19th DEC 2023

INITIATING COVERAGE
Archean Chemical Industries Ltd.
 Initiating Coverage Archean Chemical Industries Ltd. BUY
th
19 December 2023 Specialty Chemicals Target Price
810

Specialty or Commodity Business? Our take – a Special Commodity !

(CMP as of 18th December, 2023)
Archean Chemical Industries Limited (Archean or ACIL) is a leading Marine Chemical manufacturer
CMP (Rs) 609
from India engaged in the production and sale of Bromine (Br), Industrial Salt (NaCL), and Sulphate
of Potash (K₂SO₄) from its leased brine reserves located in the Rann of Kutch, Gujarat. ACIL has Upside /Downside (%) 33%
one of the largest integrated production facilitiesat Hajipur (Gujarat), which has a strategic proximity High/Low (Rs) 732/471
to Jakhau Jetty and Mundra Port, making exports easier and smoother. The company plans to Market cap (Cr) 7,779
forward integrate its business in Bromine derivatives – an established extension followed across
Avg. daily vol. (1 Yr) Shrs. 3,30,073
global major Bromine producers, into Flame Retardants, Clear Brine Fluids, and PTA Synthesis
Catalyst. We expect Archean’s forward integration to drive 27%/26%/37% CAGR in its No. of shares (Cr) 12.3
Revenue/EBITDA/PAT over FY23-26E. We expect revenue growth to be supported by improvement
in margin profile and reduced market cyclicality, which will lead to a better valutaion multiple for the Shareholding Pattern (%)
company. Keeping this in view, we initiate coverage on Archean Chemical Industries Limited Mar-23 Jun-23 Sep-23
with a BUY recommendation. We value the company at 14x its FY25E EPS to arrive at a
Promoter 53.60 53.60 53.60
target price of Rs 810/share, implying a 33% upside potential from the current market price.
FIIs 5.47 4.06 2.92
Investment Thesis DIIs 30.25 30.78 30.38
Established Player in Niche Bromine Chemistry:Archean is the largest exporter of bromine and Public 10.67 11.55 13.08
industrial salt in India. Bromine production is correlated to brine field availability, which is globally
limited. Archean uses brine from its own reservoirs, which provides a huge cost advantage, making Financial & Valuations
it one of the lowest-cost producers globally. The Government of India has allocated most of the land Y/E Mar (Rs Cr) FY24E FY25E FY26E
surrounding the brine reservoirs. ACIL has scaled up its bromine production capacity over the years
Net Sales 1,220 2,328 2,975
which requires a long gestation period for commercial viability. The company has established
EBITDA 442 950 1,265
infrastructure and strong market position by leveraging itslong-term relationship with global
customers. All these factors make it difficult for new players to enter this chemistry. Sadly, ACIL is Net Profit 313 709 974
also now a beneficiary of Israel-Hamas conflict as many global customers are diligently diversifying EPS (Rs) 25.5 57.6 79.1
their suplies outside Israel which has led to increase interest in ACILs export business. This shall P/E (x) 23.9 10.6 7.7
help company further establishing its presence in global markets. EV/EBITDA (x) 17.0 7.9 5.9

Forward Integration into Bromine Derivatives: Archean is following the trajectory of major global ROE (%) 20% 33% 33%
Bromine producers to foray into Bromine derivatives as it strengthens its balance sheet post its IPO. ROCE (%) 24% 41% 41%
The company has invested 250 Cr in developing the 28,000 tonnes derivatives facility which
includes 10,000 tpa of brominated flame retardants, 13,000 tpa of clear brine fluids, and 5,000 tpa of
ESG disclosure Score**
Bromine catalystsused for the synthesis of pure terephthalic acid (5ktpa). This facility shall add 600
Cr annual revenue potential to ACIL optimised over the next two years. The company has locked Environmental Disclosure NA
orders for 90% of its Flame Retardant capacity to a Chinese buyer/technology provider which will core
Social Disclosure Score NA
commence from Q1FY25.
Governance Disclosure NA
China – A Big Consumer, Not Competitor: Unlike most of the industries/chemistries where China Score
Total ESG Disclosure Score NA
comes as a fierce price-cutting competitor, Bromine’s natural moat protects Indian companies and, Source: Bloomberg, Scale: 0.1-100
infact, benefits them as China is one of the largest consumers of Indian Bromine. Brominated Flame **Note: This score measures the amount of ESG data a company reports
publicly and does not measure the company's performance on any data
retardants are the largest application of Bromine in China which islargely used in the construction point. All scores are based on 2022 disclosures
sector, the electrical industry, and to hinder or suppress accidentalcombustion. Both construction
Relative performance
and electronics are crucial sectors for the Chinese economy as it has the world’s largest electronics
production base. China is also one of the major markets for zinc-bromine flow batteries due to the 175
region's growing electric vehicle market, thus providing a huge market.
125
Robust long-term growth outlook – Initiate with BUY
Archean Chemical Industries Ltd. (ACIL) offers multiple MOATS which are expected to translate into 75

key growth drivers going forward as the company slowly ramp-up its Bromine Derivative capacity
along with its traditional secured Salt business and soon-to-be-revived Sulphate of Potash business. 25
Nov-22 May-23 Dec-23
We believe ACIL is well placed in the bromination space given i) Strong industry growth drivers;
increased usage of Bromine in agrochem and pharma chemistries, ii) Forward integration into high- Archean Chemical Inds Ltd. BSE Sensex
value business with strong demand from the largest geographies in the world,and iii) Well-nurtured
Source: AceEquity, Axis Securities
long-term relationship with customers. The stock currently trades at 10x FY25E EPS. We value
the stock at 14x FY25E EPS and initiate coverage with a BUY rating on the stock with a target
price of Rs 810/share, implying an upside of 33% from the CMP.

Key Financials (Consolidated)

(Rs Cr) FY23A FY24E FY25E FY26E
Net Sales 1,441 1,220 2,328 2,975
PrathameshSawant, CFA
EBITDA 634 442 950 1,265 Sr. Analyst
Net Profit 383 313 709 974
Email: [email protected]

EPS (Rs) 31.09 25.5 57.6 79.1 Shivani More

P/E (x) 19.6 23.9 10.6 7.7 Research Associate
Email: [email protected]
EV/EBITDA (x) 11.8 17.0 7.9 5.9
ROE (%) 45% 20% 33% 33%
ROCE (%) 41% 24% 41% 41%

Source: Company, Axis Research

 ACILs Story in charts

Exhibit 1: We expect Bromine Utilization to improve owing to Exhibit 2: Industrial Salt Capacity Augmentation and Utilization to
demand for internal consumption for derivatives and global macros continue on back of strong demand from end user industries
improve

85%
60,000 74% 90% 60,00,000 134% 139% 160%
71% 80%
50,000 66% 120% 140%
50,00,000 100%
58% 70% 120%
40,000 60% 40,00,000 100%
100%
50%
30,000 30,00,000 80%

45,00,000
40%

52,00,000
30,00,000

30,00,000

30,00,000
20,00,000 60%
20,000 30%
28,500

28,500

28,500

52,500

52,500
20% 40%
10,000 10,00,000 20%
10%
0 0% 0 0%
FY22 FY23 FY24E FY25E FY26E FY22 FY23 FY24E FY25E FY26E

Bromine Utilisation % Industrial Salt Utilisation %

Source: Company, Axis Securities

Exhibit 3: Expect technology partner to provide solution which will Exhibit 4:This will lead to increased revenue contribution from all
augment SOP capacity Product verticals…further supported by Bromine Derivatives

1,40,000 50% 904936

857
810
1,20,000 749
40% 708728
48%
1,00,000 605
80,000 30% 513
419
60,000 20% 278
40,000 7% 6% 8%
2% 10%
20,000 11 32 42
3
0 0%
FY22 FY23 FY24E FY25E FY26E FY22 FY23 FY24E FY25E FY26E

SOP Utilisation % Bromine Industrial Salt Sulphate of potash

Source: Company, Axis Securities

Exhibit 5: This shall support the topline to grow at ~27% CAGR Exhibit6: The increasing share of high margin Bromine and Bromine
over next 3 years Derivative Products in top line…

