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HomeMutual FundArchean Chemical Industries Ltd – IPO Observe

Archean Chemical Industries Ltd – IPO Observe


Firm Overview: 

Archean Chemical Industries is a number one specialty marine chemical producer in India and centered on producing and exporting bromine, industrial salt, and sulphate of potash to prospects around the globe. It produces its merchandise from its personal brine reserves within the Rann of Kutch, situated on the coast of Gujarat, and manufactures its merchandise at its facility close to Hajipir in Gujarat. The important thing geographies for exports embody China, Japan, South Korea, Qatar, Belgium, and the Netherlands. The bromine produced by Archean is used as key initial-level materials, which has purposes in pharma, agrochemicals, water therapy, flame retardant, components, oil & fuel, and vitality storage segments. Industrial salt is a vital uncooked materials used within the chemical trade for the manufacturing of assorted different chemical substances and compounds and sulphate of potash is used as a fertilizer and in addition has medical makes use of to cut back the plasma focus of potassium when hypokalaemia happens. 

Objects of the Provide:

  • Redemption or earlier redemption, partially or full, of NCDs issued by the Firm.
  • Common company functions

Funding Rationale:

Market Main Positions: The corporate is a number one specialty marine chemical producer since 2013 in India, centered on producing and exporting bromine, industrial salt, and ‘sulphate of potash’ to prospects around the globe. The corporate is the biggest exporter of bromine and industrial salt by quantity in India in FY21 and has amongst the bottom price of manufacturing globally in each bromine and industrial salt. It’s also the one producer of ‘sulphate of potash’ from pure sea brine in India. Sulphate of potash, also referred to as potassium sulphate, is a high-end, specialty fertilizer for chlorine-sensitive crops and in addition has medical makes use of. The specialty marine chemical substances trade by which the corporate operates has excessive entry obstacles, which embody the excessive price and intricacy of product improvement, manufacturing, and funding in salt beds. These components defend the corporate from the entry of latest rivals.

Monetary Monitor Document: The Income from operations has elevated at a CAGR of 26% from Rs.566 crs in FY19 to Rs.1130 crs in FY22. The income from exports has grown at a CAGR of 29% from Rs.477 crs in FY20 to Rs.795 crs in FY22. The EBITDA of the corporate has elevated at a CAGR of 89% from Rs.69 crs in FY19 to Rs.467 crs in FY22. The EBITDA Margin had a strong enchancment of simply 12% in FY19 to 41% in FY22. The Revenue after Tax (PAT) has elevated at a CAGR of 66% from Rs.41 crs in FY19 to Rs.189 crs in FY22. The PAT Margin of the corporate elevated from 7% in FY19 to 17% in FY22. The PAT margin for Q1FY23 stands at 21%.

Sturdy Clientele: As of June 30, 2022, the corporate had 18 international prospects and 24 home prospects. Its main prospects embody, for industrial salt, Sojitz Company (which can also be a shareholder of the Firm), Wanhau Chemical compounds, and Qatar Vinyl Firm Restricted; and for bromine, Shandong Tianyi Chemical Company, and Unibrom Company. The corporate has a long-term offtake settlement with Sojitz Company of Japan for two million tonnes of commercial salts every year. The corporate has additionally added new prospects in latest fiscals providing repeat orders and guaranteeing sustained income contribution from the phase.

Key Dangers:

OFS – The IPO is a mixture of provide on the market (OFS) and Recent subject with OFS being 45% of the general subject measurement. Within the provide on the market (OFS), current promoters and shareholders will offload as much as 1,61,50,00 fairness shares. Promoter “Chemikas Speciality LLP” by the OFS route will offload 20 lakh shares. Buyers named India Resurgence Fund II will offload 64.78 lakh, India Resurgence Fund I and Piramal Pure Sources will offload 38.35 lakh shares every within the IPO.

Redemption Threat – Firm has issued sure listed and redeemable NCDs on sure specified phrases and circumstances aggregating to Rs.840 crs. As on September 30, 2022, the quantity excellent beneath the borrowing preparations entered into by the Firm was Rs.699 crs. The corporate additionally proposes to utilise an estimated quantity of Rs.644 crs from the Web Proceeds in the direction of redemption or earlier redemption of NCDs issued by the Firm both in full or partially, and the curiosity accrued therein if any. The corporate’s incapacity to adjust to compensation and different covenants in its monetary agreements may adversely have an effect on its enterprise.

Outlook: 

Although the corporate has a monopoly form of standing in one in all its merchandise, the listed friends in response to the corporate’s RHP (Crimson Herring Prospectus) are Tata Chemical compounds, Neogen Chemical compounds, Deepak Nitrite, and Aarti Industries. At the next worth band, the itemizing market cap can be round ~Rs.4725 crs, and Archean is demanding a P/E a number of of 25x primarily based on FY22 EPS and 14x primarily based on annualised Q1FY22 EPS. Whereas evaluating the P/E with its listed friends, the corporate appears to position itself between the undervalued to pretty valued classes. The management place and low-cost manufacturing provide the corporate some aggressive benefits comparable to product pricing, economies of scale, and so on. leading to huge monetary development for the corporate. Based mostly on the above views, we offer a ‘Subscribe‘ score for this IPO.

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