Archean Chemical IPO: All You Need To Know

Archean Chemical Industries Ltd. will launch its maiden public offering on Wednesday to raise as much as Rs 1,462 crore.

The specialty marine chemical manufacturer will offer fresh shares worth Rs 805 crore and an offer for the sale of shares worth Rs 657 crore.

The Chennai-based company, with its plant in Gujarat, is seeking a market value of Rs 5,008 crore at the upper end of the price band of Rs 386-407 apiece.

The company has set aside 10% of the net offer for individual investors, 75% for qualified institutional buyers, and 15% for non-institutional buyers.

• Issue opens: Nov. 9.

• Issue closes Nov. 11.

• Issue size: Rs 1,462 crore.

• Face value: Rs 2 apiece.

• Lot size: 36 equity shares and multiples.

• Listing: BSE and NSE.

• Lead managers: IIFL Securities, ICICI Securities, and JM Financial.

• The company plans to use Rs 644 crore from the fresh issue towards redemption of non-convertible debentures issued by the company, in part or in full.

• General corporate purposes.

Archean Chemical is a specialty marine chemical manufacturer in India, focused on producing and selling bromine, industrial salt, and sulphate of potash on a business-to-business basis to customers around the world and in India.

The company manufactures products from brine reserves in the Rann of Kutch, located on the coast of Gujarat.

The products are manufactured at their facility near Hajipir in Gujarat, which is close to the captive Jakhau Jetty and Mundra Port, from which their products are exported around the world.

As of June 30, 2022, the company sells products to 18 global customers in 13 countries and 24 domestic customers.

Their key export geographies include China, Japan, South Korea, Qatar, Belgium, and the Netherlands.

Some of their major customers include Sojitz Corp., which is also their shareholder; Shandong Tianyi Chemical Corp.; Unibrom Corp.; Wanhau Chemicals; and Qatar Vinyl Co.

In the three months ended June 30, 2022, their top 10 customers contributed 60.69% of the revenues. In FY22, FY21, and FY20, they contributed 61.99%, 75.70%, and 77.14% of the revenues, respectively.

Similarly, the top 20 customers contributed 81.75% of the revenues. In FY22, FY21, and FY20, they contributed 80.94%, 88.66%, and 92.05% of the revenues, respectively.

According to Frost and Sullivan, the company was the largest exporter of bromine and industrial salt by volume in India in fiscal 2021. It is also one of the companies with the lowest cost of production globally in both bromine and industrial salt.

Key Applications Of Their Products

• Bromine is used as a key initial level material. It has applications in the pharmaceutical industry, agrochemicals, water treatment, flame retardants, additives, oil and gas, and energy storage batteries.

• Industrial salt is an important raw material used in the chemical industry for the production of sodium carbonate, caustic soda, hydrochloric acid, chlorine, bleaching powder, chlorates, sodium sulfate, and sodium metal.

• Sulfate of potash is used as a fertiliser and also has medical uses.

As of June 2022, revenue from bromine was 50.94% (35% export sales) of the total revenue. Similarly, revenue from industrial salt and sulphate of potash constituted 48.98% and 0.06%, respectively, and recorded 100% export sales.

Their integrated production facility at Hajipur and its surrounding salt fields and brine reservoirs span approximately 240 sq. km. and have an installed capacity of 28,500 MT per annum of bromine, 3,000,000 MT per annum of industrial salt, and 1,30,000 MT per annum of sulphate of potash.

In the three months ended June 30, 2022, and in FY22, capacity utilisation was 23.72% and 71.20% for bromine, respectively; 38.54% and 119.54% for industrial salt, respectively; and 0% and 1.91% for sulphate of potash, respectively.

Archean Chemicals has listed peers such as Tata Chemicals Ltd., Deepak Nitrite Ltd., Aarti Industries Ltd., and Neogen Chemicals Ltd.

• The company is dependent on one plant for its operations. Any slowdown or shutdown in operations, or strikes, work stoppages, or increased wage demands by employees, could interfere with operations.

• It is highly dependent on its top customers for revenue. Failure to retain these customers on commercially viable terms could adversely affect business.

• Weather and natural occurrences could impact the facility. Excessive rainfall could decrease the quality of our salt and brine reserves.

• Reliance on only three principal products for sales could adversely impact business.

• Does not have long-term agreements with suppliers for raw materials; therefore, they are subject to cost volatility.

• Risks consequent to operations involving the manufacture, usage, and storage of various hazardous substances. Any leakages, ruptures, or explosions could cause liability.

• The manufacturing facility and brine reserves are on land parcels that were leased by the Government of Gujarat, and such land leases have expired. The inability to renew the land lease may require the relocation of operations or shutdown.

• Competition from both domestic as well as multinational corporations and inability to compete effectively in terms of cost, quality, and marketing.

• Outstanding legal cases against the company.

• Any socio-political or economic disruption, natural calamities, or civil disruptions can impact manufacturing.

• Non-compliance with and changes in government, state and local environmental, health and safety, labour, and other laws and regulations.