Bromine & Br Derivative Contribution

2975
2975
2328
2328

1441
1130 1220
1441
1130 1220

619.60 856.94
20.18
- -
605 708 857 904
419
FY22 FY23 FY24E FY25E FY26E FY22 FY23 FY24E FY25E FY26E

Revenue Bromine Sales Br Derivatives Total Sales

Source: Company, Axis Securities

2
Exhibit 7: …should help the Gross Profit to grow at 25% CAGR Exhibit 8: ...Leading to improvement in EBITDA growth and margin
nearly doubling to ~2,800 Cr further supported by positive operating leverage

2781 1400 44% 43% 50%

41% 41%
1200 36%
2177 40%
1000
800 30%
1438
1091 1133 600 1265
20%
950
400
634 10%
200 467 442
0 0%
FY22 FY23 FY24E FY25E FY26E
FY22 FY23 FY24E FY25E FY26E
Gross Profit EBITDA EBITDA Margin

Source: Company, Axis Securities

Exhibit 9: Leading to improvement in overall PAT &PAT Margin Exhibit 10: EPS is expected to grow at 38% CAGR over next 3 years

33%
1200 30% 35% 82.23
27% 26% 974 30%
1000
59.70
707 25%
800
17% 20%
600 31.09
383 15% 26.46
400 313 18.27
189 10%
200 5%
0 0% FY22 FY23 FY24E FY25E FY26E
FY22 FY23 FY24E FY25E FY26E

Profit After Tax PAT Margin Earnings Per Share

Source: Company, Axis Securities

Exhibit 11: This will translate into improved asset utilisation on a Exhibit 12:….and thereby resulting into significant improvement in
larger asset base…. Return Ratios

113%

0.94
0.88 0.88
0.76
0.64 41% 41% 41%
32%
24%
45%
33% 33%
20%
FY22 FY23 FY24E FY25E FY26E FY22 FY23 FY24E FY25E FY26E

Asset Turnover (x) ROCE (%) ROE (%)

Source: Company, Axis Securities

3
 ARCHEAN CHEMICAL INDUSTRIES LTD
Largest Indian
The company was originally formed as a partnership firm under the name of “Archean Chemical Industries” Exporter of Bromine
and Industrial salt with
inChennai, pursuant to a partnership deed dated November 20, 2003. Subsequently, the partnership firm was
‘Responsible Care’
converted into a private limited company with the name “Archean Chemical Industries Private Limited” and a Certification is in
certificate of incorporation dated July 14, 2009. Consequent toconversion into a public limited company pursuant process
to a special resolution passed by the Shareholders on November 15, 2021, and a fresh certificate of incorporation ACIL has Strong
Clientele with – 29
dated December 15, 2021, the name of thecompany was changed to “Archean Chemical Industries Limited”. The Global Customer & 38
company has incorporated a Wholly Owned Subsidiary namely “ACUME CHEMICALS PVT LTD” Domestic Customers.

COMPANY OVERVIEW

Archean Chemical Industries Ltd (“Archean”) was incorporated on November 20, 2003. Archean is a leading
specialty marine chemical manufacturer in India and focused on producing and exporting Bromine, Industrial salt,
and Sulphate of potash to customers around the world.
Archean is the largest exporter of Bromine and industrial salt by volume in India in FY21 and has amongst the
lowest cost of production globally in both Bromine and industrial salt. The company producesits 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.Archean has about 55 clients out of which 27 are global and 28 are domestic(as of FY23).

Exhibit 13: Key Milestones

2011 2014 2018 2022 2023

2013 2015 2021

Strategic Commenced Strategic IPO - Company Incorporated a

Commenced Commenced Expansion of
investment of production of investment by Raised Rs. 805 Wholly owned
Industrial Salt Production of SOP installed Bromine
approximately ₹ Bromine India Cr via Fresh subsidiary
operations capacity to 28,500
225.05 million by Commenced exports Resurgence Issue namely
Commenced Commenced MT
Sojitz to Belgium. Fund, a joint "ACUME
exports to Japan exports to China commenced CHEMICALS
Corporation Ltd. venture exports to Qatar.
and South Korea PVT. LTD."
between
Piramal
Enterprises
Limited and
Bain Capital
Credit, and
issued listed
and
redeemable
NCDs
aggregating to
₹ 8,400 million.

Source: Company, Axis Securities

4
Exhibit 14: Archean Chemicals Product Profile
Export
Particulars Overview Archean’s Position End User Industries Business %
(FY23)

 Bromine is the only non-metallic

element thatis a liquid at 1. Pharmaceuticals
standard conditions Leadership position in Indian 2. Agrochemicals
Bromine  Itis a member of the halogen Bromine merchant sales. 3. Flame Retardants
48%
family and is found naturally in 4. Water Treatment
seawater, underground brine ~48% Export Business 5. Oil & Gas & energy
deposits and other water storage
reservoirs

 There are 14,000 commercial

uses of Salt, a source of Sodium
and Chlorine which are basic Produced using the solar 1. Chloralkali Chemicals
components of an array of evaporation method. 2. Food & Beverage
Industrial Salt 100%
materials — such as plastics, 3. Water Treatment
glass, synthetic rubber, 100% Export business. 4. Oil & Gas
cleansers, pesticides, paints,
adhesives, fertilizers etc.

Only Manufacturer of SOP from

natural sea brine, in India.
1. Agrochemicals
 Sulphate of Potash, also known
2. Various industries
Sulphate of as potassium sulphate, is a high- KTMS (kainite-type mixed salt)
including glass, 70%
Potash (SOP) end, specialty fertilizer for had higher NaCl content
cosmetics etc.
chlorine-sensitive crops. {Sodium Chloride), which led to
3. Medical uses
lower SOP production in the last
few years

 Globally properties worth billions

of dollars are lost due to fire-
related accidents every year.
High-end  This makes anti-inflammatory
Electronics industry, wire
Flame agents or flame retardants
-- and cable compounds and
Retardant crucial chemicals. --
everyday commodities
(10,000  Entered into an agreement to
such as rubbers etc.
MTPA) design, engineer, construct,
commission and operate the
plant to produce with a Chinese
technology provider

 A chemical compound used with

additives in Well completion
operations to make the solids-
free from brines.
 These fluids are extensively
Clear Brine Produce calcium bromide
used in the oil & gas well-drilling
Fluids which is used in Oil drilling,
industry -- --
(13,000 organic synthesis and flow
 The technology tie-up also
MTPA) batteries.
includes a buyback of a
minimum of 90% of the produced
quantity by the Chinese
technology provider at mutually
agreed pricing terms

 Primarily used to produce

Pure
polyester Polyester resins, such as
Terephthalic
 A majority of PTA is consumed polyester films,
Acid (PTA) -- --
in the development of polyester polyesterfibre and yarn, and
Synthesis
resins, Brominated catalyst is PET material bottles.
(5,000MTPA)
used for the production of PTA

Source: Company, Axis Securities

Key Competitive Strengths

5
High entry barriers in the specialty marine chemicals industry
The specialty marine chemicals industry in which Archean operate has high entry barriers, which include the high
cost and intricacy of product development, manufacture, and investment in salt beds, the limited availability of raw The bromine global
materials necessary for production, the limited number of locations with a suitable climate and access to reserves, market size was
US$3.13 billion in
and the lead time and expenditure required for research and development and building customer confidence and
CY2021, and the
relationships, which can only be achieved through a long gestation period. market is expected to
grow at a CAGRof
Established infrastructure and integrated production with cost efficiencies 5.8% between CY2020
and CY2025.
Archean has an integrated production facility for 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 facility and its
surrounding salt fields and brine reservoirs span ~240 sq.km. The company has made significant investments in
capital expenditures for the improvement and maintenance of its facility, including investments in salt beds, which
typically have a three-to-four-year gestation period. In Bromine production, India is among the top five cost-
competitive producers globally with China and Japan being more expensive and the United States (Arkansas), Israel
and Jordan being less expensive than India. In India, industrial salt is produced using the solar evaporation
method, which is more cost-efficient as compared to the mining method.

