Buy Archean Chemical Industries; target of Rs 750: ICICI Securities

ICICI Securities research report on Archean Chemical Industries

Archean Chemical’s (ACI) Q1FY24 EBITDA dipped 16.3% YoY to INR 1.3bn due to lower volumes and prices for bromine (revenue dipped 33% YoY), while industrial salt revenue was steady, grew 3.2%. SOP shipment has also been pushed to the remaining quarters of FY24. ACI had seen early green shoots in bromine business which have been hurt by deinventorisation. It expects volume recovery immediately; however, prices may follow later. It is working with German technology partner to improve the conversion of SOP from KTMS which should help improve production. Bromine derivative samples are produced in the lab, and it has started sending them for customer verification.

Outlook

ACI’s bromine derivatives are of high purity due to production from virgin bromine compared to peers’ products that are made from reused bromine. It anticipates derivative plant commercialisation by end-FY24/ Q1FY25. We have cut our EPS estimates by 6% for FY24E. Our target price remains unchanged at INR 750 with an unchanged FY25E PE multiple of 13x. Maintain BUY.