann of Kutch. The specialty marine chemicals industry in which the Issuer operates has high entry barriers and higher costs of production.

The Asia Pacific chemicals market is expected to grow at the fastest rate of 5-6% as per RHP. The Issuer has an approved annual capacity of 42.5 KT at its plant while actual production was 14KT in FY21. With this available capacity, Archean Chemical is likely to cement the leadership position. It also dominates the Indian Sulphate of Potash (SOP) market through its indigenous production from sea brine, liquid bromine, and industrial salt. It is among the top three cost-competitive producers of SOP globally.

The Issuer has a strong financial profile with robust profitability margins. However, its debt is on the higher side as compared to its peers but that would come down with the repayment from the net proceeds of the fresh issue. The valuations of the Issue appear to be priced attractively as against its listed peers, hence one may apply to the IPO.

Reviewer recommends Subscribe to the issue.

Review By CA Priyanka Choudhary on 30th Oct 2022

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.



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