Tax Benefits in Subsidiary

Acume Chemicals Private Limited is the wholly owned subsidiary of the company which was incorporated on
November 18, 2021. The subsidiary company can avail concessional tax rate of 15% under section 115 BAB of the
Income Tax Act 1961 which is available to new manufacturing companies on fulfilling the condition stipulated under
this section.

Advantage of Depreciating Currency: Two geographic areas in which Bromine is mainly produced are Israel-
Jordan and the US. While the Indian currency is declining, these regions' currencies remain steady compared to the
US dollar. Therefore, India will continue to have competitive advantage over Israel and the US due to its depreciating
currency which adds to Archean’s earnings. In addition, it is expected that India will become a reliable supplier of
bromine and thus its natural transition to bromine compounds is certain.

Declining Water Levels & Sink Holes at Dead Sea

Sinkholes, notably along the Dead Sea's coastline, pose significant threats to infrastructure, residents, agriculture,
and tourism. The ongoing rise in sinkhole occurrences is attributed to the rapid decline in the water level (1-1.5 m per
year), leaving extensive salt-rich terrain from the receding Dead Sea. These sinkholes result from the dissolution of
soluble minerals like gypsum, calcite, and salt, exacerbated by higher groundwater influx due to water recession.

The diminishing water level in the Northern Basin of the Dead Sea, coupled with escalating sinkhole appearances,
may necessitate financial investments for continued operations. The hydrological deficit accelerates the water level
decline at a rate exceeding one meter annually.Another risk is the erosion of the Arava stream along the Israel-
Jordan border, exacerbated by the Dead Sea's decreasing level. Sinkhole prevalence is on the rise, particularly in the
Northern Basin, impacting ICL Dead Sea's vicinity and the feeding channel between the Northern and Southern
Basins.Sinkholes are a serious problem in the Dead Sea. The area around the Dead Sea is characterized by
sinkholes. Dissolution processes are causing hazardous collapse structures.

(Source: ICL Annual Report 2021)

Archean Key Clients

6
Major Clients

Source: Company, Axis Securities

Strong Customer Relationships: Strategic Advantages and Sustainable Growth

ACIL enjoys relationships of over 5 years with seven out of the top 10 customers. ACIL’s long-term relationships and
ongoing active engagements with customers also allow it to plan its capital expenditure, and enhance the ability to
benefit from increasing economies of scale with stronger purchasing power for raw materials and a lower cost base.
These enduring customer relationships also have helped the company to expand its product offerings and
geographic reach. As of Q2FY24, ACIL marketed its products to 29 global customers and to 38 domestic customers.
It has benefited from its fixed sales contracts with agreed pricing and volumes of ~12 months duration with its
Bromine customers representing all of Bromine sales in FY22 and of ~24 months duration with industrial salt
customers representing all of its salt sales in FY22. For other customers, it instead relies on purchase orders to
govern the volume and other terms of its sales of products. Many of the purchase orders the company receive from
its customers specify a price per unit and delivery schedule.

Exhibit 15: Client Concentration of Archean Chemicals

FY20 FY21 FY22 FY23

Sojitz Corporation (Largest Customer) 31.94% 30.51% 20.56% 19.29%
Top 10 customers 77.14% 75.70% 61.99% 60.69%
Top 20 customers 92.05% 88.66% 80.94% 81.75%

Some of ACIL's key Bromine and industrial salt customer relationships are provided below:

Bromine

No. Name of Customer Year Customer Relationship Commenced

1 Unibrom Corp 2014

2 Chinese trading company 2014

3 Chinese chemical company 2015

4 Shandong Tianyi Chemical Corporation 2017

Industrial Salt

No. Name of Customer Year Customer Relationship Commenced

1 Sojitz Corporation 2013

2 Chinese chemical company 2017

3 Indian trading company 2018

4 Wanhua Chemical 2018

Source: Company, RHP

7
Key Growth Drivers

Expansion of Bromine Capacity& Introduction of Bromine Derivatives

ACIL has invested in building capacity in Bromine and has moved from 10,000 tonnes per annum size in FY20 to
28,500 tonnes in FY21/22.Also, it is now close to expanding that in excess of 42000 tonnes.Bromine is one of the Contribution of
main products of ACIL and contributed almost half of the revenue in FY23.It is a starting point for making many of the Bromine and Bromine
value-added products that ACIL intends to make in the coming years on the Bromine derivatives side through ACIL’s Derivatives is expected
downstream wholly-owned subsidiary (Acume Chemicals Pvt. Ltd.) that is coming up in Jhagadia.It is also used in to rise profits going
industries like pharma, agrochemicals, water treatment, flame retardants, additives and oil and gas segments.It has forward
commenced construction work and expects both phases to commence simultaneously by the end of FY24.

Brownfield Expansion:Expanded Bromine and Industrial salt capacities

 Added a feed enrichment section at the site in Hajipir, Gujarat which increased Bromine capacity by 18,000
MT per annum.
 Added an additional 14,500 MT per annum capacity in FY23 which will be used for producing Bromine
Derivatives in the upcoming greenfield project.
 Industrial Salt: ACIL to expand the manufacturing capacities for Industrial Salt production by adding one
additional washery of 250 tons per hour.

Greenfield Expansion:To expand into downstream Bromine derivative performance products:

 To set up a new facility at Jhagadia, GIDC through Acume Chemicals Private Limited (Subsidiary) to
manufacture Bromine Performance Derivatives
 Primarily Brominated flame retardants, Clear Brine Fluids & Bromine Catalysts.

Bromine Derivatives
 Flame Retardants: Bromine is commonly used in flame retardants due to its high atomic mass and its
general versatility across a wide range of applications and polymers. There are more than 70 different
types of brominated flame retardants (BFRs) with different properties (reactive, polymeric, halogenated,
etc.). Depending on the composition, nature and application of the materials or products that need to be
rendered fire-safe. In addition, BFRs are used in wire and cable compounds, for example, for use in
buildings and vehicles and other building materials, such as insulation foams.
 Clear Brine Fluids:Bromine is widely utilized in the oil & gas drilling industry in the form of clear brine
fluids. The types of clear brine fluids, besides being a derivative of Bromine are calcium bromide, zinc
bromide, and sodium bromide fluids.
 Pure Terephthalic Acid (PTA) Synthesis:Bromide is used in the production of pure terephthalic acid
(PTA). PTA is animportant source material for the production of polyester. A majority of PTA is consumed
in the development of polyester resins, such as polyester films, polyester fibre& yarn, and PET material
bottles. PTA is also used as an intermediate in the manufacturing of liquid crystal polymers, plasticizers,
polybutylene terephthalate, and others.

Exhibit 16: ACIL’s proposed capacity of Bromine derivatives

Capacity (MTPA)
13,000

10,000

5,000

Flame retardants (BFR) Clear brine fluids (CBR) PTA Synthesis

Source: Company (Investor Presentation)

8
Strong Demand from the Chinese Market augurs well for Indian Players.

Chinese Bromine Demand: China is expected to be the dominant and fastest-growing market for
Bromine in the Asia Pacific region, mainly due to the escalating demand for brominated flame retardants
in the country. Electronic products, such as smartphones, TVs, wires, cables, etc., recorded the highest
growth in the electronics segment. The country serves not only domestic demand for electronics but
also exports electronic output to other countries. In China, with the increase in the disposable income of
the middle-class population and the rising demand for electronic products in countries importing
electronic products from China, the production of electronics is projected to grow. With the growing
electronics and construction industry, the demand for the Bromine-based flame-retardant application is
expected to increase.

China's Changing Bromine Production Landscape:The Chinese Bromine production is expected to

reduce driven by a reduction in capacity due to depleting resources that was about 4% per annum. The
environmental issues and corresponding crackdowns by the authorities have also led to some
production plants being shut down due to regulatory scrutiny. This will lead to China importing more
volumes of Bromine. China is focused only on imports to meet itsdomestic requirements.

