Archean Chemicals Industries Limited - IPO Note


Archean Chemicals Industries Limited - IPO Note


Price range
Rs. 386-407
Issue Period:
Nov 09, 2022
Nov 11, 2022
November 09, 2022

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 1462 cr.
Public Issue
3.6 cr. shares
Market cap post IPO
5008 cr.
Equity Pre - IPO
10.32 cr.
Equity Post - IPO
12.41 cr.
Issue type
Fresh Issue and Offer for Sale

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Company Description

Archean Chemicals Industries Limited (ACIL) was incorporated on November 20, 2003. It is a leading marine chemical manufacturer in India and focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world. (Source: Company Commissioned F&S Report). According to Frost & Sullivan, they were the largest exporter of bromine and industrial salt from volume in India in Fiscal 2021 and have amongst the lowest cost of production globally in both bromine and industrial salt. (Source: Company Commissioned F&S Report).

The company produces all products from its brine reserves in the Rann of Kutch, located on the coast of Gujarat, and manufactures products at its facility near Hajipir in Gujarat. As of June 30, 2022, it marketed products to 18 global customers in 13 countries and to 24 domestic customers.

Bromine is used as key initial-level material, which 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 to produce 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 has medical purposes. Archean commands a leadership position in India in bromine merchant sales. The companyexported 100% of their industrial salt production, primarily to customers in Japan and China.

Sulphate of Potash, also known as potassium sulphate, is a high-end, specialty fertilizer for chlorine-sensitive crops and has medical uses to reduce the plasma concentration of potassium when hypokalemia occurs. Archean is the only manufacturer of sulphate of potash from natural sea brine in India.

Leading market position, expansion and growth in bromine and industrial salt
Archean attributes their strong market position to factors such as their long-standing relationship with global customers, their established infrastructure and access to brine reserves at the Rann of Kutch, their manufacturing facility, and their consistent delivery of high-quality products. Their leadership position and low cost-production offers them competitive advantages such as product pricing, economies of scale, increase customer loyalty and expand their client base, all of which have in turn resulted in the growth of revenues and EBIDTA in the last 3 fiscal years. The market position in India and globally for each of their products:

Product Company MarketPosition in India Volume Produced Volume
CAGR (FY20-22)
Revenue (Rs. in cr) FY22 % of rev from exports (FY22)
in Fiscal 2022 (MT)
Bromine Largest export and leader in merchant sales 20,293 51.38% 605 44.88%
Industrial Salt Largest exporter 35,86,269 11.11% 513 100%
Sulphate of Potash Only producer in
2,483 -63.88% 114 90.75%

High entry barriers in the specialty marine chemicals industry
The specialty marine chemicals industry in which Archean operates has high entry barriers, which include 1) the high cost and intricacy of product development, manufacture, and investment in salt beds, 2) the limited availability of raw materials necessary for production, 3) the limited number of locations with a suitable climate and access to reserves, and 4) the lead time and expenditure required for research and development and building customer confidence and relationships, which can only be achieved through a long gestation period.

Given the nature of the application of their products and the processes involved, their products are subject to, and measured against, high quality standards and sensitive and rigorous product approval systems with stringent impurity specifications. Thus, customer acquisition is difficult.

Further, bromine and certain raw materials that Archean use in production is highly corrosive, hazardous, and toxic chemicals. Therefore, handling these chemicals requires a high degree of technical skill and specialized expertise.

Company’s existing brine fields were established over a period of 3 to 4 years before commercial cultivation was possible and, accordingly, the development time of brine reservoirs creates an entry barrier to potential domestic competitors. In addition, the Rann of Kutch brine fields are in environmentally sensitive coastal areas which require several regulatory hurdles before production could be established.

Largest Indian exporter of bromine and industrial salt
As of June 30, 2022, Archean had 18 global customers and 24 domestic customers. Its major customer for industrial salt includes Sojitz Corporation (which is also a shareholder in the Company), Wanhau Chemicals and Qatar Vinyl Company Limited; for bromine, Shandong Tianyi Chemical Corporation and Unibrom Corporation.

