Broker’s call: Archean Chemical (Buy)

Target: ₹660

CMP: ₹527.20

Archean Chemical’s (ACI) Q2-FY24 EBITDA dipped 19.5 per cent y-o-y to ₹95.50 crore due to lower revenue in bromine business, while industrial salt revenue grew 57.1% YoY. EBITDA margin has been severely impacted by lower bromine revenue mix which has much higher margins. The company expects bromine volume to improve in H2-FY24 with restocking and new customer addition.

FY25 may have the benefit of commissioning of derivative plants where sampling has started.

However, our estimates have been impacted by lower bromine price assumption (now at $3.5/kg from $3.6/kg earlier), and cut in SOP volumes in the near term. We cut our EPS estimates by 22.5 per cent for FY24 and 12.8 per cent for FY25.

ACI believes the worst for bromine is behind, and it has seen early signs of green shoots. Geopolitical situation in Israel has not really benefited immediately; however, it has started receiving enquires for bromine volumes as part of BCP for customers.

We trim our target price to ₹660 (from ₹750) with an unchanged FY25E PE multiple of 13x.

Downside risks: Continued weakness in demand for bromine, and a sharp drop in salt prices.