The Role of Clear Brine Fluids in China's Dynamic Oil &Gas Industry:Clear brines are used as
completion and drilling fluids by the oil drilling industry. China is the largest crude oil producer in the
Asia-Pacific region. China National Offshore Oil Corporation (CNOOC) has signed strategic cooperation
agreements, which are a new and flexible method of jointly developing oil and gas fields. This will drive
the growth of the oil and gas industry, which, in turn, is likely to boost the demand for clear brine fluids.

Rising Geopolitical tensions in Israel to benefit Indian Players.

While the bromine industry is facing certain challenges due to recent tension in the Middle East, ICL's
operations in Israel are proceeding without significant disruption. Sadly, ACIL is also now a beneficiary
of Israel-Hamas conflict as many global customers are diligently diversifying their supplies outside Israel
which has led to increase interest in ACILs Bromine export business. This shall help company further
establishing its presence in global markets, the management has indicated interests from various global
customers and company expects to see some good traction in coming quarters. ICL has a ~35% market
share in Global Bromine Market.

The five largest producers account for 85% of the world's bromine production, mainly through two
natural resources (Dead Sea – Israel and Jordan, and the US – Albemarle and Lanxess). In addition,
the bromine derivatives market is dominated by these companies. Most of the captive production used
to produce bromine compound is consumed by these largest producers of bromine

Complexity in transportation of Bromine

Unloading of Bromine from ISO Containers (Three Valve)

The ISO containers used for the transportation of Bromine are lead-lined. So, care shall be taken to ensure that no
moisture / atmospheric air enters the container. The schematic of the valve arrangement is as below.

9
Archean’sCurrent Key Revenue Segment
Exports constitute 65-
Bromine:Bromine is a halogen chemical element. It is a reddish-brown liquid with an appreciable vapour pressure at 70% of Total
room temperature and is widely used as a reactant and catalyst for manufacturing a variety of products, such as Revenues. 44% of
agrochemicals, biocides, water disinfectants, pharmaceuticals intermediates, dyes, completion fluids, flame Bromine revenues
retardants, and photographic chemicals.Bromine is produced from brine after separation of most of the sodium came from Exports
chloride and potash. Much higher concentrations are found in inland seas and brine wells.Much of the Bromine and whereas 100% of IS
brominated compounds are manufactured at the Dead Sea in Israel, Jordan, and the United States. Revenues came from
Exports in FY23
Industrial Salt:Industrial salt is the principal material in chlorine and caustic soda production (together, known as
chloralkali) and is widely used in the chemical and food and beverage industries. According to the company
Commissioned F&S Report, there are 14,000 commercial uses for salt, which is a source of sodium and chlorine –
basic components of an array of materials, such as plastics, glass, synthetic rubber, cleansers, pesticides, paints,
adhesives, fertilizers, explosives, and metal coatings.

Sulphate of Potash: SOP, which is also known as Potassium Sulphate (K2SO4),is a high-end, specialty fertilizer
for chlorine-sensitive crops.ACIL is the only manufacturer of sulphate of potash from natural sea brine in
India.SOPis an ionic compound with solubility in water dissociating into two ions - potassium cation and sulphate
anion. Potassium sulphate is a white, odourless solid that is a hygroscopic product, which means that it can become
damp when it comes into contact with air. It is a straight potassicfertilizerthatis chloride (Cl) free and has a low salt
index. It is also known as fertilizer for improving quality and is applied to crops in open fields as well as under
protected cultivation.Besides being an excellent fertilizer for crops, potassium sulphate is also used as a raw
material in various industries.

Exhibit 17: Bromine and industrial salt accounted for 49% and Exhibit 18: 44% of Bromine revenues came from Exports
51% of Archean Chemical’s revenues as of FY23 whereas 100% of IS Revenues came from Exports in FY23

Business -Wise (%) FY22 Geographic-Wise (%) Domestic

Export
FY23
54%
49% 51%
45% 56% 100% 34%

66%

44%

1% 0%
Bromine Industrial Salt SOP
Bromine Industrial Salt SOP

Source: Company, Axis Securities

Exhibit 19: Geographic breakdown

Geographic breakdown India Japan China South Korea Rest of Asia Europe Africa
FY19 19.60% 7.00% 58.70% 1.20% 6.60% 7.00% 0.00%
FY20 21.60% 12.20% 41.20% 9.80% 8.80% 6.40% 0.00%
FY21 25.60% 10.20% 37.70% 12.50% 10.20% 3.90% 0.00%
FY22 29.70% 6.20% 36.30% 5.60% 19.50% 0.90% 1.80%

10
Production Facilities

Integrated Production Facility

ACIL has an integrated production facility for 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’smanufacturing ACIL has one of the
facility is located in close proximity to the captive Jakhau Jetty and Mundra Port, where it transports products to its largest salt works at
customers internationally. Its facility and its surrounding salt fields and brine reservoirs span ~240 sq.km. As of Mar one single location in
31, 2023, its manufacturing facility had an installed capacity of 28,500 MT per annum of Bromine, 3,000,000 MT per the world
annum of industrial salt and 130,000 MT per annum of sulphate of potash, as certified by M. Ulaganathan,
Chartered Engineer.

Leveraging Own Reservoirs and Third-Party Suppliers for Bromine Production:

Archeanuses brine from its own reservoirs as a raw material, which includes Industrial Salt, kainite, and end bittern.
Other raw materials are primarily sourced from third-party suppliers in India. Globally, the two most popular Bromine
production sites are near the Dead Sea (Israel & Jordan) and the underground well in the Arkansas region in the
USA. India is well placed with brine resources at the Great Rann of Kutch in Gujarat.

Three Product Lines, Quality Assurance, and Expansion Plans

Its integrated facility has three product lines: Bromine, industrial salt, and sulphate of potash and the facility is also
equipped with its own quality department, central quality assurance & quality control department, co-generation
power plant, desalination plant, effluent treatment plant, sewage treatment plant and warehouse. The industrial salt
washing facility has three washeries, each having a capacity of 200 tonnes/hour with an additional washery having a
capacity of 250 tonnes/hour expected to commence in the later part of FY24.

Location Advantages

 Close proximity to the Jakhau Jetty and Mundra Port:The manufacturing facility is located in close
proximity to the Jakhau Jetty and Mundra Port. The Jakhau Jetty is a fair-weather facility, operating for
seven to eight months a year from October to May.
 Designed capacity of 5 Mn MT per annum:It has a designed capacity of 5 Mn MT per annum and a
capacity to load 28,000 MT equipped with a twin conveyor system, and diesel generator sets.
 Production process efficiency:An integrated manufacturing site with access to the Rann of Kutch
reserves and close connectivity to ports, results in production process efficiency, and deliver superior
quality and timely products.

11
 Production of Bromine

The technical know-how and technology for itsBromine plant wereprovided by a German engineering company
pursuant to a technology transfer agreement. ACIL produce liquid Bromine with specifications of < 30 ppm of
moisture. There are generally two processes for Bromine production: (i)Thesteaming-out process and (ii) The
blowing-out process. The type of process utilized is largely dependent on access to brine and the feedstock
grade (i.e., grams of Bromine/litre of brine). The steaming-out process typically requires a minimum feedstock of
more than two grams of Bromine/litre of brine and is less energy intensive, while the blowing-out process may use
a lower feedstock grade as air is used for blowing out the Bromine. ACIL operates and utilizes the steaming-out
process.

Exhibit 20: Process of Bromine Production.

Source: Company, RHP

As of FY23, ACIL’sBromine installed capacity was 28,500 MT per annum. ACIL has identified Bromine as a product
of focus for the company and plans to further expand theBromine capacity as the business strategy is to expand its
product line into downstream Bromine derivative products.