Key geographies to which they export their products include China, Japan, South Korea, Qatar, Belgium, and the Netherlands.

The exports and domestic sales as a percentage of the revenue from operations:

Particulars 3 months ended June 30 Fiscal Fiscal Fiscal
2022 2022 2021 2020
Export Domestic Export Domestic Export Domestic Export Domestic
Bromine 34.88% 65.12% 44.88% 55.12% 46.10% 53.90% 39.79% 60.21%
Industrial Salt 100% 0 100% 0 100% 0 100% 0
Sulphate of Potash 0.13% 99.87% 90.75% 9.25% 88.32% 11.68% 98.09% 1.91%

Long standing relationship with clients
ACIL enjoy relationships more than 5 years with 7 out of their Top-10 customers. Their long-term relationships and ongoing active engagements with customers also allow them to plan their capital expenditure, enhance their ability to benefit from increasing economies of scale with stronger purchasing power for raw materials and a lower cost base. Company’s strong customer relationships have enabled them to expand its product offerings and geographic reach.

Established infrastructure and integrated production with cost efficiencies

  • Integrated facility: Archean has an integrated production facility for their bromine, industrial salt, and sulphate of potash operations, located at Hajipir, Gujarat, which is located on the northern edge of the Rann of Kutch brine fields.
Archean Chemicals
  • Largest facility fully compliant with environment protection measures: They have one of the largest salt works at one single location in the world. Their industrial salt washing facility has 3 washeries, each having a capacity of 200 tons/hour. Their facility is equipped with their own quality department, effluent treatment plant, sewage treatment plant and stockyard. Their operations have an ISO 9001:2015 certification.
  • Location advantage:Their manufacturing facility is in the proximity to the Jakhau Jetty and Mundra Port from, where they can transport their products to various international customers.

Production cost efficiency & quality driven mechanism: The company has increased the mechanization of their production process which will bring further increased efficiencies and product consistency. The cost of production for Industrial salt from sea water brine is about US$12 to 15 per MT, while their costs are in the range of US$5.5- 6 per MT. Further their quality of salt is on par with Grade 1 salt required by chlor-alkali producers.

Strong and consistent financial performance
Archean has demonstrated consistent growth in terms of revenues and profitability. In Fiscal 2021, they were the largest exporter of bromine and industrial salt by volume in India (Source: Company Commissioned F&S Report). Their total revenue from operations has increased at a CAGR of 36.34 % from Rs.608 cr in FY20 to Rs.1130 cr in FY22. Revenue from exports has grown at a CAGR of 29.11% from Rs.477 cr in Fiscal 2020 to Rs.795 cr in Fiscal 2022.

The company’s EBITDA has witnessed a robust growth from Rs.149 cr in FY20 to Rs.467 cr in FY22; increasing at a CAGR of75% while EBITDA Margins has grown to41% in FY22 from 25% in FY20. ROCE stood at 34.62% at the end of June 30, 2022.

Financial Snapshot

Particulars (Rs. In crores) FY20 FY21 FY22 Q1FY23 Q1FY22
Revenue 608 741 1130 400 201
EBITDA 149 263 467 160 80
EBITDA Margin (%) 25% 35% 41% 40% 40%
Profit After Tax -36 69 188 84 19
EPS -3.51 6.45 18.26 8.17 1.81

Peer Comparison

Particulars (Rs. in Crores) Total Income (Rs. In cr) EPS(Rs) PE ROE(%) ROCE (%)
Archean Chemical Industries 1142.00 18.26 22.30 113.00 34.62
Tata Chemicals 1288.00 49.17 24.16 7.58 10.86
Neogen Chemicals 488.00 18.70 79.80 14.40 5.46


High Debt:
Company’s total debt as of June 30, 2022, stood at Rs.915 cr comprising of secured non-current borrowings of Rs.841cr and current borrowings (including current maturities of non-current borrowings) of Rs.71 cr. On revenue base of Rs.1130 cr total debt of Rs.915 cr is too high and poses risk to continuity of business in adverse macro – economic conditions.

