Specialty chemical company Archean Chemical Industries has opened its initial public offering for subscription on November 9. The offer will close on November 11.
Here are 10 key things to know before subscribing to the public issue:
1) Price Band
The price band for the offer has been fixed at Rs 386-407 per equity share, which is at a premium of Rs 384-405 over face value of Rs 2 each.
2) IPO Size
The initial public offering (IPO) comprises a fresh issuance of shares worth Rs 805 crore, and an offer for sale of 1.61 crore shares by promoter and investors.
Promoter Chemikas Speciality LLP will offload 2 million shares via offer for sale, while 383.5 million shares each will be sold by India Resurgence Fund - Scheme I, and Piramal Natural Resources. India Resurgence Fund - Scheme II will sell 647.8 million shares via an OFS.
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At upper price band, the total fund raising by the company would be Rs 1,462.3 crore.
3) Objectives of Issue
The company will utilise fresh issue proceeds for repaying debt (Rs 644 crore) and for general corporate purposes, while the offer for sale money will go to selling shareholders.
4) Lot Size
Investors can bid for a minimum of 36 shares and in multiples of 36 shares thereafter. With this, at upper price band, the minimum one lot (36 shares) would cost Rs 14,580 to retail investors and their maximum investment would be Rs 1,89,540 for 13 lots.
Archean has reserved 75 percent of its offer size for qualified institutional buyers, 15 percent for high networth individuals and the remaining 10 percent for retail investors.
5) Company Profile
Archean Chemical Industries is a specialty marine chemical manufacturer in India, focussing on producing and exporting bromine, industrial salt, and sulphate of potash to customers, and marketing products to 18 global customers in 13 countries and to 24 domestic customers.
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The bromine is used as key initial-level materials in pharmaceuticals, agrochemicals, water treatment, flame retardant, additives, oil & gas and energy storage batteries.
The bromine's global market size was $3.1 billion in CY21, which is expected to grow at a Compound Annual Growth Rate of around 6 percent between CY20-CY25 as the demand for bromine is likely to grow led by increasing demand for flame retardants, increasing consumption of oil well chemicals and increasing use of hydrogen and zinc bromide in flow batteries.
Archean is looking to increasing manufacturing capacity for bromine production over the next two-to-three years.
Industrial salt is an important raw material in chemical industry for production of sodium carbonate (soda ash), caustic soda, hydrochloric acid, chlorine, bleaching powders, chlorates, sodium sulphate (salt cake) and sodium metal. Sulphate of potash, also known as potassium sulphate, is used as a fertilizer and also has medical uses.
According to Frost & Sullivan, Archean commanded a leadership position in Indian bromine merchant sales by volume in FY21 and was the largest exporter of Bromine from India by volume in same financial year. Also it was the largest exporter of industrial salt in India with exports of 2.7 million MT.
It has an integrated production facility for its bromine, industrial salt, and sulphate of potash operations, at Hajipir in Gujarat, which is located on the northern edge of the Rann of Kutch brine fields. As of June 2022, its manufacturing facility had an installed capacity of 28,500 MT per annum of bromine, 30 lakh MT per annum of industrial salt and 1.3 lakh MT per annum of sulphate of potash.
6) Financials
Archean recorded healthy financial performance with the profit in FY22 growing 183 percent to Rs 188.6 crore compared to previous financial year, and revenue rising 52.6 percent to Rs 1,130.4 crore in the same period.
At the operating level, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) increased 74 percent to Rs 479.5 crore for the year ended March FY22 compared to the previous year, with the margin expanding to 42.42 percent from 37.29 percent in the same period.
Also Read Moneycontrol's Exclusive Research Note on Archean Chemical Industries IPO
In the quarter ended June FY23, the company reported profit at Rs 84.4 crore on revenue of Rs 400.2 crore.
If we see the performance during FY20-FY22, revenue from operations grew at a CAGR of 36.34 percent and revenue from exports have grown at a CAGR of 29.11 percent.
7) Promoter and Management
Archean is promoted by Chemikas Speciality LLP, Ravi Pendurthi and Ranjit Pendurthi. They collectively hold 65.58 percent shareholding in the company.
The rest of shareholding is owned by public shareholders or investors India Resurgence Fund - Scheme II, India Resurgence Fund - Scheme I, Piramal Natural Resources, and Sojitz Corporation.
Currently Ranjit Pendurthi is the Managing Director, and his brother Ravi Pendurthi is the Non-Executive Director on the board
Subrahmanyam Meenakshisundaram is also the Non-Executive Director on the board, while Padma Chandrasekaran, Chittoor Ghatambu Sethuram, and Kandheri Munaswamy Mohandass are Independent Directors.
8) Allotment and Listing Dates
Archean will finalise its IPO share allotment by November 16. The refunds will be transferred to bank accounts of unsuccessful investors by November 17, and equity shares will be credited to demat accounts of eligible investors by November 18.
The listing of its equity shares will take place on November 21.
IIFL Securities, ICICI Securities, and JM Financial are the merchant bankers for the issue, while Link Intime India is the registrar.
9) Risks and Concerns
Here are some risks and concerns highlighted by brokerage houses:
a) Company's debt was restructured as on March 18, 2017 with overdue principal and interest aggregating to Rs 17.74 crore with certain banks.
b) The company has only one manufacturing facility and rely on three products for revenue generation.
c) The top 10 customers generated 60 percent of revenue from operations, with Sojitz Corporation contributing 20 percent.
d) Archean does not have long-term agreements with suppliers for raw materials and is also dependent on third-party transportation and logistics service providers.
e) Any unfavourable forex rate variation can impact profitability.
f) Any unfavourable government policies and regulations can be a dent on earnings.
10) Grey Market Premium
Archean Chemical Industries shares traded at a 15-20 premium over the upper price band in the grey market, analysts said.
Reasonable valuations, healthy financial performance, leading market position in bromine and industrial salt, and high entry barriers in the specialty marine chemicals industry for competitors may be supporting the grey market premium, analysts said.
The grey market is an unofficial platform for trading in IPO shares. Generally, investors look at grey market premium to know the expected listing price of any stock.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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