Exhibit 21: ACIL Bromine Production Plant Facility

Source: Company website

12
 Production of Industrial Salt

There are generally three processes for industrial salt production: (i) Solar evaporation, (ii) Vacuum evaporation,
and (iii) Rock salt mining. The type of process utilized is largely dependent on access to salt reserves and
geography. ACIL operates and utilizes the solar evaporation process, which includes the followingsteps (in
chronological order):

 Sea Water Pumping: Sea water (i.e., brine) is pumped into reservoirs and condensers, where constant
evaporation by the sun concentrates the brine from 25 oBe to 27-28 oBe density at normal salt fields. At
its field area, brine is available at 20-25 oBe and then pumped directly into salt crystallizers for salt
precipitation.
 Crystallization: At its crystallizers, the salt is deposited on the salt bed at a rate of 2.5-3 cm/month. Salt
crystallization occurs between 25 to 29 oBedensity. Once the desired density is reached, the brine is
pumped out.
 Solar Salt Harvesting: The crystalized salt is then harvested annually, producing a total of 25-30 cm of
salt. Harvesting is performed through harvesters & excavators and transported to the washery.
 Washery: The salt is then run through automated washery units, which run for 22 hours/day to remove
impurities from the salt.
 Quality Checks: A quality check is then performed to ensure the salt meets the applicable specifications
before it is supplied to the customer. The primary parameters analysed include calcium (< 0.05%),
magnesium (< 0.03%) and the calcium to magnesium ratio (around 1.5).
 Transportation for Export: Following the quality check, the salt is then transported to the stockyard,
where it is then transported to the Jakhau Jetty or the Mundra Port for export to the customers.

Industrial salt is primarily used by importers for caustic soda and soda ash, which, in turn, is used to make
downstream chlorine products such as PVC and polyurethane. As of FY23, ACIL’s industrial salt installed capacity
was 30,00,000MT per annum. Due to the strategic location of the company’s facility near one of the largest salt
reserves in the world, which spans an area of ~240 sq km, it has a production cost of $5.5 to $6.0 per MT.

Additional washery of 250 tonnes per hour:To cater to the growing demand from existing customers and to meet
the requirements of new customers, the company intends to expand its manufacturing capacities for industrial salt
production by adding an additional washery of 250 tonnes per hour.

Exhibit 22: Industrial Salt Production

Source: Company website

13
Production of Sulphate of Potash

ACIL's sulphate of potash plant relies on technical expertise from a German engineering company. Among the three
production processes,the Salt Lake/seawater process stands out, utilizing kainite-type mixed salt (KTMS) as a raw
material, a byproduct from salt production in potassium-rich brines. ACIL's process involves precipitating KTMS
during brine evaporation, harvesting, and storing it. The processing plant then decomposes KTMS into schoenite, an
intermediate product of sulphatic salts of potassium and magnesium. Through thermal decomposition, schoenite
yields low-chloride sulphate of potash, a valuable market product.

Recovery of sulphatefrom potash depends on potassium chloride (KCl) and sodium chloride (NaCl) content, with
lower NaCl levels leading to better recovery. ACIL upgraded its facility and flotation circuit to enhance the
conversion ratio, aiming for decreased utility and raw material costs by improving the KTMS ratio. The company
altered the crystallizer precipitation method from parallel to series mode, expecting a lower NaCl content in the
harvested KTMS. Professional advice is sought to address the higher NaCl levels in harvested KTMS,
demonstrating ACIL's commitment to improving product quality.

Exhibit 23: Manufacturing Process of Sulphate of Potash.

Source: Company, RHP

REACH certification for SoP

SoP is a specialty fertilizer that is primarily used for chloride-sensitive crops and ACIL is one of the few companies
that has received REACH certification in Europe, allowing it to export its SoP products to European customers.As of
FY23, ACIL’ssulphate of potash installed capacity was 130,000 MT per annum.

Reason for SOP Production Loss

ACIL sulphate of potash revenue declined in FY22 as the company worked to improve itskainite-type mixed salt
(“KTMS”) ratio. The recovery of sulphate of potash is based on potassium chloride (“KCl”) and sodium chloride
(“NaCl”) content. Lower levels of NaCl yield better recovery of sulphate of potash from KTMS and an increased level
of NaCl yields lower outputs. We recently upgraded its facility and flotation circuit to improve the conversion ratio,
which determines the overall output of its manufacturing process. As the company continues to improve its KTMS
ratio, it expects the costs associated with its utilities and raw materials to decrease and improve itssulphate of
potash production substantially. The KTMS that the company has harvested has had a higher level of NaCl and
accordingly has taken professional advice on improving the quality of its KTMS. The method of precipitation of
KTMS was changed from parallel to series mode in the crystallizers which is expected to yield a lower NaCL
content moving forward.

Exhibit 24: Sulphate of Potash Production Facility

Source: Company, RHP

14
Overview of Global Bromine Industry
Volume-wise Bromine
Bromine Market Overview: Growth and Forecasts Market is expected to
grow at 3.1% CAGR
and value wise its
Bromine, a naturally occurring element, is primarily sourced from soluble salts in seawater, salt lakes, inland seas,
expected to grow at
and brine wells. The majority of bromine production takes place at the Dead Sea in Israel, Jordan, and the United 5.8% CAGR over next
States. In 2021, the global bromine market volume reached 933,410 metric tons, with a projected increase to 2-5 years.
approximately 1.18 million metric tons by 2029.

Industry Valuation and Growth Trends

As per the ACIL Commissioned F&S Report, the global Bromine industry was valued at ~$3.13 billion in 2021.
Notably, the industry demonstrated a growth trajectory, with a CAGR of 1.2% from $2.86 billion in 2017 to $3.18
billion in 2019. The latest projections suggest a robust CAGR of 5.8% from 2020 to 2025, indicative of continued
growth in the global Bromine sector.

Exhibit 25: Global Bromine Market Size (US$ Bn), 2017-2025F

Source: Statista and Frost and Sullivab analysis; Company Commissioned F&S Report

Volume-wise the market is expected to grow to 1.06 MT

Exhibit 26: Global Bromine Market Volume (KT), 2017-2025F

Source: Statista and Frost and Sullivab analysis; Company Commissioned F&S Report

15
Robust Position in the Global Bromine Market along with encouraging Growth Prospects
According to an industry report, the Bromine global market size was $3.13 Bn in CY21, and the market is expected to
grow at a CAGR of 5.8% between CY20 and CY25. The demand for Bromine and Bromine performance derivatives
will be driven by a host of factors including an increasing demand for flame retardants, increasing consumption of oil
well chemicals and increasing use of hydrogen and zinc bromide in flow batteries. India’s Bromine production is from
Bittern and produced from the underground brine mainly concentrated towards the western state of Gujarat. In
Bromine production, India is among the top five cost-competitive producers globally with China and Japan being
more expensive and the United States (Arkansas), Israel and Jordan less expensive than India.

Chinese Bromine production expected to reduce

The Chinese Bromine production is expected to reduce driven by a reduction in capacity due to depleting resources
that was about 4% per annum. The environmental issues and corresponding crackdowns by the authorities havealso
led to some production plants being shut down due to regulatory scrutiny. This will lead to China importing more
volumes of Bromine. China is focused only on imports to meet its domestic requirements.

Exhibit 27: Global Natural Resources by Bromine concentration (in ppm)

Global Natural resources by Bromine concentration (in ppm)

8.0-9.0

4-4.4 3.75-4.25

0.9-0.5 0.3-0.7 0.3-0.7

Dead Sea (Israel, Underground Great Rann of Shallow Sea Sea Water (China, Underground
Jordan) wells (USA) Kutch (India) (Ukraine) Japan) wells (China)

Source: Company, RHP

According to the Company Commissioned F&S Report, the typical cost of production of elemental Bromine is
~$500-600 per Metric Ton (MT) for Israel and Jordan, $800-1,000 per MT for Arkansas, $900-1,100 per MT for
India, $1,500- 1,700 per MT for China and $2,500 or above per MT for Japan. Considering the lower cost of
production, Israel and Jordon have high production capacities and are market leaders in Bromine production.

Bromine by application segments globally: Bromine finds applications in chemicals, rubbers, plastics,
agrochemicals, oil and gas, pharmaceuticals, electronics, textiles and other industries. The Global Bromine market
can be segmented into applications such as flame retardants, clear brine fluids, biocides, brominated organic
intermediates, fungicides and others.

