Brokerage firm JM Financial has initiated coverage on Archean Chemical Industries Ltd (ACIL) with a buy rating and increased target price to Rs 785 a share from its current market price.
The rapidly depleting underground brine reserves of China and the US, along with the receding water level of the northern basin of the Dead Sea, have led to a significant increase in India's bromine production from Rann of Kutch. JM Financial predicts that ACIL, as the largest and one of the lowest-cost Indian producers of bromine, will continue to benefit from its brine reserves in Rann of Kutch in the next few years. Furthermore, ACIL's entry into bromine derivatives will increase its global presence.
" We expect ACIL’s revenue to register 27% CAGR over FY23E-25E and reach Rs2370 crore by FY25E on the back of ramp-up of additional available capacities from i) expansion of bromine and salt capacities despite baking in bromine price correction in FY25E, and ii) greenfield capex for bromine derivatives (flame retardants, clear brine fluids, and PTA synthesis catalysts)", JM Financial said in its latest report.
" Bromine derivatives will be the major growth driver for the company during FY23E-25E as its contribution will rise to Rs460 crore in FY25E (19% of overall revenue) from nil contribution in FY23E. Since bromine derivatives will be a forward integration of bromine, EBITDA margin is slated to rise from 41% in FY22 to 49% in FY24E. As a result, EBITDA is likely to grow to INR 11.5bn (34% CAGR over FY23E-25E) and PAT is likely to reach INR 8.0bn (44% CAGR over FY23E-25E)", JM report added.
ACIL provides a high degree of earnings certainty owing to its fixed pricing contracts, which range from 6-12 months in the case of bromine and 24 months in the case of salt. Additionally, the competitive threat to ACIL is restricted because of its cost leadership and long-standing customer relationships, the report said.
ACIL is a producer and exporter of bromine, industrial salt, and sulphate of potash. The company manufactures these products at its facility located near Hajipir in Gujarat, utilizing its brine reserves in the Rann of Kutch, situated on the coast of Gujarat.
ACIL is presently in the process of increasing its bromine capacity from 28,500MT in FY22 to 42,500MT. Additionally, the company is investing more than Rs250 crore in a bromine derivatives plant. The revenue generated from bromine derivatives is anticipated to commence in the latter half of the second half of FY24, JM report added
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