Archean Chemical IPO: Archean IPO kicks off: Should you bet on this specialty chemical player?

Archean Chemical Industries was India’s largest exporter of bromine and industrial salt in the fiscal year 2020-21. The company is a leading speciality marine chemical manufacturer in India.

Investors can make a bid for a minimum of 36 equity shares and then in multiples thereof. The issue will close for subscription on Friday, November 11.

The fresh proceeds raised will be utilised for the redemption of non-convertible debentures, and general corporate purposes, the company said in its red herring prospectus.

Archean Chemical Industries markets the products to 18 global customers in 13 countries and 24 domestic customers. The company was the largest exporter of industrial salt in India with exports of 2.7 million MT in FY 2020-21.

75% of the allocation has been fixed for qualified institutional buyers, whereas non-institutional buyers will get 15% of the shares. The remaining 10% of shares have been allocated to retail bidders.

, and are the book-running lead managers to the issue, whereas Link Intime India has been appointed as the registrar to the issue.

Archean Chemical Industries has raised Rs 658 crore from anchor investors by allocating them 1,61,67,991 equity shares at Rs 407 apiece.

Goldman Sachs, Abu Dhabi Investment Authority, Segantii India Mauritius,

, Societe Generale, Government Pension Fund Global, and various domestic mutual funds and insurance companies participated in the anchor book.

The majority of the brokerage firms remain positive on the issue and have suggested subscribing to it. However, some have flagged its expensive valuations.

Here’s what a host of brokerages said about the initial public offering of Archean Chemical Industries:

Rating: Neutral

In terms of valuations, the post-issue P/E works out to 22.3x FY22 EPS, which is in line with its peers like , and , said Angel One.

“Archean Chemical has a better revenue growth CAGR of 36% and an average EBITDA margin of 3% over the years. As the future growth of the company is already factored in its price, we believe that valuations are reasonable,” it added with a ‘neutral’ rating.

Rating: Subscribe

Archean attributes the strong market position to factors such as long relationships with global customers, established infrastructure and access to brine reserves at the Rann of Kutch, manufacturing facility, and consistent delivery of high-quality products, said Ashika Research.

China plus one policy, the largest manufacturer of certain chemicals, expanding manufacturing facility and R&D infrastructure, strong financials and healthy balance sheet will augur for the company, it added with a ‘subscribe’ call.

Rating: Subscribe

Over FY20-22, Achean’s revenue and EBITDA grew at a CAGR of 22.95% and 46.67% to Rs 1,130 crore and Rs 467 crore, respectively, said Ventura Securities with a subscribe rating for the issue.

“The company made a profit of Rs 189 crore in FY22 from a loss of Rs 39 crore in FY20. EBITDA margins improved by 1700 bps to 41.3%,” it added. “Archean has amongst the lowest cost of production globally in bromine and industrial salt.”

Rating: Subscribe

“Based on FY22 earnings, the company is valued at 26.5x P/E, 12.4x EV/EBITDA and 5.1x EV/Sales, which is at a discount to peers. The company has a leading market position and it is undergoing continued expansion,” said Reliance Securities.

It recommended a ‘subscribe’ rating to the issue in view of the market leading position, integrated production, cost efficiencies, consistent financial performance, high entry barriers, experienced management team and attractive valuation.

Rating: Subscribe with caution

It is demanding an EV/Sales multiple of 3.8x, which is in line with the peer average, said Choice Broking. The company’s operations are likely to get support from import substitution, lower exports from China and lower cost of operations, it added.

“The macros of the company are positive, but stretched valuation is a concern,” it said with a ‘subscribe with caution’ rating on the issue.

Rating: Subscribing for listing gains

Archean Chemical’s capital expenditure plans will positively influence growth in the top-line, while debt reduction will help decline in finance costs. These future growth drivers will likely boost revenue and margins for the company, said Arihant Capital.

“The P/E ratio of the stock is 12.5x at the upper band of the IPO price,” it added with a subscribe for listing gains citing market leadership, capacity expansion, reducing leverage, reducing leverage and a strong balance sheet.

Rating: Subscribe for listing gains only

Archean Chemical is a formidable player in the bromine, industrial salt, and sulphate potash industry. It has witnessed a significant improvement in its top-line and bottom-line performance in the last three years, said Swastika Investmart.

“The high debt-to-equity ratio of 3.25, high product as well as key customer concentration and restructuring of loans during FY 17-18 make us averse towards the issue. The three-year data is limited for concluding the sustainability of high growth and margins,” it added with a recommendation to subscribe for listing gains only.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)