Exhibit 28: Bromine Application & Production wise split in the year 2021

Bromine Application wise split in year 2021 1% 1%

12% Flame Retardants

21%
N. America
4%
Clear Brine Fluids
7% Asia
47% PTA Synthesis
11% Europe
Biocides
77% Africa
Fungicides
19%
Others

Source: Company, RHP

16
Indian Bromine Market

High barrier to entry in the Indian Bromine industry: There are high barriers to entry to the Indian Bromine
industry, primarily due to the following factors: -

 Regulatory approvals
 Handling of Bromine requires special expertise
 High gestation period
 Requirement for environmental health and safety procedures
 Others

Key players in the Indian Bromine industry use Sea bittern obtained in Kutch as it has very good contents of Bromine
and can be used for Bromine manufacturing. The most important factor to consider is Bromine concentration in brine
for a plant to operate profitably. The area for feed is limited toRann of Kutch which is 200km x 200km 7-meter-deep
sponge with 40% porosity. BSF permission is essential to access the sponge. All the existing players have taken up
the most feasible area available in the region. Accordingly, or any new plant, the availability of rich raw materials is a
concern.

Bromine has the largest capacity among the key Manufacturers in India\

Exhibit 29: Producers of elemental bromine in India are as follows:

Approved Annual Actual Production in
Key Manufacturers Location
Capacity Fiscal 2021
Plant is located at Hajipir, Kutch
Archean Chemical Industries Ltd. 42.5 KT 14 KT
District
Satyesh Brine Chem Plant is located at Hajipir, Kutch District 25 KT 3 KT

Solaris ChemTech Industries Limited Plant is located at Khavda, Gujarat 23 KT# 18 KT

Agrocel Industries Pvt. Ltd. Plant is located in Greater Rann of Kutch 10 KT# 7 KT
Plant is located in Kalatalav village, near
Nirma Limited 3 KT 2 KT
Bhavnagar in Gujarat state.
Tata Chemicals Ltd. Plant is located at Mithapur, Gujarat 2.4 KT 1 KT

Dev Salt Private Ltd Plant is located at Morbi district of Gujarat 2.5 KT 1 KT
Source: Company RHP

The production, captive consumption and net merchant sales of the key players in FY21 are set out below:

Exhibit 30: Bromine production and captive Volumes for FY21, in KT

Captive Net merchant sales
Company Production Numbers (KT)
Consumption (KT) (KT)
Archean Chemical Industries Ltd. 14 - 14

Satyesh Brine Chem 3 - 3

Solaris Chemtech 18 10.5 8.5

Agrocel 7

Nirma 2 2 -

Tata Chemicals 1 1 -

Dev Salt Private Ltd 1 - 1

Total Production 46 13.5 32.5

Source: Company RHP

Bromine by application segments globally Bromine finds applications in chemicals, rubbers, plastics,
agrochemicals, oil and gas, pharmaceuticals, electronics, textiles and other industries. The Global Bromine market
can be segmented into applications such as flame retardants, clear brine fluids, biocides, brominated organic
intermediates, fungicides, and others.

17
Overview of Industrial Salt

Industrial salt is the principal material used in chlorine and caustic soda production (together, known as chloralkali)
and is widely used in the chemical and food and beverage industries. Chlorine finds end-uses in vinyl, phosgene,
chloromethanes, chlorinated C3, water treatment, synthesis of HCI, bleach, and other organic and inorganic chemical
material. Caustic soda finds end-uses in alumina, paper and pulp, soap and detergents, textiles, water treatment,
bleach, and other organic and inorganic chemical materials.

According to the company Commissioned F&S Report, there are 14,000 commercial uses for salt, which is a source
of sodium and chlorine – basic components of an array of materials, such as plastics, glass, synthetic rubber,
cleansers, pesticides, paints, adhesives, fertilizers, explosives and metal coatings.

According to Frost & Sullivan, global demand for industrial salt was 173 Mn MT in CY17, 171 Mn MT in CY18 and
173 Mn MT in CY19 and declined to 153 Mn MT in CY20 but is expected to grow at a CAGR of 2.8% between CY20
and CY25. A growing demand for industrial salt will be driven primarily by increasing industrialization owing to its
wide range of end applications. In particular, demand is expected to increase from the food and beverage industry,
the chlor-alkali sector in the chemical industry as well as chemical processing, water treatment, agriculture and de-
icing.

Key players in the Indian industrial salt industry

While there are umpteen small traders and exporters from India only a few top exporters from India have export
volumes of more than 1 Mn MT in FY21. The company include the following:

Sr. No Company Name Export (Mn MT)

1 Archean Chemical Industries Ltd. 2.7

2 The Kutch Salt And Allied Industries Ltd. group (including Friends Impex India) 1.2
Source: Company RHP

Global industrial salt industry by application segments

The chemical processing segment is anticipated to hold the largest share ofthe industrial salt market on account of
the growing demand for industrial salt in soda ash, chlorine and caustic soda production. The segment for de-icing is
also expected to occupy a notable share in the market in the near future owing to the effective ice control properties
of industrial salt such as high efficiency at lower temperatures. Furthermore, the section for oil & gas application is
projected to grow significantly during the forecast period, which can be associated with the high consumption of
industrial salt during drilling and extraction procedures.

According to the Company Commissioned F&S Report, in FY21, exports of industrial salt from India were mainly to
China. (42%), Republic of Korea (18%), Japan (11%) and Qatar, Indonesia & Vietnam (5% each).

18
Overview of Sulphate of Potash Industry
Sulphate of potash, also known as potassium sulphate, is a high-end, specialty fertilizer for chlorine-sensitive crops.
It is one of the most popular forms of low chloride potash, largely due to its high 50-52% K2O content, which contains
about 50% of plant food.

Sulphate of potash has a major application in agriculture, providing both potassium and Sulphur in soluble forms.
This stimulates the growth of strong stems and provides disease resistance to crops and plants by promoting the
thickness of the outer cell walls. Further, sulphate of potash can reduce moisture loss from growing plants, thereby
providing drought resistance, and has been proven to improve yield, nutritional value, colour, flavour, and storing
quality of fruits and vegetables. It has proven to be particularly effective in the cultivation of citrus fruits,
pomegranates, grapes, vegetables, tobacco and nuts. In addition, due to its low saline index, sulphate of potash can
also benefit soil containing a highsalt content.

According to Frost & Sullivan, global demand for sulphate of potash was 6.9 Mn MT in CY21 and is expected to grow
at a CAGR of 6.0% between CY21 and CY25. The sulphate of potash market is being driven by the advantages of
sulphate of potash over muriate of potash and growing demand from a growing middle-class population driving the
use of fertilizers primarily for growing fruit and vegetables.

Global Production of SOP processes (FY21)

SOP by application segments in India

Region Process Method World Capacity Process Inputs Products Future Outlook

• MOP High cost/ By-

• SOP
China/ Europe Mannheim 60% • Sulphuric Acid Product limits
• Hydrochloric Acid
• Energy growth

• MO • SOP
No Additional
Europe MOP and Kieserite 25% • Kieserite • Magnesium
Deposits
• Energy Chloride

No Additional
Suitable Lakes,
limited brine
• SOP
China/ USA/ availability;
Salt Lakes/ Salt • Lake Brines • Magnesium
Chile/ India/ 15% those who have
Brine • Energy Chloride
Australia access to raw
• Sodium Chloride
material have
immense
advantage

Source: Company RHP

19
Peer Comparison
Archean has two major global competitors that are ICL and Albemarle.

ICL Group Ltd is an Israel-based company and the global market leader in bromine and bromine-based
Derivatives. Its market share in bromine was 33% in CY21 (bromine business is part of its industrial
product segment). It draws significant bromine production from its operations in the Dead Sea. Access
to one of the world’s richest, longest-life and lowest-cost sources of potash and bromine (the Dead
Sea). ICL supplied over 33% of the almost 1,000,000 metric tons of all bromine used in 2021.

Albemarle is another large bromine producer and also has a JV partnership with Jordan Chemical
Company. Its production of bromine is carried out by a joint venture partner in Jordan and its operations
in Magnolia, Arkansas, United States. Albemarle, like ICL, also expects demand in bromine compounds
to increase and benefit from the shift of ICE to EV, as well as demand for electronics, 5G and other
mobile technologies.

