In a renewed IPO season, many companies are coming up with their IPOs after a prolonged waiting period of a year. One such company coming up with its IPO is Archean Chemical Industries Limited. The company’s IPO will remain open for subscription from November 9-11, 2022. The IPO price band of the company is ₹386-407/share. The IPO size is ₹1482 crores. One lot consists of 36 shares. At the IPO price, the implied market capitalization of the company stands at ₹5000 crore!
About the company
Archean Chemical Industries Limited is a Chennai based company which manufactures specialty marine chemicals such as bromine, industrial salt, and sulphate of potash. The company has access to salt fields and brine reservoirs spanning approximately 240 square kilometers near the Rann of Kutch in Gujarat with a lease from Gujarat government till 2048.
The company has an installed capacity of 28,500 metric tonnes of bromine and 3, 00,000 metric tonnes of industrial salts. The capacity utilization for bromine and industrial salt units was 71% and 115% respectively in FY22. The company exports 55% and 100% of the total bromine and industrial salt respectively. The company’s manufacturing facility is equipped with its own quality department, effluent treatment plant, sewage treatment plant, and stockyard.
The company is also in the process of expanding the capacity of bromine to 42,000 metric tonnes of which 13-14,000 metric tonnes will be for captive consumption to produce higher priced derivative products used to produce polyester films, polyester fibre, and yarns. The company’s marine chemical business is conducted on a business-to-business basis both in India and internationally.
As of June 30, 2022, the company marketed its products to 18 global customers in 13 countries and to 24 domestic customers.
Archean Chemical Industries Limited IPO Details
|Issue Open Date||Nov 9, 2022|
|Issue Close Date||Nov 11, 2022|
|Issue Type||Book Built Issue|
|IPO Size||35,928,870 shares|
(aggregating up to ₹1,462.31 Cr)
|Fresh Issue||₹1,462.31 Cr|
|Face Value||₹ 2 Per Equity Share|
|Price Band||₹386 to ₹407 per share|
|Listing Exchanges||BSE and NSE|
Objectives of the IPO
Following are the objectives of the company’s IPO:
- Of the ₹1462 crore IPO, ₹805 crore is the fresh issue part whereas the rest is an offer for sale.
- From the fresh issue portion, the company plans to retire debt from its books.
- The company will also use part of the proceeds for general corporate purposes.
- After the IPO, the promoter’s stake will decrease from 65% to 53%.
Key risks faced by the company
Following are the key risks in the company’s business:
- One of the key risks faced by the company is that the prices of bromine are determined by the global demand-supply dynamics and global production is concentrated in Israel and Jordan.
- Being an exporter, the company is also exposed to currency fluctuation risks.
- Next, the company’s top 10 customers contributed 60% to its total revenues. This leads to customer concentration risk.
- Also, the company has a single manufacturing facility in Hajipir, Gujarat. Three products, namely, bromine, industrial salt, and potash contributed more than 90% to the company’s sales.
Key strengths in the company’s business:
Following are the key strengths in the company’s business:
- The company is the largest exporter of bromine and industrial salt by volume in India in FY21 and is among the lowest cost producer of bromine and industrial salt in the world.
- Also, the company is including a richer product mix with superior margin profiles in its portfolio.
- Next, the industry in which the company operates has high entry barriers in the sense that several regulatory hurdles need to be crossed.
- Industrial salt has seen high demand due to the diversity of its applications in the oil and gas industry and the de-icing chemical industry.
Between FY20 and FY22, the company’s revenues grew 30% annually to ₹1130 crores, whereas operating profit grew by 75% to ₹479 crore, leading to an operating margin of 42%. The company posted a profit of ₹188 crore in FY22 in comparison with a net loss of ₹36 crore. The company has a debt of ₹915 crore. The company’s PAT margins stand at 16.68%, whereas ROCE stands at 34.62%. Its earnings per share for FY22 stood at ₹18.26.
As per the annualized profit of Q1 FY23, the company demands a PE multiple of 15x, whereas its peers trade at multiples ranging from 19-40x. In FY22, the company had one of the highest operating margins and ROCE among the niche chemical companies.
According to its DRHP, the company counts Tata Chemicals Limited, Deepak Nitrite Limited, Aarti Industries Limited, and Neogen Chemicals Limited as its peer group. These companies trade at a PE multiple of 24x, 28x, 19x, and 80x respectively. Also, among its peer group, Archean Chemical Industries Limited has the highest return on net worth at 72.24%.
So this was all that investors need to know about Archean Chemical Industries Limited IPO. Although the company has good business fundamentals and is coming out with an IPO at reasonable valuations, investors should take into account the key risk factors before deciding to apply in the company’s IPO!