SBI MF-Backed Specialty Chemical Stock Gets Buy Call For 25% Upside: Do You Own?

In the specialty chemical industry, Archean Chemical Industries Ltd. is a mid-cap company with a market valuation of Rs 7,956 Cr as of Wednesday morning session. Using its leased brine deposits in the Rann of Kutch, Gujarat, Archean Chemical Industries Limited (also known as Archean or ACIL) is a prominent marine chemical manufacturing from India that produces and sells bromine (Br), industrial salt (NaCL), and sulphate of potash (K₂SO₄). Axis Securities, a brokerage company, is positive on the stock and believes it might rise by 25% from its present market price to a target price of Rs 810.

Investment Rationale To Buy The Shares of Archean Chemical Industries

According to the brokerage firm Axis Securities here are the investment rationale to buy the shares of Archean Chemical Industries.

Established Player in Niche Bromine Chemistry: Archean is the largest exporter of bromine and industrial salt in India. Bromine production is correlated to brine field availability, which is globally limited. Archean uses brine from its own reservoirs, which provides a huge cost advantage, making it one of the lowest-cost producers globally. The Government of India has allocated most of the land surrounding the brine reservoirs.

ACIL has scaled up its bromine production capacity over the years which requires a long gestation period for commercial viability. The company has established infrastructure and strong market position by leveraging its long-term relationship with global customers.

All these factors make it difficult for new players to enter this chemistry. Sadly, ACIL is also now a beneficiary of Israel-Hamas conflict as many global customers are diligently diversifying their suplies outside Israel which has led to increase interest in ACILs export business. This shall help company further establishing its presence in global markets.

Forward Integration into Bromine Derivatives: Archean is following the trajectory of major global Bromine producers to foray into Bromine derivatives as it strengthens its balance sheet post its IPO. The company has invested 250 Cr in developing the 28,000 tonnes derivatives facility which includes 10,000 tpa of brominated flame retardants, 13,000 tpa of clear brine fluids, and 5,000 tpa of Bromine catalystsused for the synthesis of pure terephthalic acid (5ktpa). This facility shall add 600 Cr annual revenue potential to ACIL optimised over the next two years. The company has locked orders for 90% of its Flame Retardant capacity to a Chinese buyer/technology provider which will commence from Q1FY25.

China - A Big Consumer, Not Competitor: Unlike most of the industries/chemistries where China comes as a fierce price-cutting competitor, Bromine's natural moat protects Indian companies and, infact, benefits them as China is one of the largest consumers of Indian Bromine.

Brominated Flame retardants are the largest application of Bromine in China which islargely used in the construction sector, the electrical industry, and to hinder or suppress accidentalcombustion. Both construction and electronics are crucial sectors for the Chinese economy as it has the world's largest electronics production base. China is also one of the major markets for zinc-bromine flow batteries due to the region's growing electric vehicle market, thus providing a huge market.

Archean Chemical Industries Share Price Target

"Archean Chemical Industries Ltd. (ACIL) offers multiple MOATS which are expected to translate into key growth drivers going forward as the company slowly ramp-up its Bromine Derivative capacity along with its traditional secured Salt business and soon-to-be-revived Sulphate of Potash business.

We believe ACIL is well placed in the bromination space given i) Strong industry growth drivers; increased usage of Bromine in agrochem and pharma chemistries, ii) Forward integration into high-value business with strong demand from the largest geographies in the world,and iii) Well-nurtured long-term relationship with customers. The stock currently trades at 10x FY25E EPS. We value the stock at 14x FY25E EPS and initiate coverage with a BUY rating on the stock with a target price of Rs 810/share," said Axis Securities in a note.

Archean Chemical Industries Shareholding

During Q2FY24, the company reported promoters' shareholding of 53.60%, FIIs stake of 2.92%, DIIs stake of 30.38% and public stake of 13.08%. During the quarter, Quant Mutual Fund - Quant Small Cap Fund held 12,60,571 shares or 1.02% stake, Dsp Small Cap Fund held 12,97,376 shares or 1.05% stake, Nippon Life India Trustee Ltd-A/C Nippon India Small Cap Fund held 13,93,689 shares or 1.13% stake and Sbi Small Cap Fund held 94,00,491 shares or 7.64% stake in Archean Chemical Industries.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.