Archean Archean
Israel Chemical Albemarle
Chemical Chemical
Ltd (ICL) Corporation
Industries Ltd Industries Ltd
FY23 FY23 CY22 CY22
CMP Rs. 617 $ 7.33 $ 491 USD 120
Market Cap 7600 Cr $ 0.9 Bn $ 6.36 Bn USD 1408
P/E Ratio 19.3 19 7 4.25
FY23 OR CY22 (Amount in Cr) ($ millions) ($ millions) ($ millions)
Sales 1441 173.4 10,015 7,320
Gross Profit 1438.34 173 5,032 3,075
GP % 100% 100% 50% 42%
Operating Profit 634 76.3 3516 2,470
OPM% 44% 44% 35% 34%
Net Profit 383 46.1 2159 2,690
Net Profit Margin (%) 27% 27% 22% 37%
EPS ($) Rs.31.09 $ 0.4 $ 1.68 $ 22.97
Source: Company, Axis Securities (*Assuming Current Exchange Rate)

Since the company has been listed for span of just ~ one year, we are reviewing the historical/trailing valuation over
the forwards valuation. On Trailing Basis Company Trades at 19x its TTM PE and 12x EV/EBITDA multiple.

TATA
Particulars ACIL Neogen Chemical
Chemicals
Market Cap (In Cr) 7,428 26,480 3,957
Stock P/E 18.7 13.4 79.8
ROCE 45.6 11.6 13.2
ROE 44.9 12.0 10.9
Debt/Equity 0.04 0.28 0.94
Asset Turnover Ratio 0.88 0.49 0.74
Return Over 1 year 24.0 3.88 22.1
EVEBITDA 11.9 8.07 35.3
Sales growth 3Years 33.3 17.5 30.9
Return on Assets 23.2 6.93 5.40
Interest Coverage Ratio 19.9 5.91 2.86
Source: Company, Axis Securities

20
Management Team

Name Experience

RanjitPendurthi is the Managing Director of the company. He has been associated with the
RanjitPendurthi company since incorporation. He holds a degree of master's of business administration from the
Managing Director University of Chicago, Illinois, USA. He has 21 years of experience in the chemical business.

Ravi Pendurthi is a Non-Executive Director on the Board of the company. He holds a degree of
Ravi Pendurthi bachelor of science (business administration with a concentration in management) from
Non-Executive Director Monmouth University, New Jersey. He has 14 years of experience in the chemical industry. He
has been previously associated with Jakhau Salt Company Private Limited and Bharath Salt
Refineries Limited.

Bhupathi K is the vice-president - operations and unit head of the company. He has been part of
the company since November 20, 2021. He is a certified boiler operation engineer and holds a
Bhupathi K degree of bachelor of mechanical engineering from the Government College of Technology,
Vice-president - operations and unit head Coimbatore. He has 28 years of experience in spearheading production, maintenance, erection
and commissioning, quality and projects with a key focus on profitability. He has been previously
associated with Epsilon Carbon Private Limited, Philips Carbon Black Limited, E.I.D - Parry India
Limited, Phillips Carbon Black Limited and Hi-Tech Carbon.

Rajeev Kumar is the associate general manager- finance of the company. He has been part of
the company since April 1, 2017. He holds a certificate from the Indian Institute of Banking &
Finance for completion and passing of the CAIIB examination. He also holds a post-graduate
Rajeev Kumar
diploma in management with a specialisation in banking, insurance and financial services from
Associate General Manager- Finance the Asian School of Business Management, Bhubaneswar and a degree of bachelor of commerce
from St. Xaviers College, Ranchi. He has 12 years of experience in finance. He has been
previously associated with Jakhau Salt Company Private Limited, Goodearth Maritime Limited
and State Bank of Hyderabad.

Dr. Ravi K is the associate general manager- Research & Development of the company. He has
been part of the company since January 1, 2021. He holds degrees of Doctor of Philosophy in
Chemistry from Annamalai University, Master of Science in Chemistry from Annamalai University
Dr. Ravi K
and degree of Bachelor of Science from University of Madras. He has 35 years of experience in
Associate general manager- research and contract research and custom synthesis projects. He has been previously associated with Altus
development Alumina Speciality Private Limited, Survival Technologies Private Limited, Proventus Life
Sciences Private Limited, Malladi Drugs & Pharmaceuticals Limited, Inspec Laboratories Private
Limited, Inspec Chemicals Private Limited, Kothari Sugars and Chemicals Limited, Tanfac
Industries Limited and Maruti Laboratories Private Limited.

RaghunathanRajagopalan is the Chief Financial Officer of thecompany. He has been part of

thecompany since June 1, 2022. He is admitted as an associate of the Institute of Chartered
Accountants of India and has passed the final examination held by the Institute of Cost and
RaghunathanRajagopalan
Works Accountants. He also holds a degree of bachelor of commerce from Bangalore University.
Chief Financial Officer He has more than a decade of experience in financial planning, budgeting and cash management
while implementing strict budgetary controls, and governance policies and contributing towards
strategic growth. He was previously associated with Wheels India Limited, Chettinad Cement
Corporation Limited, HatsunAgro Products Limited and MRF Limited.

21
Key Risks

 Emergence of non-halogenated flame retardants: Brominated flame retardants have been severely Any unfavorable
affected due to environmental considerations and potential health hazards. Some of the countries have change in Govt.
Regulation wrt renewal
banned the use of Bromine in electronics and textile applications with the implementation of new of Lease for Brine
environmental, health, and fire regulations. Non-halogenated flame retardants have emerged as a fields in Rann of Kachh
sustainable alternative to Bromine flame retardants. These substitutes may pose a threat to the growth of could severely affect
the business
the Bromine market in the future.
operations.
 Lease renewal risk: ACILoperate its manufacturing facility and brine reserves on land parcels that were
leased to them by the Government of Gujarat and such land leases have expired. If itis unable to renew its
land lease, it may be required to relocate its business operations or shut down its manufacturing facility,
which would have a material and adverse effect on the business, results of operations and financial
condition. Further, its Registered and Corporate Office is also situated on leased premises.

 Operational Risk:ACIL's sole manufacturing facility in Hajipir, Gujarat, concentrates operational exposure to
weather, natural events, and regulatory changes in the region, posing risks to business and financial
stability. Adverse weather, especially excessive rainfall, may impact salt and brine quality. With operations
centralized in one location, any significant natural disaster could substantially harm business operations.
Additionally, dependency on major customers raises vulnerability, as the loss of contracts or reduced
sourcing from key clients may adversely affect business, financial condition, and operational results.

 Volatility in RawMaterial Prices: ACIL does not have long-term agreements with suppliers for its raw
materials and an increase in the cost of, or a shortfall in the availability or quality of such raw materials could
have an adverse effect on the business, financial condition and results of operations. Any increase in the raw
material prices could have an impact on ACIL's Gross Margins, thereby impacting its profitability.

 Foreign ExchangeFluctuation Risk: We are an export-oriented business. In FY23, FY22, FY21 and FY20,
66%, 70.32%, 74.41% and 78.41%, respectively, of its revenue from operations were attributed to export
sales.

 Client Concentration Risk: ACIL derives a significant part of its revenue from major customers. If one or
more of such customers choose not to source their requirements from us or to terminate their contracts with
us, its business, financial condition and results of operations may be adversely affected

 Environmental Hazardous Activity–ACIL's products, manufacturing processes, and distribution are subject
to extensive laws and regulations concerning quality, safety, and health. Handling hazardous materials
poses risks, and any mishandling could lead to accidents, injuries, property damage, and environmental
harm. Accidents may result in personal injury, environmental damage, property destruction, and operational
suspension. Adherence to laws restricting hazardous discharge into air and water is crucial, as violations
may lead to liability with regulatory bodies and third parties. Stricter compliance measures are essential to
mitigate these risks effectively.