Exchange rate fluctuations:
Archean Chemical is an export-oriented business. In Fiscal 2022, 70% ofCompany’s revenue from operations were attributed to export sales (Rs.1130*70% = Rs.790 cr). A portion of its expenditures and sales from exports are denominated in foreign currencies and any sort of fluctuation in exchange rate could adversely affect its result of operations.

Dependency on top customers for major portion of its revenues:
In the 3 months ended June 30,2022, and in Fiscal 2022, Fiscal 2021 and Fiscal 2020, their largest customer, Sojitz Corporation, contributed 19.29%, 20.56%, 30.51% and 31.94%, respectively, of their revenue from operations;

  • The top 10 customers contributed 60.69%, 61.99%, 75.70% and 77.14%, respectively, of the revenue from operations
  • Their top 20 customers contributed 81.75%, 80.94%, 88.66% and 92.05%, respectively, of our revenue from operations.

Contingent Liabilities: As of June 30, 2022, company had contingent liabilities amounting to Rs.21.7 cr. The table below sets forth details of contingent liabilities:

Particulars (Rs. In cr) As of June 30, 2022
Disputed service tax, sales tax, income tax and wealth tax dues under appeal 17
Capital commitments 4.7
Total 21.7


On the valuation front, ACIL is valued at 22x FY22 EPS of Rs.18.26 calculated at the upper price band of Rs.407 per share. Given the differentiated business of the company asking price appearsto be reasonable.

Considering strong fundamentals of the company, market leadership position, strong financial performance, steady return ratios, high entry barriers, strong competitive advantage, and strong customer base, we believe that ACIL is poised for strong growth ahead and thus we assign a subscribe rating to the issue.

Key Information

Use of Proceeds:
Use of Proceeds: The total issue size is Rs. 1462 cr, of which Rs. 805 cr is Fresh issue and balance (Rs.657 cr) is Offer for Sale (OFS). The company will utilize the net proceeds of Rs.644 cr from the fresh issue for Redemption or earlier redemption, in part or, fullof NCDs issued by the Company and the rest will be utilized for general corporate purposes.

Book running lead managers:
IIFL Securities Limited, ICICI Securities, JM Financial Limited

Ranjit Pendurthi(Promoter and Managing Director), Ravi Pendurthi (Promoter and Non-Executive Director), Subrahmanyam Meenakshisundaram (Non-Executive Director), Padma Chandrasekaran, Chittoor GhatambuSethuram, Kandheri Munaswamy Mohandass (Independent Director) and Raghunathan Rajagopalan (Chief Financial Officer).

Financial Statement

Profit & Loss Statement:- (Consolidated)

Particulars (in Crores) Q1FY23 Q1FY22 FY20 FY21 FY22
Revenue 400.00 201.00 608.00 741.00 1130.00
COGS 5.00 0.00 0.00 9.00 39.00
Gross Profit 395.00 201.00 608.00 732.00 1091.00
Gross Margins (%) 99.00% - - 99.00% 97.00%
Employee Benefits Expenses 10.00 9.00 34.00 35.00 38.00
Other expenses 225.00 112.00 425.00 434.00 586.00
EBITDA 160.00 80.00 149.00 263.00 467.00
EBITDA Margin (%) 40.00% 40.00% 25.00% 35.00% 41.00%
Depreciation and Amortization 18.00 16.00 52.00 55.00 67.00
EBIT 142.00 64.00 97.00 208.00 400.00
Other Income 9.00 1.00 9.00 14.00 12.00
Finance Cost 39.00 40.00 122.00 130.00 162.00
Profit Before Tax 112.00 25.00 -16.00 92.00 250.00
Tax Expenses 28.00 6.00 20.00 23.00 62.00
Effective Tax Rate (%) 25.00% 24.00% -125.00% 25.00% 25.00%
PAT 84.00 19.00 -36.00 69.00 188.00
PAT Margin (%) 21.00% 9.00% -6.00% 9.00% 17.00%
EPS(Rs.) 8.17 1.81 -3.51 6.45 18.26