22
Valuation and Outlook
Exhibit 31: This shall support the topline to grow at ~27% CAGR Exhibit 32: The increasing share of high margin Bromine and Bromine
over next 3 years Derivative Products in top line…

16 8
30 10000
25 8000 12 6
20
6000 8 4
15
4000 4 2
10
5 2000
0 0

Jul-23
Nov-22

Dec-22

Jan-23

Jun-23
Apr-23

Aug-23

Sep-23

Oct-23

Nov-23
Feb-23
Mar-23

May-23
0 0
Jul-23
Nov-22
Dec-22
Jan-23

Jun-23

Nov-23
Aug-23
Sep-23
Feb-23
Mar-23
Apr-23

Oct-23
May-23

TTM PE(x) Market Cap EV/EBIDTA(x) Cons MCAP/Sales(x)

Source: Company, Axis Securities

Robust Long-Term Growth Outlook – Initiate with BUY

Archean Chemical Industries Ltd. (ACIL) offers multiple MOATS which are expected to translate into key growth
drivers going forward as the company slowly ramp-up its Bromine Derivative capacity along with its traditional secured
Salt business and soon-to-be-revived Sulphate of Potash business. We believe ACIL is well placed in the bromination
space given i) Strong industry growth drivers; increased usage of Bromine in agro chem and pharma chemistries, ii)
Forward integration into high-value business with strong demand from the largest geographies in the world, and iii)
Well-nurtured long-term relationship with customers iv) Rising geo-political tensions in middle-east urging to diligent
diversification of supply chains by major global players & v) Reduction in earning volatality as company integrates into
derivatives which will help locking customers and gaining market share. Given this potential trigger we believe that the
stock currently trades at 10x FY25E EPS is very cheap and demands a valuation re-rating. We value the stock at
14x FY25E EPS and initiate coverage with a BUY rating on the stock with a target price of Rs 810/share,
implying an upside of 33% from the CMP.

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Financials (Consolidated)
Profit & Loss (Rs Cr)
Y/E March FY22A FY23A FY24E FY25E FY26E
Net Revenue 1,130.4 1,441.1 1,219.6 2,328.4 2,974.7
COGS 39.3 2.7 86.7 151.3 193.4
Staff costs 37.8 72.0 81.2 163.0 208.2
Operating Exp. 586.1 732.3 610.0 1,064.1 1,308.4
Total Expenditure 663.3 807.1 777.9 1,378.4 1,710.0
EBITDA 467.1 634.0 441.6 950.0 1,264.7
EBITDA Margin % 41.3% 44.0% 36.2% 40.8% 42.5%
Depreciation 66.9 68.6 70.0 86.9 89.4
EBIT 412.7 608.6 416.1 932.9 1,264.5
Interest 161.7 97.0 0.1 0.1 0.1
Other Income 12.4 43.3 44.5 69.9 89.2
PBT 251.0 511.7 416.0 932.8 1,264.4
Tax 62.4 129.1 102.7 226.0 290.8
Tax Rate % 24.9% 25.2% 24.7% 24.2% 23.0%
PAT 188.6 382.6 313.3 706.8 973.6
EPS 18.27 31.09 26.46 59.70 82.23
Source: Company, Axis Securities

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Balance Sheet (Rs Cr)
Y/E March FY22 FY23 FY24E FY25E FY26E
Share Capital 19 25 25 25 25
Reserves & Surplus 242 1,406 1,739 2,445 3,419
Net Worth 261 1,431 1,763 2,470 3,444
Financial Non-Current Liability 965 37 33 33 33
Other Non-current Liability 118 - - - -
Deferred Tax Liability 9 115 120 120 120
Total Non-Current Liability 1,093 152 153 153 153
Current Financial Liability 126 148 140 231 284
Other Current Liability 49 21 21 21 21
Provisions - 3 7 7 7
Total Current Liability 176 172 162 253 306
Total Equity & Liability 1,530 1,755 2,079 2,876 3,903
Application Of Funds
PPE 1,045 1,065 1,242 1,225 1,205
Capital Work in Progress 17 36 18 18 18
Right Use Of Assets 39 45 39 39 39
Intangible Assets 0 0 0 0 0
Non- Current Financial Assets 2 22 22 22 22
Other Non-Current Assets 27 10 10 10 10
Total Non-Current Assets 1,131 1,178 1,331 1,314 1,295
Inventories 121 168 120 230 293
Current-Financial Assets 223 361 579 1,284 2,267
Other Current Assets 40 32 32 32 32
Total Current Assets 399 577 747 1,562 2,608
Total Assets 1,530 1,755 2,079 2,876 3,903
Source: Company, Axis Securities

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Cash Flow (Rs Cr)
Y/E March FY22 FY23 FY24E FY25E FY26E
PBT 251 512 416 933 1,264
Depreciation & Amortization 67 69 70 87 89
Finance Cost 162 97 0 0 0
Chg in Working cap -165 -157 53 -125 -73
Direct tax paid - -21 -103 -226 -291
Cash flow from operations 315 496 469 669 990
Chg in Gross Block -97 -100 -250 -70 -70
Chg in Investments 31 -195 - - -
Other Investments -46 -1 - - -
Cash flow from investing -110 -290 -250 -70 -70
Fresh Issue Proceeds - 789 - - -
Proceeds / (Repayment) of ST
-16 -4 - - -
Borrowings (Net)
Finance Cost paid -198 -163 -0 -0 -0
Dividends paid - - - - -
Cash flow from financing -224 -212 -0 -0 -0
Chg in cash -19 -6 219 599
Source: Company, Axis Securities

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Ratio Analysis (%)
Y/E March FY22 FY23 FY24E FY25E FY26E
Efficiency Ratios
Asset Turnover (x) 0.76 0.88 0.64 0.94 0.88
Inventory Turnover(x) 0.34 0.02 0.60 0.86 0.74
Sales/Total Assets 0.74 0.82 0.59 0.81 0.76
Receivable days 36 34 35 27 31
Inventory Days 37 37 43 27 32
Payable days 36 26 29 23 27

Financial Stability Ratios

Total Debt/Equity(x) 3.2 0.0 0.0 0.0 0.0
Total Asset/Equity(x) 1.9 1.2 1.2 1.2 1.1
Current Ratio(x) 2.3 3.3 4.6 6.2 8.5
Quick Ratio(x) 1.6 2.4 3.9 5.3 7.6
Interest Cover(x) 2.9 6.5 - - -

Operational & Financial Ratios

Earnings Per Share (Rs) 18 31 26 60 82
Book Value (Rs) 25 116 149 209 291
Tax Rate(%) 24.9% 25.2% 24.7% 24.2% 23.0%

Performance Ratios
ROA (%) 12.7% 23.3% 16.3% 28.5% 28.7%
ROCE (%) 31.7% 41.4% 23.8% 41.1% 40.7%
ROE (%) 113.1% 45.2% 19.6% 33.4% 32.9%
Source: Company, Axis Securities

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About the analyst

Analyst: PrathameshSawant, CFA

Email: [email protected]

Sector: Chemicals & Mid-Cap Opportunities

AnalystBio: Prathamesh has over 7 years of experience in Equity Research.

About the analyst

Research Associate: Shivani More

Email: [email protected]

Sector: Chemicals & Mid-Cap Opportunities

AnalystBio: Shivani is CFP starting her career in Equity Research.

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. ASL is a
subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India’s largest private sector bank and has its various subsidiaries
engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the details in respect of which are
available on www.axisbank.com.
2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association
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3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, PrathameshSawant, CFA&Shivani More (CFA) author/s and the name/s subscribed to this report, hereby certify that all of the views expressed in this
research report accurately reflect my/our views about the subject issuer(s) or securities. I/We (Research Analyst) also certify that no part of my/our
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 DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward-looking estimates, valuation or recommendation for the stock

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Axis Securities Limited, SEBI Single Reg. No.- NSE, BSE & MSEI – INZ000161633, ARN No. 64610, CDSL-IN-DP-CDSL-693-2013, SEBI-Research Analyst Reg.
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Digitally signed by
NEERAJ NEERAJ CHADAWAR

CHADAWAR Date: 2023.12.19

15:09:09 +05'30'

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